L vs do it yourself

[thurston]

Just from my simple mind looking at the prices of the funds knowing they all started at $10 it seems pretty easy to see which ones have done the best.

Now looking at how they want to distribute money in the L funds, why would you put money in the F fund except to buy low and sell high. It hasn't even done as well as the G fund. Similarly the majority of the percent is in the C fund but it hasn't done as well as either the S or I.

So just how static are these allocations. Will they put 100% (talking billions here) in the G fund when the market goes south or just ride it down?

[Spaf]

thurston

Based on what information they have released on these funds, and how they got there structure, from what analysis. And, who will supervise the funds. I have to rate the information to date as: insufficient. Rgds! :? Spaf

[mlk_man]

Welcome thurston. I don't believe they will be trading that way. Apparently it goes by age bracket and length to retire so I'm assuming they will only adjust your allocations yearly. Aggressive with more time left, conservative with less time left.

If they did it the way you mentioned, I'm sure costs would go up. They may anyway.

Good luck,

M_M

[James]

From the July "Highlights" newsletter.
http://www.tsp.gov/forms/high05c.pdf
Because it is important for each L Fund
to maintain its target investment mix, the
TSP will rebalance each L Fund automatically
— generally each business day — to
adjust the mix as a result of price changes
in the underlying funds. Then, each quarter,
the TSP will shift the investments in
each L Fund to a slightly more conservative
mix. In addition, experts will periodically
review the investment mixes of each
L Fund to be sure they are still appropriate.
This still leaves a lot of questions.

[mlk_man]

SUre does. Apparently, they have 5 different L fund allocations. Up to you to decide which is right for you.

http://www.tsp.gov/lifecycle/flash/comingsoon.html

[rokid]

It would be interesting to see what return assumptions they're usingover the next 40 years. They seem really conservative. In addition, their FAQ explanation for a flat efficient frontier, i.e.the G Fund has really good risk/returns, is lame. The G Fund is only one end of the curve. The flatness is due to their low C, S, and I fund return assumptions. They may be correct. However, I'd like to see some numbers in addition to the graphics.

Finally, I've never seen a recommendationspecifying daily rebalancing. Usually the rebalancing recommendation is every 1-2 years. Letting your allocation ride, lets you take advantage of asset class momentum. Daily rebalancing during the 1990s would have been a disastrous strategy, i.e. selling the C Fund every day?:?

[mlk_man]

I agree rokid. What I found interesting is that given the stock fund allocations, no matter if aggresive, moderate, or conservative, they put the least in the S fund as opposed to the C or I.

I'm actually beginning to think they should call the "I" fund the "dollar" fund..........:shock:

[alaskanmoosehunter]

Just one man's opinion,

I think the L Fund will be for the slugs......People either to stupid :%or lazy :zzto learn how to determine their own destiny when it comes to retirement.

They will deserve what they get....One bad year in the market can take two or three years to recover!

Personally, I love my $$$$$ and will invest it& protect it at all costs.:!

Ben

[Pete1]

The domestic allocation of the L fund choices is basically, the same or very close to the "total stock market index fund" or Wilshire 5000. I am not surprised that TSP went with this allocation as does Vanguard for its target retirement funds. Not what I do but I understand the choice as it is widely recognized and accepted as a sound, long-term allocation for the domestic market because in essence, it is the market. The international allocation is higher than some and this is probably a good thing. The frontier does seem somewhat flat and I do not like the dailty rebalancing element.

[Dakota]

IO am having a hrd time figuring out what the L Fund even means its all greek to m e could some one please explain it in laymans terms

It simply does not make any sense to me

[Dakota]

Dakota wrote:
IO am having a hrd time figuring out what the L Fund even means its all greek to m e could some one please explain it in laymans terms

It simply does not make any sense to me



Read more articles on the l fund I dont think its a good Idea for someone else to be moving your money around for u. I dont think that there exist a so called professiional that should be in control of anyones money. If a person just dont want to mess with it and want to let someone else make transfers for them, then i think they are very unconcerned about thier money or just dont think they have the knowledge or time to watch whats going on in the world of economics. its probable taht u would do better than just sitting in g fund. But get real if u pay attention to the markets and stay on top of things no one is better to place your bets than you yourself

[grandma]

Dakota wrote:

...I dont think that there exist a so called professiional that should be in control of anyones money. For some reason this suddenly brought to mind Lucille Ball trying to con banker Mr. Carmicheal, into letting her spend some money. ...not that the TV series character she was playing might not have needed the outside guidance, but from the point of view someone else was in control & had the say-so of what went w/her money.... It was funny then -

[Dave M]

The L-funds have helped me by providing a benchmark against which I may compare myself. According to them, I fall in the 2010 fund which has 43 percent G inititially and the rest in the stock-funds. This showed me I was being too conservative and had too much in G at the time. It confirmed an impression I had gotten from calculations which showed that I would fall short of my goal if I did not invest more heavily. I have reduced my G-fund holdings.

Now I have given some thought to the daily rebalancing which takes place in an L-fund. In a steadily rising market, this will act to reinvest dividends as the constant percentage results in a rising share count and ever-faster gains. In a falling market the daily rebalancing will result in a decreasing share-count and thus insulate against further price falls.

The question is, what about an unsteady market which rises and falls? It isa question of rhythm or synchrony. As a rise occurs, shares increase; let a fall now occur and loss is maximized which leads to a decrease in the share count. If now the market rises, the gain from the lost shares also is lost.

Assuming a vacillating market is the baseline situation, it may be that daily rebalancing is a bit much. Butnow I am considering the whole question of rebalancing much more closely. I may resort to it.

Dave

[tsptalk]

I find it interesting that they are doing daily rebalancing. That is like doing a transfer every day. I guess they don't discourage that type of activity.

[Birchtree]

The L funds are strictly coloring by numbers generated by computer. There is no brain involved, nor is there any gut - can't feed the darn thing. As Hillary would say it takes a village - 26,000 is a small town and they are all safe and sound. I'll offer no criticism - there is always a different town down the road.

[grandma]

Dave M wrote:
...act to reinvest dividends as the constant percentage results in a rising share count and ever-faster gains. In a falling market the daily rebalancing will result in a decreasing share-count and thus insulate against further price falls.

The question is, what about an unsteady market which rises and falls? It isa question of rhythm or synchrony. As a rise occurs, shares increase; let a fall now occur and loss is maximized which leads to a decrease in the share count. If now the market rises, the gain from the lost shares also is lost.

Dave
Since our total share count changes only on payday & we have purchased more thru our TSP contribution, are you referring to the end count in the different funds after each day's allocation? My mind is not grasping this........... :# thank you......

[Dave M]

I was mistaken. Let's take a simple example where one is 50G and 50S. At the end of the day you are 49G and 51S because prices advanced that day. After rebalancing back to 50-50, we see that money has flowed out of the S-fund and into the G-fund -- half the day's earnings (assuming G-fund stood still that day). This was done by selling shares of S and buying shares of G. This will continue until earnings fom each fund are equal, because in this example we are 50-50. Over time, earnings from the G-fund will increase asmore shares are bought, and earnings from the S-fund will decrease as shares are sold and the money sent over to G.

So daily rebalancingassures the earnings from the various funds in the mix, will approximate the percentages of the mix. In our example, once earnings are equal then rebalancing has no effect. Half the earnings will come from the G-fund and the other half from the S-fund. The same number of dollars will reside in each, but the number of shares in each will adjust to changes in price, that is, earnings.

What if we are not 50-50, but say 1/3 - 2/3? Then, 1/3rd of the earnings from the stock fund will move into the G-fund rather than half as above, in order to maintain the 1 - 2 ratio. Get it?

In the case of a declining market, the opposite will occur. Money will leave the G-fund and migrate into the stock funds (where it will proceed to evaporate in the falling market).

In either case, I think I do not like it. I don't like the idea of selling shares in a rising market to prop up a weaker fund, and I don't like the idea of adding to my position in a falling market. This needs more thought. What is the theoretical basis? Is there a theoretical maximum which daily rebalancing attempts to achieve?

Dave

[rokid]

Dave M wrote:
In either case, I think I do not like it. I don't like the idea of selling shares in a rising market to prop up a weaker fund, and I don't like the idea of adding to my position in a falling market. This needs more thought. What is the theoretical basis? Is there a theoretical maximum which daily rebalancing attempts to achieve?

The purpose of rebalancing is to keep the level of portfolio riskconstant. Rebalancingis also a form of market timing, i.e. selling high (best performing assets) and buying low (worst performing assets) in expectation of reversion to mean. However, mostrebalancing recommendationssuggest a much longer rebalancing period, e.g. quarterly to 1-2 years,to take advantage of asset price momentum, i.e. assets that are performing well tend to perform well for a while.

I'm assuming the L Funds, with daily rebalancing, are only concerned withkeeping the level of risk constant and aren't concerned with achieving a rebalancing premium. It will be interesting to see how the daily rebalancing impacts returns.

[grandma]

Dave m wrote: In either case, I think I do not like it. I don't like the idea of selling shares in a rising market to prop up a weaker fund, and I don't like the idea of adding to my position in a falling market. This needs more thought. What is the theoretical basis? Is there a theoretical maximum which daily rebalancing attempts to achieve?
rokid wrote: ...I'm assuming the L Funds, with daily rebalancing, are only concerned withkeeping the level of risk constant and aren't concerned with achieving a rebalancing premium. It will be interesting to see how the daily rebalancing impacts returns.


Thank you much, fellows, for your replies.

How will the TSPstaff keep up w/doing this every night? Did they hire more people to tend to all this additonal work?

With rebalancing everynight, as you have mentioned. would you not be More apt to be buying high/selling low than not? Would the law of averages finally equal this out provided you have more than1--5 years to go?

. This is one of those things that I think I have an understanding of, only to realize a few days later it was a vague whisp in the night !! I will keep your notes where I can review this re-balancing. I am still working on BT's`dollar cost averaging'!! Spaf's classes got lost somewhere - I'll find them when I get the duplex taken care of - pray for that, will you !!!

Best of the market to you each - grandma

[rokid]

Grandma,

Thanks.

I took a look at my son's Vanguard 2045 account information. They didn't mention the frequency of rebalancing. However, the more I think about it, the more daily rebalancing makes sense from a TSP, or Vanguard, management point of view. A computer can rebalance all of the L Fundsevery night with no additional human decision making required. In addition, TSP has enough assets to avoid actually selling real stocks/bonds and incurring additional fees. Although I'm not sure daily rebalancing is best for the TSP investor, I can't think of an easy way to prove that it is not.;)

[rokid]

Spaf wrote:
Based on what information they have released on these funds, and how they got there structure, from what analysis. And, who will supervise the funds. I have to rate the information to date as: insufficient. Rgds! :? Spaf

I agree with Spaf. TSP should provide additional information on how their consultant (Mercer Investment Consulting, Inc.)arrived at the asset allocations for the various L Funds. TSP states that they're based on Mercer's projections. However, they don't provide the projections. Since we, the TSP participants, have paid for all of those projections, it would be nice to have TSP publish them. Publishing the projections would also enable us to judgewhether Mercer Consulting knows what they're doing and to hold them accountable for their performance!

In addition,there is no mention of how to integrate non-TSP holdings into the mix. This is a serious omission for those of us who want to manage our family's portfolio as a single entity. For example, I include my wife's 401K and 403B accountswith my TSP into an integrated portfolio. Therefore, I don’t need a "black box" L Fund. However, I do need, or would like, investor education on how to construct a portfolio that meets my return needs and my risk tolerance.

End of rant. :^

[Dave M]

RISK -- very good point. D

[Dave M]

Here is a link to an article that derives a "Rebalancing Benefit" on a theoretical basis. The upshot is, rebalancing provides a benefit if the the asset classes are poorly correlated. Our C- and S-funds are well-correlated. The I-fund is the asset class available to us that has the poorest correlation with the other funds, it seems to me. We might include the F-fund, although it is what we might say negatively correlated, which is different.

The optimum frequency of rebalancing is not always clear. It depends on the standard deviation among the asset classes. In our case,monthly or quarterly rebalancing is probably good enough to realize anypotential benefit which might exist. That is because we are trading in index funds which are relatively well-behaved. We do not see huge moves in the indices such as happens in individual stocks. Our funds have less standard deviation than individual stocks.

Regular rebalancing in a buy-and-hold situation may add 1% to the return.

http://www.efficientfrontier.com/ef/996/rebal.htm

Dave

[rokid]

Dave,

William Bernstein's books are also worth a read.

[Mike]

I think the only real option one has in coming up with the "right" mix with a complicated portfolio involving multiple investment accounts is to meet with a financial planner.

If you're unwilling / unable to do that, the next best thing would be to read a lot of books / do research and come up with your own strategy. I'm probably too defensive right now, but I'm so incredibly bearish in the short term, I see no reason to be buying at this point.

[Birchtree]

Mike,

Pleased you feel that way - hope there are 50 million more that feel the same way.

Dennis

[grandma]

Has anyone received the disc that was supposed to have been mailed to each tsp participant? ...or did I miss the announcement that this had been cancelled, thus saving the tsp fund millions of dollars???

[Dakota]

Spaf wrote:
thurston

Based on what information they have released on these funds, and how they got there structure, from what analysis. And, who will supervise the funds. I have to rate the information to date as: insufficient. Rgds! :? Spaf


its seems to me that, There is no one fancy boy(so called) professional analyst that I would trust to Gamble my money away for me on a daily basis. I may as well put my money in G fund and go out to pasture. Thats what the governmentwant us to do anyway. They want us to die off before we can use our retirement money or social security. The L fund is definitely for the laziest, non-thinking, uninformed person to sit back and think they are doing something. Where do they get all of these odd crazy numbers from anyway. and how do they know what will do the best. If a person pays attention and reacts to the events of the market he can make as well a semi-educated guess as someone who does not care about your money. the government would rather see you go broke so they can take everything you have ever worked for and confiscate it and sell it. If you think the government is for the people, think again. by the people, think again. of the people, where have u been!!!

Since 08/01/2005 (when the L-Funds started)

I-fund5.23%
F-fund1.32%
L20401.28%
L20301.10%
L20201.06%
L20100.94%
L-Inc0.52%
G-fund0.46%
C-fund0.08%
S-fund-0.50%

[Sr]

El Vis wrote:
Since 08/01/2005 (when the L-Funds started)

I-fund5.23%
F-fund1.32%
L20401.28%
L20301.10%
L20201.06%
L20100.94%
L-Inc0.52%
G-fund0.46%
C-fund0.08%
S-fund-0.50%This is more a reflection of limited asset class available with LXXXXfunds. Any one still mixingand matching US stocks, European/japanese stocks and US bonds and calling it a balanced portfolio is so out of it that it ain't funny.But it is still better than just going in and out of G and C/S funds based on S&P charts.

[Dakota]

Sr wrote:
El Vis wrote:
Since 08/01/2005 (when the L-Funds started)

I-fund5.23%
F-fund1.32%
L20401.28%
L20301.10%
L20201.06%
L20100.94%
L-Inc0.52%
G-fund0.46%
C-fund0.08%
S-fund-0.50%This is more a reflection of limited asset class available with LXXXXfunds. Any one still mixingand matching US stocks, European/japanese stocks and US bonds and calling it a balanced portfolio is so out of it that it ain't funny.But it is still better than just going in and out of G and C/S funds based on S&P charts.

[Dakota]

nice stats but I didnt read it that way. i looked at when it started then looked at the end of the month of each fund. some lost 4,5,6 cents and two of them gained 4/6 cents. to me thats speaks g fund numbers

[Dakota]

also what does age and years of service have to do with catching a good bounce or losing u money tomorrow. Aggressive is aggresive losing is losing its all an semi-educated guess from day to day

[cowboy]

Dakota wrote:
also what does age and years of service have to do with catching a good bounce or losing u money tomorrow. Aggressive is aggresive losing is losing its all an semi-educated guess from day to day





I agree with you Dakota but what the L fund does is by it's allocation into each of the original funds is just smooth out the dips and valleys based on the time scale you have to retirement. See if you look at the L funds, the L2030 is approximately where your setting right now as far as distribution. To me agressive is playing a fund at 100%. I see many posts where the person feels one of the funds will get a bounce but very few play it to 100% with confidence than move it out and take advantage of it because of the risk.I am thinking the L funds will let me play my 100% short term timing than instead of pull all out and get caught in G fund, I have the L funds I can jump into and play them at a less voltile movement because of the low risk assessment in accordance to time. I have plenty of time. Instead of at 10:30 AM of setting there wondering how much I should put in each allocation I can just go 2040 or 2010 and watch it for several days and ifoneof the more voltile funds takes a large move, play for100%. The L 2040 fund is very agressive as it only plays a 5% G allocation. If you believe the L funds are just likeG fund your sorely mistaken. Tomorrow check your increases and compare your gain to the L2030 I think you will find that the 2030 will match close to your allocation gain you have in each fund. Plus or minus a penny. Even the L income fund is more aggressive at retirement than the G fund is. This tells me I should not be G at all unless I amsure that stocks are trending down. Which they are not at the moment and I set in the G fund today.

L-fund asset allocations for each option:

L INCOME Fund
C-fund 12%, S-fund 3%, I-fund 5%, F-fund 6%, G-fund 74%

L 2010 Fund
C-fund 27%, S-fund, 8%, I-Fund 15%, F-fund 7%, G-fund 43%

L 2020 Fund
C-fund 34%, S-fund 12%, I-fund 19%, F-fund 8%, G-fund 27%

L 2030 Fund
C-fund 38%, S-fund 16%, I-fund 21%, F-fund 9%, G-fund 16%

L 2040 Fund
C-fund 42%, S-fund 18%, I-fund 25 %, F-fund 10%, G-fund 5%

[robo]

Some thoughts on the L Funds......

Elvis wrote:

L-fund asset allocations for each option:

L INCOME Fund
C-fund 12%, S-fund 3%, I-fund 5%, F-fund 6%, G-fund 74%

L 2010 Fund
C-fund 27%, S-fund, 8%, I-Fund 15%, F-fund 7%, G-fund 43%

L 2020 Fund
C-fund 34%, S-fund 12%, I-fund 19%, F-fund 8%, G-fund 27%

L 2030 Fund
C-fund 38%, S-fund 16%, I-fund 21%, F-fund 9%, G-fund 16%

L 2040 Fund
C-fund 42%, S-fund 18%, I-fund 25 %, F-fund 10%, G-fund 5%


Are you beating the L Funds year to date? Compare them to your personal return.


31 Dec 2004 Share Prices 10.68/10.42/12.91/14.73/15.48

9 Sept 2005 Share Prices 11.00/10.69/13.40/15.97/16.77

Approximate returns using thetracker and the above listed percentages ....


Year To Date Returns
L2040= 5.59%

L2030 = 5.24%

L2020 =4.89%

L2010 =3.39%

The L Funds are not for me, but for some they are ok.... What is your YTD return Market Timer? If you are going to compare the L Fund to returns, you must compare to your own.......


Timing the Market with Your TSP Funds? Here's What Happened in Recent Bull and Bear Markets


http://www.fedsmith.com/articles/articles.showarticle.db.php?intArticleID=428

Lifecycle Funds: Making A "Model Retirement Program" Even Better


http://www.fedsmith.com/articles/articles.showarticle.db.php?intArticleID=665

[cowboy]

My thought is that Mr. Smith's first article has little to do with market timing if you look at the time frames he is using. He goes back to December 1999 and 2000 and then quotes the June - October 2002 sell off. Most TSP-ers did not try to time the market in this time period but literally paniced like so many other investors and made a wrong decision. Most of this movement had little to do with market timing or timers in my opinion.

[yakers]

It is a pretty old story that asset allocation and aversion to risk change as you get older. I am 55 soon and under CSRS. I have been putting the max in my TSP as long as it has been available. Earlier this year I went with a 40% G, 20% C, S & I. Just where I wanted to be. But about a month ago I went with the 2020L Fund for new contributions. It does have a little F, which I have been avoiding, but I like its balance. While there are a few Warren Buffets out there most people chasing performance (meaning trying to predict it) will not beat the market. And if too many did the market would adjust. I am now in the process of rolling an old IRA into the TSP program (anyone done this, it seems slower than transfers between regualr companies) . I will continue adding to the L Fund.I do have one other small IRA in a foreign fund and several DRIP (dividend paying) stocks. So I can take more risk elswhere.

[rokid]

Yakers,

It appears that you have everything under control and are sitting pretty. Congratulations.

My only question about the L Funds is why the daily rebalancing? Based on what I've read, a longer rebalancing interval is more desirable, e.g. quarterly or yearly.

In addition, if you do have substantial assets outside of TSP, e.g. a wife's 401K, it may be difficult to arrive at a desirable overall household asset allocation using the L Funds. :^

[yakers]

Before adding the L Fund I did put all our assets in a Morningstar profile and it looked like we slightly outperformed the market with slightly less risk. I did not run it with various elements to see the contribution of each but I suspect theoutperformance came more from the DRIP stocks which have been nice to me the last few years sinceI closed my Quick & Reily trading account(too much time and too much return went on fees, but that is another story). Another hard part for an AA is how to treat a CSRS pension (as bonds?)and my teacher wife's partially COLAd pension. I donotgoforan exact AA. I went years without a reballance but then may adjust two or three times in a year. As to the daily rebalancing Isuspect they have to do this administratively, i.e it is easier for them to calaulate it every day. I also have no reason to believe that there is a performance penalty for this. I AM very much a Vanguard diehard so I like index funds and the Lfunds look a lot like Vanguard Target funds which look good to me. I know from my old Q&R trading account that Ican waste a lot of time trying to watch stocks and funds. A friend of mine actually made money day trading for a while for a copule years, he no longer talks about it. I like not worrying and not spending too much time watching my accounts, and as far as I can tell there is more to be lost in frequent trades than "doing nothing".I keep an eye on these boards to see if there is a real method to outperform the market. So far I have not seen it.

[rokid]

Yakers,

I hadn't considered including CSRS in my asset allocation.I'll have to think about that for a while. Thanks for the idea.