Thread: TSP strategy for mid 40's with 20 years till retirement. Anyone? Bueller?

Originally Posted by OBGibby

Live and learn, I suppose. I, too, feared a correction and spent too much time trying to figure out how to time the market. Wasted opportunity. Hopefully, I won't make that mistake again.

I don't think anyone can figure this market out - but I do know one thing - if you are parked in G: no risk = no reward.

Originally Posted by PLANO

I stay in stocks until my chart tells me to cash out. I'm not good enough at investing to try and time upswing, buy dips, etc. Half the time it works when I try it and half the time I take a hit and end up making less overall. The chart doesn't lie, just go with the trend, whatever it is. When my 15 day EMA goes below my 30 EMA, and my indicators are going negative, I run to G. If not, I ride out the dips and make most of the gains. The biggest advantage I see in this strategy is it gets you out early in the bear market so you don't take a huge loss and you are sure to make most, yet not nearly all, of the gains in a bull.

Thanks for your reply.

I really only recently in the last couple years - started trying to take a more "active" role in our retirement savings. When we hit our mid 40's - we started thinking it might be a good idea to start paying closer attention to our investments - and not just blindly trust our financial planner (like we had been doing for quite some time).

I won't say which company handles our financial planning - but we once trusted them - because they used to exclusively ONLY deal with the financial planning needs of members of our armed forces. We figured that if members of the military trust them, then why shouldn't we trust them as well (civil svc)? So, the company first dealt with only the military, then they added civil svc, but now - anyone can invest with them.

Anyway, our FP broke my trust a few years ago when he advised me to roll my old 401k into a fund that he highly recommended. The only problem is that he left out the part that there would be a rather costly "front load fee" involved. When a few months later I finally saw the huge amount (fee) taken out of my account - I about lost it and called him out on it - and he sat there & looked me in the eye & told me that he had most definitely mentioned the load fee. What a jerk! He may have glossed over it quickly - but he sure as heck didn't say anything about a $2,500 load fee to roll over into this fund - I think I would have remembered that - duh!). So, whatever man. That is a big reason why I am here in this forum today. I decided I wasn't going to let some dishonest jerkwad try to jack me around. If he pulled that one on me, no telling what else he was trying to pull over our eyes. Still irks me to this day, but a few months ago he got a nice surprise when he found that we pulled my 401k and both of our ROTH IRA's - and took our money over to Vanguard (where they have LOW FEES).

The old saying is true - that no one can better manage your money than you can. Our FP was out to line his own pockets - and he probably sent his kids off to college with part of our retirement savings - but I digress.

After doing further research a few months ago, I found that our FP had us parked in funds with HIGH expense ratio fees - about industry avg - something like 1.15% to 1.25% - not to mention the hidden 12b1 marketing fees - or whatever they call them. I feel like we had been taken advantage of for years... no telling how much we paid out in high fees over the years... So, I moved my IRA Rollover and both our ROTH IRA's to similar funds with VANGUARD - and their fees are ONLY .18% - and no hidden 12b1 fees. So, we will literally save tens of thousands of dollars (in fees) over the long haul - depending on market conditions obviously...

I really had no idea the extent that we were being fleeced - till I started doing much more research.

I spent quite a bit of time with the nice folks at Vanguard on the phone (several hours) - and they have "fee calculators" - and crunched some numbers for me.... forgot exactly how he worded it but basically - with either current or avg market conditions - those high fees that people are paying to invest with the BIG NAME companies (like Franklin Templeton & Invesco - and all the others that charge over 1% on avg in fees)... Vanguard crunched the numbers and told me that a $100k investment over 20 years with industry avg fees of over 1% - we WOULD LOSE about $55k in FEES - slowly skimmed off the top over the course of 20 years.

So, anyway, we are thrilled so far with Vanguard - and feel a huge weight off our shoulders - not having to pay such high fees. Plus, the Vanguard funds we chose (VFORX) are pretty heavily diversified... and are similar to the 2040 L Fund where they get more conservative as you approach retirement age. With us not all that savvy with investments, we felt it might be a good idea to let Vanguard handle making our investments more conservative as we got closer to retirement - and if at some point we find better funds - we will xfer to them instead (w/out penalty).

Anyway... felt good to get that off my chest - thanks for listening and hope I wasn't off topic.

Originally Posted by Boghie

A 0/0/30/50/20 allocation results in:

Expected Annual Return: 8% (11% before a 3% inflation chop)
Expected Annual Risk (Variance): 12%
That means that 2/3rds of the time you will land between -1% and 23% investment growth before inflation.

The 'C Fund' is:

Expected Annual Return: 7% (10% before a 3% inflation chop)
Expected Annual Risk (Variance): 16%
That means that 2/3rds of the time you will land between -3% and 26% investment growth before inflation.

The 'S Fund' is:

Expected Annual Return: 8% (11% before a 3% inflation chop)
Expected Annual Risk (Variance): 20%
That means that 2/3rds of the time you will land between -9% and 31% investment growth before inflation.

The 'I Fund' is:

Expected Annual Return: 8% (11% before a 3% inflation chop)
Expected Annual Risk (Variance): 18%
That means that 2/3rds of the time you will land between -7% and 29% investment growth before inflation.

*Numbers from Quicken's Investment Asset Allocation tool

So, you will be over-weighting in the highest risk fund - and the one that boomed this year. That is generally called chasing returns. A two standard deviation variance to the negative in the 'S Fund' will result in a -29% return on that part of your allocation. Personally, I would watch for the correction in the 'F Fund' (not invest there yet, but be ready) and over-weight the 'I Fund' which has been a bit of a laggard. Maybe a 0/0/30/20/50 split - which in a normal market should result in a 10%/11% pre-inflation Annual Return/Risk ratio. About what your allocation is, but kinda doing a bit of market timing and reducing risk in a bubbly fund. Also, it would not be stupid to have a decent chunk in the 'G Fund' - maybe 20% to 25% - to purchase more in a fund that pops. But, like you that thought has lost me money this year.

I would strongly recommend Ric Edelman's 'The Lies About Money' for setting an allocation. There is science involved. This ain't pure gamblin' and it ain't pure guesswork. And, a 13% return while holding risk at bay during a year of confusion ain't too bad. Those 'S Fund' holders could have just as easily been banging on the bottom with -20% returns as sitting on the top with +38% returns. The expected returns are about the same. All those chaps may have peed in the water a bit upstream - but all that stuff is already under our bridge by now, eh.

Anyway, your call.

This is the clearest explication I'v seen from you of your risk calculations for each individual fund and how the variances influence your allocation decisions. I get it-finally. I've been too stuck on the black swans flying in the stratosphere that haven't come back down to earth yet. they're still out there, but have decided I've spent too much time looking up for falling skies, not enough time spent looking at what's under my nose. It's a new year next week, planning on changing things up a bit. still a lot risk averse, but admit I need to take some intermittent risks nonetheless. did some retirement income calcs the other day, if I don't get on the stick, and off the dime, won't be able to call it quits at MRA+30, or for a few years after that either. maxed out tsp contribs plus maxed out Roth won't cut it if the money doesn't grow along the way at least enough to exceed inflation.

Originally Posted by Boghie

A 0/0/30/50/20 allocation results in:

Expected Annual Return: 8% (11% before a 3% inflation chop)
Expected Annual Risk (Variance): 12%
That means that 2/3rds of the time you will land between -1% and 23% investment growth before inflation.

The 'C Fund' is:

Expected Annual Return: 7% (10% before a 3% inflation chop)
Expected Annual Risk (Variance): 16%
That means that 2/3rds of the time you will land between -3% and 26% investment growth before inflation.

The 'S Fund' is:

Expected Annual Return: 8% (11% before a 3% inflation chop)
Expected Annual Risk (Variance): 20%
That means that 2/3rds of the time you will land between -9% and 31% investment growth before inflation.

The 'I Fund' is:

Expected Annual Return: 8% (11% before a 3% inflation chop)
Expected Annual Risk (Variance): 18%
That means that 2/3rds of the time you will land between -7% and 29% investment growth before inflation.

*Numbers from Quicken's Investment Asset Allocation tool

So, you will be over-weighting in the highest risk fund - and the one that boomed this year. That is generally called chasing returns. A two standard deviation variance to the negative in the 'S Fund' will result in a -29% return on that part of your allocation. Personally, I would watch for the correction in the 'F Fund' (not invest there yet, but be ready) and over-weight the 'I Fund' which has been a bit of a laggard. Maybe a 0/0/30/20/50 split - which in a normal market should result in a 10%/11% pre-inflation Annual Return/Risk ratio. About what your allocation is, but kinda doing a bit of market timing and reducing risk in a bubbly fund. Also, it would not be stupid to have a decent chunk in the 'G Fund' - maybe 20% to 25% - to purchase more in a fund that pops. But, like you that thought has lost me money this year.

I would strongly recommend Ric Edelman's 'The Lies About Money' for setting an allocation. There is science involved. This ain't pure gamblin' and it ain't pure guesswork. And, a 13% return while holding risk at bay during a year of confusion ain't too bad. Those 'S Fund' holders could have just as easily been banging on the bottom with -20% returns as sitting on the top with +38% returns. The expected returns are about the same. All those chaps may have peed in the water a bit upstream - but all that stuff is already under our bridge by now, eh.

Anyway, your call.

Well that stinks... I was logged in and just typed a reply - and then somehow I wasn't logged in - so I lost my reply. That will teach me to ctrl c from now on before posting. F&%K!


Oh well. To make a long story short: before the noon deadline - I decided to change it up a little and go 30C/60S/10I.

Rolling the dice but staying in the game. Spent too much time screwing around on the sidelines in G and missed some rallies...

So, I am done playing around and am going to stop succumbing to fear and stay in it to win it.

On the other hand, for someone like me - the L2040 fund doesn't look too bad. I'm just not savvy enough at investing to be moving in and out of funds, changing allocations, and generally trying to time the markets.

I need to find an allocation and stick with it, or just let it ride in L2040 and let the fund do the work of reallocating as I get closer to retirement.

Any thoughts?

Yes, buy and hold works, DCA, stay in to win no matter how close you are to retirement. Market sinks, you throw more money at it. My humble opinion.

coastalite, the one thing you want to do is try to invest as much as you can afford into your TSP account every month.

Originally Posted by nasa1974

coastalite, the one thing you want to do is try to invest as much as you can afford into your TSP account every month.

Yeppers, the plan indeed is to invest as much as we possibly can into our TSP account each year.

The spouse & I each also have a ROTH IRA (w/Vanguard) - along with $50k in an old 401k that was rolled over from an old employer plan into a traditional IRA (also w/Vanguard). Not quite sure yet what to do with the traditional IRA. Do we just let it sit by itself - or do we slowly convert it into the ROTH (or maybe all at once). Any thoughts?

We're just not sure if it makes financial sense to convert it into our ROTH. My guess is that we'd need to sit down with a CPA - or do some research and figure out on our own if it's worth converting - or if we should just leave it alone.

Some good replies in here so I can't add much more. Worst thing you can do is mess with your allocation more than maybe twice a year. A good time to rebalance lies ahead.

I'm 34 and go 65 stocks 35 bonds/cash in TSP. Not what a wall street broker who gets paid by commission would call an aggressive portfolio, but my gain is his loss.

Keep saving and contributing, it's the only thing you have any control over. 20 years is a long way to go so if you keep increasing the savings rate every time we get a 1% raise, you'll be fine. Just make sure you have a good rainy day fund to go with.

Originally Posted by Bullitt

Some good replies in here so I can't add much more. Worst thing you can do is mess with your allocation more than maybe twice a year. A good time to rebalance lies ahead.

I'm 34 and go 65 stocks 35 bonds/cash in TSP. Not what a wall street broker who gets paid by commission would call an aggressive portfolio, but my gain is his loss.

Keep saving and contributing, it's the only thing you have any control over. 20 years is a long way to go so if you keep increasing the savings rate every time we get a 1% raise, you'll be fine. Just make sure you have a good rainy day fund to go with.

I'm curious, why is messing with your allocation more than a couple times a year - the "worst thing you can do"? It seems like a lot of folks on the Autotracker routinely have 1 or 2 IFT's each month. The guy leading the tracker at +3.70% for the year I think has already made 3 IFT's for YTD.

Also, I was watching a recent "MSN.com" retirement investment strategy video - and the talking head in the video said that (and I'm paraphrasing) - a good way to decide what your retirement allocation should be is to subtract your age from 100 to figure out what % you should be in stocks/cash/bonds.

For example, if you are age 40, then: 100-40=60% stocks w/the remaining 40% to cash/bonds. I think the video said 50/50 cash/bonds - so for the TSP - For someone age 40, it would be: 60% (allocated as you see fit into C/S/I) and the remaining 40% (allocated to 20G/20F). Frankly, I don't think the MSN.com video is bad advice. It seems sensible. However, if you are 65 - I doubt you're going to want to be 35% stocks.

All of the L Funds eventually end up as the L Income Fund - which is allocated 80% Cash/Bonds (72G/8F) & 20% Stocks (12C/3S/5I).

As I understand the L Funds (and not just the TSP target date funds - but other target date funds out there too); the rationale is that they're not designed to JUST get you TO retirement, but rather, they're designed to try to get you THROUGH retirement as well (hence the 80% cash/bonds & 20% stocks allocation). If you're retired and taking distributions while in 100% G - then you're not only depleting your nest egg - but you're also getting beaten down by inflation and not allowing at least SOME of that nest egg to try to work for you.

So anyway, I'm considering the possibility of going w/the L2030 Fund - and just leave it alone - since I'm not a good enough investor to try to time the market. For Jan 2014 - the L2030 Fund it is allocated at 66.5% stocks and 33.5% (G&F). Not sure, but isn't that allocation similar to yours, Bullitt?

Speaking of the L Funds, does anyone have any other insights or thoughts on the L Funds - & also - why aren't they more popular? It seems they are perfect for either the lazy or inexperienced investor - because they do all the work for you and get more conservative as you get closer to retirement: they do all the rebalancing and reallocating for you. So, what's the drawback? Is it the way they have them allocated? Not enough weight given to the S Fund? Too much weight given to the C and/or I Fund? Just curious what others think???

I'm 100% stocks and then some with margin and plan to stay that way through my retirement years collecting a nice income stream. If I need more money I can always harvest some capital gains - you have to take taxes into consideration - and capital gains are tax protected. Stocks will throw off cash - last year I had 158 dividend increase announcements and fully expect the same for 2014 if not even more. This cash currently is reinvested and is like a cola. The principal will fluctuate with market gyrations but the income stream usually remains constant and grows with economic growth. When the time is right roll your TSP account into a traditional IRA for more flexibility and income stream. Later on do a conversion roll over from IRA into a Roth IRA for tax free income. But as always try to learn before you churn. Keep your AGI as low as possible and keep the dems out of your pockets.

The L Funds probably don't seem popular because it's a set it and forget it investment. You dump your money there and call it a day. I'd say 95% on the MB plan on beating the averages over time despite the statistics being strongly against their favor. Plus, most won't admit it but when they had 20 years left they weren't saving, they were buying pickup trucks and houses so now they need to make up their deficit with mind blowing returns.

Your L2030 allocation may be similar to mine now, but not in a few years. I plan on riding 65/35 into the sunset.

As to tinkering with the portfolio, that means making a change such as going from 65/35 to 60/40. That would be a change. You'll see many going 100% G to 100% C twice a month or messing with the I Fund fair value to gain a penny. Some must have the time and are willing to try to do what is nearly impossible; that is beat the market over time.

In the end, everyone has to choose their own path. Read a few books by Bernstein, Swedroe, Ferri, Siegel, Swenson, or Jonathan Clements and you'll know all you need plus you'll have time to enjoy life. You really don't have much control over your return. Control the things you can- for one being your savings rate and two your asset allocation. Oh and don't forget to save for a rainy day.