How do the L Funds work? Here's some info!

[Silverbird]

Ok, this may not be the best presentation for this information, but I think it will help our TSP investing:

I went to a presentation on TSP this year and got the following information on changes in the L funds from 2005 - 2007 (2 years). Here are the increases (G) and decreases (other funds) over two years in the L funds. (See Table 1)

We were also told that the L2010 fund would be retired in 2010, and the other funds would roll over into each other every 10 years, and in 2015 a new fund would be introduced, the L2050 fund, which would be the same as the L2040 Fund was at the beginning of TSP (August 2005), and the L2040 would be the same as the L2030 was in 2005. This did not make any sense whatsoever to me until this weekend. You can see how it works in Table 2.

I am not sure when the annual adjustments to G,C,S,I are done within the L funds, but this is how the more "risky" funds are slowly converted until they get to L Income.

Caveat: This is how the funds are allocated now, and how the progressions work now, there probably will be a review in 10 years or maybe sooner to see whether the GCSI percentages and progressions for the L funds should be changed.

Hope this makes sense, if not ask questions. If you can put this more coherently, please post comments/better tables/etc. Tweet

[James48843]

I am not sure when the annual adjustments to G,C,S,I are done within the L funds, but this is how the more "risky" funds are slowly converted until they get to L Income.

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Here is how it works. Each "quarter", the percentages targets are adjusted. For example, on the L2020, as of September 2007, the target percentage for the I fund is 18.1% of the each share.

Each day, as prices move, the L fund rebalances to maintain that percentage. If the price of I goes up MORE than the price of C, and al the others are exactly equal, then, that day, I shares are sold, and C share are purchased, to maintain the percentage of "I" at 18.1%.

Each day, the fund shares rebalance.

Each Quareter, the target percentages change slightly.

In the L-2040 for example, the G fund is a very small percentage, and most of it is in stocks.

In the L-income fund, on the other hand, the majority is in G, and only a small amount in stocks.

As time progesses, the target allocations change. In the year 2010, for example, the L2010 turns into the L income fund, and stops changing it's allocations. A new L2050 fund is created, and the process starts for them.

Does that clear it up?

[chezhoy]

One of the worst investment moves to make is investing in the Lifecycle Funds. Jim Cramer's Stay Mad for Life (starting on p.79) warns investors away from them (p.80).