Does micro management pay off? A question from a newb

[ACBrown]

Hello all,

Does micro management pay off?

Yep, that's right, I'm new to all of this, so go easy on me. I’ve been in the TSP for about 5 years and I simply allocated the money in the G Fund (100%).I haven’t thought much about it. However, I’m becoming interested in doing better (for it looks like one CAN do a lot better).

Here’s my question.

Suppose Iallocate all my money in the C fund for the next 5-10 years. How much improvement do you think one can realistically do over that, supposing I go the weekly-tweak-it route (or daily-tweak)? Are the dividends really substantial enough to go to all the trouble? How much improvement are we talking about, if any?

Of course, this assumes that I tweak well. But let’s say I strictly follow the allotment of, say, this website (the guy who hosts it...Because heaven knows that I don’t really know what I’m doing when it comes to feeling the market and analyzing trends).

Thanks,

Austin

P.S. I’m 29 years old. That might be pertinent information. And BTW, great website!

[rokid]

AC,

There are two schools of thought.

1.) Active management: You can beat the market through active management, i.e. tweaks. Most of the posters to this site advocate this approach. Most experts say it can't be done.

2.) Passive management: You're better off diversifying and sticking to a strategic allocation based on your capacity and tolerance for risk. If you decide to go the second route, you'll probably want to allocate 80-90% to stocks and the rest to bonds. Most investment experts advocate this approach. In addition, check Pete1's posts for reasons to go this route. If you keep 100% G Fund, you'll beat inflation - if you're lucky. However, you won't build a portfolio capable of sustaining yourretirement - unless you don't need much!

Sample strategic allocation for a young person:10% G Fund, 10% F Fund, 35% C Fund, 20% S Fund, 25% I Fund. Some bonds to reduce volatility and a healthy dose of stocks for portfolio growth.You also might want to checkthe asset allocationsof the Vanguard 2045 fund.

Finally, if you want to do some reading, I found A Random Walk Down Wall Street by Burton Malkiel and Common Sense on Mutual Funds by John Bogle very informative.

Your question is excellent and critical. Spend some time and doa little research. Good luck! :^

[Birchtree]

ACBrown,

Welcome to TSP. The one criteria you have in your favor is TIME. Time has always ment money and money is time. If you don't have a considerable balance under your belt I'd certainly stay awayfrom the pistols and trading. Use the time going forward to accummulate a nice balance and learn in the process - you generally only get onechance to go around and you should certainly be on top of your game when you try. I would start by getting out of the G fund - you don't need the security at this point in your savings cycle. Try and think long term - do you see the world ending in the next ten years? If not then step up to opportunity and participate with your funds and be involved in dollar cost averaging. One of course has to be careful not to over pay - both the C fund and the I fund are undervalued - that is where I would look to begin my accummulation. 75% C fund and 25% I fund. Watch the growth of your account and at some point you may well want to go back to the G fund - especially if we start to go into another recession. I however would leave my contributions intact and ride the cycle down - you will perhaps enjoy the pain all the way down. I know that sounds foolish but you will be hurting yourself and buying cheap- cheap buys you more shares. When you see a bottom like 10/02 get back i n to the tune of 100%. Got it.

Dennis

[Dave M]

You will get a lot of varying opinions here. But first, if you have been in for five years you are ready to start increasing your contributions. I'll bet you went to 5% a while back in order to qualify for the full match. Right? So now, if that's where you stand, start increasing your contribution -- it takes money to make money. I would say go to 10% as soon as you can, preferably now. You got a nice COLA and maybe a step-increase? Shovel it into the future, you are going to need it.

Next year, do the same and go to 15%. If you do not own a home, this is about the only means you have of controlling your tax liability. Use it.

I would never put all my money in the market. That's my answer to the question, "How much can I afford to lose?" Find your own answer and there you have your allocation. I'd say make your contributions and your allocations match -- if you allocate30% to the C-fund, contribute 30% to the C-fund, too. Know what I mean? For one thing, it makes it very easy to track how you are doing. If that number falls much below 30, you need to act. If it starts climbing above 30, you can smile because you are beating the G-fund.

(Example: I put 10.00% in the C-fund a week ago. When I pulled it back out it was 10.28% which quantifies the increase -- 2.8% on the amount invested, a nice week's work.)

You need not have a goal at this time. Eventually one will occur to you. For me it is a specific dollar-figure; I'm within five years of retirement. So I scale my contributions and years remaining to derive the percentage I need to invest in order to reach my goal, under reasonable assumptions. Simple.

Good luck!

Dave

[ACBrown]

Thank you for the recommendations! Much appreciated.

Austin

[Mike]

I side with Rokid on this. Set up an aggressive allocation and stick with it. You've got nearly 40 years 'til you hit retirement age. Over such a long stretch of time, you'll beat most if not all of the active management types with a lot less effort and time spent worrying about the market... which means you'll probably live longer, too. :)

I would not recommend putting anything into the G fund, though. If you're going to hedge against a stock allocation, your best bet is to do that in the F fund. There's no need to get conservative until you are about 10 years away from retirement. That's roughly the timeframe when the historical market returns start showing volatility (and greater potential for losses).

At your age, I'd say 90% equities / 10% bonds... specific allocation is up to you. TheC fund leads over the long term, but most people would tell you to put at least a little into the S and I funds - since they will outperform the C by large margins in certain situations. For example, the S fund dominated in 2003 as we came out of the bear market. The I fund was best last year as the dollar took a tumble. There's always a leader and a lagger - and by diversifying, you catch part of the action regardless. Of course, by being aggressive, you will be vulnerable to downturns. The bottom line, however, is that over such a long period of investment, you will come out ahead.

Good luck to you. :^

[ACBrown]

Many thanks Mike!

Austin

[rokid]

AC,

Some other considerations.

Of the TSP Funds available:

The C Fund led the 1990's in total return.

The I Fund led the 1980's.

The S Fund has led historically.

Who knows what will be the best performing asset class over the next ten years.

Therefore, the best strategy is to be invested in all of them. In addition, since the relative market capitalization of C Fund (large caps) to S Fund (small caps) is 79% to 21%, you can reflect the total U.S.market by applying those percentages to your domestic holdings.

Although, foreign stocks account for 50% of world capitalization, the typical asset allocation recommendation is 25-30% foreign stocks - I Fund.

Finally, I agree with Mike about the F Fund. Potentially higher returns without much more risk.However, it is a very legitimate strategy to go with some G Fund. The G Funddoes fully protect a portion of your TSP principal, and may, on rare occasions, be the best performing TSP asset.

[Sr]

It depends on your view. Take Fidelity Four in oneIndex fund as an example. It is made up of nearly fixed allocation of 55% in spartan index fund, 15% each in sparatn International index fund, extended US market index fund and total bond index fund. It is Fidelity view of passive diversified investing at low cost ( expense ration 0.10%). Would that satisfy you? In terms of TSP funds, this is like investing 55% in C fund and 15% EACH IN G, S and I funds. To be honest, you could do a lot worse than this allocation in TSP funds on your own.

[GALLO1]

Sr wrote:
It depends on your view. Take Fidelity Four in oneIndex fund as an example. It is made up of nearly fixed allocation of 55% in spartan index fund, 15% each in sparatn International index fund, extended US market index fund and total bond index fund. It is Fidelity view of passive diversified investing at low cost ( expense ration 0.10%). Would that satisfy you? In terms of TSP funds, this is like investing 55% in C fund and 15% EACH IN G, S and I funds. To be honest, you could do a lot worse than this allocation in TSP funds on your own.
I'm also a newbe.

Everything from May 26 :iup to Sr'sposton 13 Jun was very helpful. I sort of got lost in this last post.:h especially, the last line..."To be honest, you could do a lot worse than this allocation in TSP funds on your own." :%

[smine]

I'm not sure if this board is the proper one to suggest this to but here goes.....I believe we should all lobby for TSP staff to change the dealine to later in the day, to more accurately reflect the times the US markets are open. Obviously this has been done before or else we would still be doing IFTs every month instead of every day. We are at an unfair advantage. Other "investors" have the tools needed to move money, i.e. the daily trends and graphs of the markets. We on the other hand, are playing a guessing game with our money. Yes I know we have history but it's still a risk without all we need. If we do better and make more money then TSP will profit, hire more people, invest more themselves. Whatever. We need to let them hear from us. I have written once but plan to make this occur more often.

smine wrote:
I'm not sure if this board is the proper one to suggest this to but here goes.....I believe we should all lobby for TSP staff to change the dealine to later in the day, to more accurately reflect the times the US markets are open. Obviously this has been done before or else we would still be doing IFTs every month instead of every day. We are at an unfair advantage. Other "investors" have the tools needed to move money, i.e. the daily trends and graphs of the markets. We on the other hand, are playing a guessing game with our money. Yes I know we have history but it's still a risk without all we need. If we do better and make more money then TSP will profit, hire more people, invest more themselves. Whatever. We need to let them hear from us. I have written once but plan to make this occur more often.
Here, here.

How many times will we be burned after noon deadline?

Hedge fund guys love us. We are like a trapped with these restrictions.

The system is electronic it should not bea problem to move the deadlineso we can see the "smart money" action and not the dumb money.

This market has two parts morning and after lunch. We are only getting to utilize one part in our investing decisions.

Remember private accounts will be here too. :(

[smine]

A good example is today; moved to G to preserve my small amount and now, at the ending of the day am watching it trickle away....we all need to speak up.

Good move.

Tomorrow is shaping up to be ugly. Did ya see crude shoot up? :shock::shock:

I am 100% G fund also in my TSP.

[SystemTrader]

DMA wrote:

Here, here.

How many times will we be burned after noon deadline?

Hedge fund guys love us. We are like a trapped with these restrictions.

The system is electronic it should not bea problem to move the deadlineso we can see the "smart money" action and not the dumb money.

This market has two parts morning and after lunch. We are only getting to utilize one part in our investing decisions.




True. And in the summertime, the"lunchtime consolidation" is especially long, as the floor traders take extended lunch breaks. Just watch how little the market moves from about 10:30 AM to noon EST in the summer.

DMA, the boysat the exchangeprobably don't like you giving awaytheir secrets on a public forum like this, though... :D

Just got to tell it like it is my friend.

Sound like you understand the underbelly of this operation?

Good on ya.

The more we learn the clearer we can make decisions.

Take care. :D

[GALLO1]

SystemTrader wrote:
DMA wrote:

Here, here.

How many times will we be burned after noon deadline?

Hedge fund guys love us. We are like a trapped with these restrictions.

The system is electronic it should not bea problem to move the deadlineso we can see the "smart money" action and not the dumb money.

This market has two parts morning and after lunch. We are only getting to utilize one part in our investing decisions.






True. And in the summertime, the"lunchtime consolidation" is especially long, as the floor traders take extended lunch breaks. Just watch how little the market moves from about 10:30 AM to noon EST in the summer.

DMA, the boysat the exchangeprobably don't like you giving awaytheir secrets on a public forum like this, though... :D




DMA

This is the thread I was thinking about and wanted to post to, when I wrote the following:

I’m not sure if anyone cares, but this TSP delay is about to drive me crazy. I hate it! Hate it! Hate it! :@


I frantically, yesterday, 17 Jun, just a few minutes before noon EST, which is 6:00 p.m. Italy time, made an interfund and allocation transfer from 100% G to 50 C/50 I. TSP says that the effective date is 17 Jun. However, when I checked my balance this morning I only got my payroll contributions. That s__ks! I had a strong hunch that the G fund was due to pay the penny. But, I saw the market near noon and thought I’d better make the big move. In the end I didn’t make squat.

I know that there has been plenty of talk about the lousy length of time it takes TSP to make transactions, so I’m not bringing anything new to the market talk, but I needed to vent to somebody.

I guess the effective date just meansTSP did the paper work that day, but it doesn’t include what the market ends with that day. Damn it is tough learning. Now I get to think all weekend about weather to stay or bale. My thoughts are that now I’ve bought in way too high, we might have one more strong week, but I agree with Tom that it will turn, just when. I’m wide open to any positive advice from the members.

Steve :(

[GALLO1]

WHAT INTHE HEC DID I DO WRONG IN THE ABOVEPOST????

[tsptalk]

Hi GALLO
Looks like you grabbed the buttons in your copy. I'll fix it.

Tom

GALLO1 wrote:
WHAT INTHE HEC DID I DO WRONG IN THE ABOVEPOST????
Wow!

You created a monster with that post. Kewl!!!!!!!!!!!! :)