New to TSP - Stupid Questions to follow

[grums]

Hey all, beware, stupid questions to follow!

I recently became a federal employee and started my TSP contributions right away, automatically put into the G fund.

I have a bunch of questions about this. Now what I think I know:

1) G fund is basically an interest bearing account. Cannot lose money.

As for the other funds, I realize you buy shares at current prices.What I am not sure of is, how exactly do they earn you money? For example:

If I have100% of my allocation in the C fund, which is at 10$per share, that givesme 100 shares. If the fund stays at 10$ all year, do I have any increased value, or am I still at 100 shares/$1000 dollars at the end of the year? Or do dividends get generated and that is the source of new shares, and subsequently increased value of my account?

Thats it for starters, I have many more questions, but will start with the very basics, thanks for your patience!

[Timer]

Welcome Grums, I'll be asking dumb questions right along with you.

[tsptalk]

Welcome Grums!

From the Guide to TSP Investments (PDF) (http://www.tsp.gov/forms/tspbk03.pdf) -

"Barclays also credits dividend income to the three stock funds in which the TSP invests. The dividend income is reinvested in the Equity Index Fund, Extended Market Index Fund, and EAFE Index Fund, respectively, and included in their share prices."

So yes, you'd make something if the shares are flat.

Thanks for joining us.
Tom

[Rolo]

Non-Technical Pragmatic Answer For A N00B: ;)

Yes, you understand correctly. Your balance in all of the funds is strictly determined by (#_shares_you_own) * (share_price).

You will never have cash dividends deposited into your account; they are reflected in the share price as they "are reinvested blah blah"

Even G's cash dividends go into the share price.

Yo! 'sup G? Welcome to the forum!

[grums]

Great thanks for all the info everyone!

So I guess since all my money thus far is in G fund, the idea is to get in while the other funds are as low as possible?

Guess it is time to change my allocation, although I will probably keep my money depositing into G and make interfund transfers as needed.

I'm looking at 25-30 years until retirement, so now I just need to figure out if I want to buy and hold or start biting my fingernails on a daily basis :)

[tsptalk]

grums wrote:
I'm looking at 25-30 years until retirement,
With that much time, being aggressive is your best strategy.

[Rolo]

grums wrote:

So I guess since all my money thus far is in G fund, the idea is to get in while the other funds are as low as possible?


Or as low as feasible, not necessarily possible, but yes. This is true in any strategy, timing or buy-and-hold.

[rokid]

Another buy and hold strategy to consider is dollar cost averaging with periodicrebalancing, e.g. quarterly. Just decide what percentages you want to allocate to the various funds (you should do some research onasset allocation) and put your investments on autopilot. I've been watching the market - stocks and bonds - for a year and there doesn't seem to be any reliable way to predict whether they'll go up or down- daily, weekly, monthly, or yearly.

For asset allocation strategies and discussion of dollar cost averaging and rebalancingcheck out William Bernstein's web site

http://www.efficientfrontier.com (http://www.efficientfrontier.com/)