Thread: Asset Allocation

texlaker wrote:

Hello Everyone,

Its great to come across a website dedicated to TSP particpants! I have been a particpant in the plan since mid 2002. I am 30 years old and plan to retire at age 57 (keeping my fingers crossed). My current asset allocation is 40% C, 40% S and 20% I.

I consider myself to be a buy-and-hold investor.

Welcome texlaker! Thanks for joining us.

I don't know if you looked at our longer term comments and allocation suggestions, but you are almost exactly where I have set the aggressive investor. You can read those commentsby clicking here.My suggestion for someone who wants to be aggressive and is along term investor is currently 35% C, 35% S and 30% I, so I won't argue with your choice.

Tom

I'd say you have the right idea. Regarding the number of times you should change the allocation depends on how aggressive you're willing to be. I'm very aggressive and change mine about once per month - I see no need in doing it more often than that, as it would probably do more harm than good in the long term (I'm not a believer in day-to-day "market timing").

The two major allocation changes I have made / am making are as follows:

1. I moved money out of the I fund - I was carrying a 35-35-30 mix in the three stock funds until recently. My reason for doing this is that interest rates are now going up, which is good news for the dollar and generally not so good news for the I fund (which to this point has done very well against the weak dollar). So now I'm in a 55 C / 45 S distribution.

2. I am going to start trending down my investment in the S fund. As I stated elsewhere on this forum, small cap stocks tend to do the best in the early part of a recovery (i.e. last year). As the recovery matures, the large cap stocks (C fund) overtake the small caps in returns and pass them for the remainder of the expansion cycle. Both will make money in a positive economic environment, but the S&P will do a little better. So essentially, my S fund money will be pushed gradually into the C. Depending on how the I fund performs against a stronger dollar, I *may* move some back into that one in the future.

In any case, I'm steering clear of the F and G - those are your best bets in a bear market with falling interest rates, and I don't believe we will be in that situation for quite some time (years).

Welcome, texlaker!

I started as buy-and-hold as I think everyone should. Soon, I will be looking for Day-Trader's Anonymous meetings, heh heh.

re: you allocation. You are not in F Fund...good job! I think your allocation is just dandy. I would say more S, but one of the thing I learned on TSPTalk is that small caps wane further into a bull market. (I had read that a long time ago, but long since forgotten and never really thought about it.) I think we are seeing large caps begin totake the lead. I would also suggest more I Fund, but that depends upon your take on the dollar. Some of us have paid for disagreeing with the Oracle from Omaha.

Consider opening an IRA in addition to your TSP and 529. Roth or Traditional depends on your tax planning.

Thanks for the wonderful replies.

TSPTalk: I did notice that i was very close to your targeted recommendations...maybe great minds think alike. Thanks for taking the time to put this forum up for those of us interested in discussing the markets and the TSP.

Mike: I did not know about the relationship between the dollar and the rising interest rates. Thanks for the heads up. I was actually thinking about increasing my I fund allocation. I will have to consider that option in a little more detail now. It does appear that we are headed to upward climb in interest rates.

Rolo: I suspect that my particpation in this forum will erode my commitment to the buy-and-hold mantra. Maybe too much informaiton is bad information. Pllease tell me more what the Oracle from Omaha (Mr. Buffett) has to say about the dollar. I would like to open a Roth next year to get some small cap value or even small foreign value exposure.

texlaker wrote:

Rolo: I suspect that my particpation in this forum will erode my commitment to the buy-and-hold mantra. Maybe too much informaiton is bad information. Pllease tell me more what the Oracle from Omaha (Mr. Buffett) has to say about the dollar. I would like to open a Roth next year to get some small cap value or even small foreign value exposure.

Tom (TSPtalk) pointed out Buffett's take on the buck. Search for "Buffett", upper right.

Another reason that I am my own worst enemy is that I would waffle between buy-and-hold/long-term and actively trading. My waffling led to indecision and that had cost me. It also goes against my "seemed like a good idea at the time" policy. Basically, have clear exit strategies that take multiple outcomes into account. One axiom is, "The money is made when the equity is purchased."

re: "Too much information". I love saturating myself with information and I think that is a large part of our instincts--the subconscious knows something and tries to tell us in an abstract way. Some of my best moves, I could not articulate the why's and wheretofore's, only that it "seemed right". Analysis paralysis kills me, in stocks and in video games.

Investing has taught me as much about myself and human nature than it has about money and economics. This is ironic since I wanted to sublimate, to bury myself in finance in order to avoid dealing with my personal issues! baha!

Rolo - I read the very same info that you did regarding small caps - although I saw it in a business column a few months ago. We will see large caps take the lead very soon - certainly within the next year, and probably a lot sooner. I'm keeping a sharp eye on the C and S fund prices, and I'll continue the process of bumping money out of the S and into the C as we head into the fall. If the dollar continues this mind-boggling weakness, I will probably start splitting my S money into the C and I funds. However, I don't expect the dollar to remain weak for long. The big question is when will the feds bump interest rates upward again - that will have a major impact.

How do interest rates affect the dollar?

Rising interest rates generally are associated with a strengthening dollar. The reason for that is that rising interest rates serve to tighten the money supply - and anytime you see a diminishing supply of something, *generally* the price of that something will increase (at least long-term - there may be short-term "hiccups").

With the global economy, nothing is all that simple anymore, though(there's a currency market for one thing - and that is subject to psychology, much like the stock market is, and there is speculative trading there as well). How well other economies are performing relative to the US will also influence the dollar.

That makes sense...higher interest rates means the buck is worth more so it costs more.

That is why it surprised me that Warren Buffett was saying the dollar should continue to fall. Here we are in an economic recovery, interest rates are rising, jobs increasing, earnings jumping, so I figured the dollar would rise. That is also why I was out of the I fund for the past few months. Maybe Warren (and fuzzduzz) are right and the economy is not growing as fast as we may think.....

Nahhh. Warren is working for John Kerry so it makes sense that he'd downplay the strong economy. But I still have to wonderwhythe dollar is not rebounding.

Part of it might be psychological.

If currency traders don't believe the US economy is strengthening much, they won't be all that interested in the dollar. I'm convinced the economy has been and is continuing to strengthen, but we will have the occasional hiccup with lower-than-expected job growth.

Perhaps they are waiting for the 2nd fed rate hike. Even after the first one, our interest rates are lower than they've been for a very long time, so the money supply is still larger than it should be (if you don't believe this, take a look at the abysmal rates of return on money market funds and CD's).