I'm New at this, need advice

[bklyngal]

Hi, I have been contributing to TSP for the last 12 years. I always had 100% in the c fund. My TSP balance is approximately 275K. Recently I moved 40% to S and 25% to I. I currently contribute 13k a year, and get 6.5k matching. Does my new allocation make sense? I will not be retiring for another 17 years. Thanks for all your help .

[tsptalk]

bklyngal wrote:
Does my new allocation make sense? I will not be retiring for another 17 years.
Welcome bkyngal!

With 17 years left, I'd say yes.

[bklyngal]

Thanks for your insight. I wish I din't have 17 years until retirement but i do. Since i am not all that financial savy i need confirmation that i am not really messing up.:)

[Wheels]

With that many years left, an aggressive allocation is a good idea. However my layman's advice is to pay attention to it. You, like so many of us, left your sizeable account balance in the C fund for 3 years (2000-2003)while it headed down. How much more money would you have had (and I), if we had gotten into the G for even half of that time.

Dave

[AllexBancs]

bklyngal, you have a very nice TSP balance:^. Some things you may want to consider when trying to come up with a TSP asset allocation. They include...how much risk am I comfortable taking on a day to day, week to week, month to month and year to year basis...how much risk do I need to take - you already have a good size TSP balance with 17 years to go, what need do you forsee for this money after you retire (will you even need to live on)...are you a buy and hold investor or a day trader...are you willing to accept the losses (in dollar terms, not percentages - 275K X 50% bear market loss, you are down to a $137,500 balance:X) that can occur with an all stock portfolio.

Static asset allocations are dangerous and useless. Just because you have 17 years until retire does not neccessarily mean you should be 100% equities in the TSP. Too many variables to assume that.

Good luck to you, AllexBancs

[tsptalk]

Hi Allex! Long time. :u

[AllexBancs]

Hi Tom...took a little break from all of this but I am back. Glad to see the site has grown and you are still doing your thing. I see you have some "competition" with the TSP Pilot plan coming on board. Good luck to you and all other TSP investors:^:^

AllexBancs

[pyriel]

bklyngal wrote:
Hi, I have been contributing to TSP for the last 12 years. I always had 100% in the c fund. My TSP balance is approximately 275K. Recently I moved 40% to S and 25% to I. I currently contribute 13k a year, and get 6.5k matching. Does my new allocation make sense? I will not be retiring for another 17 years. Thanks for all your help .
bklyngal and the rest of the gang,

Please smart ones, give me some guidance. My wife is a FERS employee contributing 14% (15% next year) and receiving matching contribution of 5%. Max contribution according to TSP is 13K (14K next year). We want to follow the latter but do not want to lose the 5% matching. Which one should we follow and please explain why.

As for me, I'm an active duty military contributing 9% (10% next year). I would like to do the same and max out to 14K next year. Which one can I follow? I've always thought I am limited only to 9 and 10%. What gives?

:*Heads spinning and seeing stars....

[grums]

From what I understand, most people (buy and hold) recommend maximum equity exposure of 80% with 20% in fixed income/bonds. From the books I have read, the difference in returnbetween 80% and 100% equity is negligible over the long term, with the advantage of decreased volitility from your bond portion.

This is assuming that the TSP is your entire portfolio.

[MohammadXX]

bklyngal

Did you really save 275K in your TSP account since 92'. Seems excessive--salariesand IRS limits were much lower then. No disrespect, but the C fund lost more than 40% between 2000 and 2002. Hard to re-coup in just 2 years.

[bklyngal]

MohammadXX wrote:
bklyngal

Did you really save 275K in your TSP account since 92'. Seems excessive--salariesand IRS limits were much lower then. No disrespect, but the C fund lost more than 40% between 2000 and 2002. Hard to re-coup in just 2 years.
MohammadXX, I have been in TSP since 1991. I am an atty for the federal gov't and have had salary that ranged from 60k+ in 1992 to 100K+ for the last 8years. My salary has allowed me to put the maximum in the last 8 years . W/ 5% matching I have put in in excess of 120K in the past 8 years. This year I was able to put in 13,000 w/ a match of 6500. In the 5 years prior I always put in the max. The C fund did great in the mid to late 90's. Had I moved the money in 200 to the g fund I would likely have had about 50K more. I am extremely lucky that I am well paid and able to put $$ in the TSP since my income is the "second income" in our home. Once the feds lift the percentages and allow those who can afford it to contribute the max, i think people will take great advantage of it. hope this answers your question.

[pyriel]

bklyngal wrote:
MohammadXX wrote: MohammadXX, I have been in TSP since 1991. I am an atty for the federal gov't and have had salary that ranged from 60k+ in 1992 to 100K+ for the last 8years. My salary has allowed me to put the maximum in the last 8 years . W/ 5% matching I have put in in excess of 120K in the past 8 years. This year I was able to put in 13,000 w/ a match of 6500. In the 5 years prior I always put in the max. The C fund did great in the mid to late 90's. Had I moved the money in 200 to the g fund I would likely have had about 50K more. I am extremely lucky that I am well paid and able to put $$ in the TSP since my income is the "second income" in our home. Once the feds lift the percentages and allow those who can afford it to contribute the max, i think people will take great advantage of it. hope this answers your question.
BK, Now IC how you are able to max out and get the matching contribution as well. :iGlad to have you around. You are right, I can't wait for 2006...

[MohammadXX]

bklyngal

Thanks for the response. Just shows the surprising amount we can accumulate in TSP, and how important it is to pay close attention--cause we're managing w/o professional advice. Also, makes me second guess whether I made the right decision staying in CSRS insteading of switching to FERS at the last opportunity.

[rokid]

Bklyngal,

You appear to have done very well. You should be providing the advice.:)

Anyway, your new allocation (35% C, 40% S, and 25% I) provides betterequity balance and a somewhat higher expected return than just pure C.Ofcourse, the somewhat higher return is accompanied by the somewhat higher risk associated withthe S&I Funds. However, you do want to be invested in all three.

Since you have accumulated a substantial amount of money, you may also want to consider going a little more conservative by adding some bonds to your portfolio, i.e. G & F Funds, to lower your risk level. For example, a 10% allocation to the F Fund would reduce your risk by 2% while reducing your return by only .6% (based on a MVO/efficient frontier analysisusing historical returns thru 1988). However, your long investment horizon of 37-40 years (17 years plus retirement) doessuggest that you should be holding a high percentage of equities.

[Rolo]

rokid wrote:
Ofcourse, the somewhat higher return is accompanied by the somewhat higher risk associated withthe S&I Funds.
However, when you spread risk, you lower your total risk. Yes, introducing more risk can actually lower it.





rokid wrote:
For example, a 10% allocation to the F Fund would reduce your risk by 2% while reducing your return by only .6%

Not at this point in time. High-grade bonds have much risk with little reward right now. G would be the fund to use rather than F. ATM, I would recommend neither but if you must have some stability, stash some in G rather than F until interest rates peak.

Macroeconomically speaking, with a 17-year time horizon, you are best served by going 100% S; you can't beat small-caps long-term. EEEEEEEEESSSSSSSSSSSSSSSSSSSSSSSSSSSS!!! :)

[bklyngal]

I thought about 100% S but really wanted at least a little diversity. I am hoping that in the long run what I have chosen will pay off. I will not however be in the situation I was during the last 4 years, afraid to move money because i didn't really understand my options.

[rokid]

bklyngal,

Your instincts are correct. Diversify! You were lucky to be in the best performing fund during the 1990s. Congrats! However, you'd be smart to diversify, i.e. not put all of your eggs in one basket. If the S Fund is the best performing fund over the next 17-40 years, you'll be in great shape. However, that's a stretch, and I certainly wouldn't bet my retirement on it. Although the S Fund has historicallyprovided a higher return, it also is more risky than the C Fund or the G/F Funds - no free lunch! Higher returns come at the expense of higher risk. Over the next 17 years, the best performing fund could easily be the C Fund or the I Fund, not the S Fund. Even bonds have outperformed equities for long periods of time in the past.

You might want to do some reading on the subject. I highly recommend A Random Walk Down Wall Street by Burton G. Malkiel.It discusses all of the investment approaches, i.e. market timing, technical analysis, Modern Portfolio Theory (MPT), Arbitrage Pricing Theory (APT), buy-and-hold,dollar cost averaging, rebalancing, and provides valuable information on asset allocation. However, don't just believe me, it's on every investment professional's "must read' list.

Finally, you need to devise a strategy that meets your investment goals and risk tolerance. The fact that you have a good family incomeand a rather longinvestment horizonmeans you can incur more risk. On the other hand, it also might mean that you don't need to incur more risk to meet your investment goals, i.e. you can employ a more conservative, less riskystrategy.

There's no guarantee that stocks will outperform bonds or that small stocks (S Fund) or foreign stocks (I Fund) will outperform the S&P 500. Diversify!

Good luck!

[Rolo]

rokid wrote:
There's no guarantee that stocks will outperform bonds or that small stocks (S Fund) or foreign stocks (I Fund) will outperform the S&P 500. Diversify!

No guarantee, true. Check this out, just found an interesting17-year period:



A historical perspective on small caps and mid caps
To evaluate past performance, consider the period 1982 through 1999. As the underlying security in its respective fund type, small-cap stocks outperformed large caps for 7 of those 18 years, and in six of those years small caps also beat mid caps. Over the same period, those stocks representing the medium grouping outperformed their larger counterparts in eight years. They also exceeded both large caps and small caps in three of those eight years.

Interestingly, large caps outdistanced the other two categories for nine of the 17 years and had higher overall performance for the entire period, with mid caps performing at a close second. This record is an example of the unpredictable nature of the financial markets. The following figures reflect the average annual total returns for the period 1982 through 1999:1



Small-cap stocks: 13.42%2
Mid-cap stocks: 17.96%3
Large-cap stocks: 18.52%4



bklyngal, is excellent and low-maintenance. Keep in touch with the markets/economy in general so you can avoid the big drops and capitalise on the big run-ups.

[bklyngal]

Thanks for everyones insight. I really appreciate. I am very glad I found this site.

[retiredcg]

bklyngal wrote:
...I have been contributing to TSP for the last 12 years. I always had 100% in the c fund...I currently contribute 13k a year, and get 6.5k matching. Does my new allocation make sense? I will not be retiring for another 17 years. Thanks for all your help .

bklyngal (et alia) -

Hello, I just found this site (which by the way I think is absolutely great, and am behind it 110%! Let's keep it going! Anyway, I am somewhat perplexed (or maybe I'm missing something here... I thought that (as a FERS) the max percentage for calendar year was 14%, and that agency matching funds are limited to a max of 5% (including 1% automatic). But the IRS Tax Code caps the total elective deferral limit at 13k. Once the limit is reached, the contributions are suspended for the rest of the year, and the TSP will not allow any employee contribution which will cause the total to exceed the annual limit. Also, if you are a FERS, the agency matching contributions are also suspended. How is it that youcan get 6.5k in matching if you already peak out at the max deferral?Thanks for your insight...

[Wheels]

If you make 130k or more annually the math works.

Dave

[bklyngal]

I make just under 130k. I rounded the numbers up to make the math easy. I actually contribute 12,860 and the gov't matches 6,430. Sorry if the numbers werent exact. I have capped out and will not get any additional raises except COLA. So I am waiting until 2006, so that I can contribute the maximum IRS allowance.

[retiredcg]

Sheesh! I guess it's getting to close to the holidays for my retired brain to ponder these things. I just realized - please correct me if I'm wrong - that the total IRS cap on elective deferrals (14k) does NOT include agency automatic or matching contributions,since that isn't part of your pay, right? Man... Sister Liliosa would havesmacked my knuckles for that one!':oo'

Y'all have a GREAT holiday....

Jim

[bklyngal]

Right you are/ The IRS limit only includes what i put in which this year was 12,800. The matching is not subject to the cap. At least that is my understanding. Although I have been known to be wrong before.