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Thread: Boghies Account Talk

  1. #1093

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    Exclamation Re: Question: Why is the S Fund booming

    A couple of messages in another thread got me thinking of investment risk.

    Some folks, perhaps those who were not watching their retirement assets in 2001, 2003, and 2008, have a magic number they want to reach within a specific timeframe of their choosing. That is fine as long as you are realistic. You neither control the returns nor the time, but over longer durations the stats work in your favor. However, as the timeframe shrinks the risk of failure becomes exceedingly dangerous - so much so that one should not use the magic numbers one pulled from their @ss.

    Let us look at me as an example. I can hammer me without being a whining snowflake, so here we go. As of 2020/12/31 I had $737K in my TSP retirement account. I am 57 this year. I am tired of the physical work required as a DBA/Programmer/Whatever so I want to retire on 2021/12/31. That is magic number 1. I also want a million bones in TSP when I retire. That is magic number 2. I think I can get it by investing in the 'S Fund'. Look at the returns of the 'S Fund'!!! Yowser, it made 32% last year!!! Now, be careful Boghie, one should look at long term returns before jumping in. Yowser, it made 28% two years ago!!! All I need is a return of 35% this year and I can retire with a cool One Million Dollars!!! And, the average annual return has been going up!!!

    Calm down, Boghie... Don't use two years of data. Try to use a bit more. Say 48 years of data (PortfolioVisualizer.com). Here are those numbers (in %):

    Fund CAGR Risk Best CY Worst CY Max Dump
    F 5.87 3.80 18.80 -2.66 -5.66
    C 10.63 15.14 37.45 -37.02 -50.97
    S 10.60 15.40 35.79 -37.04 -50.89
    I 5.82 17.42 38.67 -41.27 -57.06
    10/30/27/23/10 8.60 9.57 25.24 -20.24 -32.05

    Now, how does my starting $737K look at 2021/12/31 for each of these asset allocations (Risk+ = CAGR+Risk, Risk-=CAGR-Risk):
    Fund CAGR Risk+ Risk- Best CY Worst CY Max Dump
    F 780,262 808,268 752,256 876,219 717,396 695,286
    C 815,343 926,925 703,761 1,013,007 464,163 361,351
    S 815,122 928,620 701,624 1,000,772 464,015 361,941
    I 779,893 908,279 651,508 1,021,998 432,840 316,468
    10/30/27/23/10 800,382 870,913 729,851 923,019 587,831 500,792

    Finally, what does that mean for my annual income in retirement assuming retiring at 58, croaking at 85, and averaging a 'F Fund' CAGR return in retirement:
    Fund CAGR Risk+ Risk- Best CY Worst CY Max Dump
    F 40,377 41,826 38,927 45,342 37,123 35,979
    C 42,192 47,966 36,418 52,421 24,019 18,699
    S 42,181 48,054 36,307 51,788 24,011 18,729
    I 40,358 47,001 33,714 52,886 22,398 16,376
    10/30/27/23/10 41,418 45,068 37,768 47,764 30,419 25,915

    Two thirds of the time your annual return will fall within the Risk+/Risk- numbers. The best CY return and the best CY dump happened exactly once over the past 48 years. Same with the Max Dump (max draw down). Personally, the best numbers to work with are Risk+/Risk- centered on CAGR. That will give you the likely range of assets for normal years. However, one must ALWAYS look at the worst case scenario.

    If one gets another 2007 - 2009 and one either 'buy and holds' or panic sells then you are looking at worst case scenarios. One should ALWAYS take that into account. For example, in 2008 I was actually running a +6% or +7% gain. I took early year gains and got out when the market seemed frothy and the summer doldrums were on the way. But, I got back in after the market stabilized and things started to ease. I lost 16% of my assets in ONE afternoon and into the next day's COB IFT. Yowser. And, I did well in 2008 losing about 11%. Also, how many actually got back into the market in March/April of 2009. If that is not you than do not hope for the best. Play the odds, don't gamble with the car keys and the house.

    Look at those 'Worst CY' and 'Max Dump' numbers. Can you work with THOSE numbers in your chosen allocation?
    Last edited by Boghie; 02-14-2021 at 09:13 AM.
    Lookin' up at the 'G Fund'!!!

  2.  
  3. #1094

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    Default Re: Question: Why is the S Fund booming

    Investors continually buy high and sell low which is why institutional managers still use a 60/40 portfolio.

    Retirees and those almost retired shouldn’t care what their highest level of risk tolerance is because they shouldn’t be investing anywhere near it. There is no economic reason for a person to take more investment risk than necessary once they’ve accumulated enough money for retirement. The focus should be on the minimum amount of risk needed to achieve an income required in retirement.
    https://www.etf.com/sections/index-i...ess?nopaging=1

    Claims that people will be less emotional when they have a longer time frame to invest are false and I haven't seen any empirical studies proving otherwise. A loss has a greater emotional impact than a win. As recent as March 2020 people who claimed to be in it for the long run began bailing on asset allocations they were in love with when stocks were rising. (And likewise, this is a big reason for the speculation today - people are trying to make up for bad decisions at the bottom after hearing nothing but the positive outcomes in the media.)

    Allocating more to a particular fund because of past performance is performance chasing. Allocating more to a particular fund so your future goals don't go up in smoke is considered risk management.

  4.  
  5. #1095

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    Thumbs up Re: Question: Why is the S Fund booming

    [Allocating more to a particular fund because of past performance is performance chasing. Allocating more to a particular fund so your future goals don't go up in smoke is considered risk management.[/QUOTE]

    Hey B-litt, I really appreciate your posts & like this one. I'm no in-depth investor nor expert by any means.... most of what little I know is based on TSPtalk and the regular contributors like you in addition to Tom of course. On your last points... when one sees a stock going up, is it not a sometimes viable strategy to "performance chase" ... I think they call it Momentum Investing strategy? I've done some of that with modest amounts and done okay a lot of times; set my sell stops pretty high so if price doesn't hold up, not much loss, yet if it keeps going up, just adjust my stops higher frequently. That works better with bullish market conditions... until it stops working so well. I'm one of those nearing retirement, so I've likely been too conservative for some time with fairly low current risk tolerance. Thanks again and best to you.

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  7. #1096

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    Default Re: Question: Why is the S Fund booming

    Quote Originally Posted by FAAM View Post
    [Allocating more to a particular fund because of past performance is performance chasing. Allocating more to a particular fund so your future goals don't go up in smoke is considered risk management.
    Hey B-litt, I really appreciate your posts & like this one. I'm no in-depth investor nor expert by any means.... most of what little I know is based on TSPtalk and the regular contributors like you in addition to Tom of course. On your last points... when one sees a stock going up, is it not a sometimes viable strategy to "performance chase" ... I think they call it Momentum Investing strategy? I've done some of that with modest amounts and done okay a lot of times; set my sell stops pretty high so if price doesn't hold up, not much loss, yet if it keeps going up, just adjust my stops higher frequently. That works better with bullish market conditions... until it stops working so well. I'm one of those nearing retirement, so I've likely been too conservative for some time with fairly low current risk tolerance. Thanks again and best to you.
    You didn't ask me, but since this is my Member Thread you goin' to have to listen to my opinion

    The investment strategy you mentioned is called 'Momentum Investing' - or, more informally 'The Trend is Your Friend'. If you have the ability to short sell you can actually make money on downturns as well. But, there is always a but...

    Setting your stops close to the current market price seems smart, is smart, should be smart... However, once the stock stabilizes such a strategy will churn the account. You will sell on a 5% downturn and potentially buy back on a 5% recovery. You will have minimal gain while paying fees and taxes.

    Additionally, and much more importantly, why do you think your trade will occur at the 5% decline? That will be when your brokerages automated system puts your stock on sale - NOT when that stock is purchased. If the stock is being dumped then you may very well not have the purchasers you need to get the trade confirmed. Also, you may end up behind some institutional investor or hedge fund who is bailing from the stock. In either case your trade will be delayed and there will be selling pressure on it. The worst case would be some dumb automated quant selling pressure which could cause the stock to dump 25% in an instant - only to recover it all in an hour.

    There are much bigger players in the game. They also use this strategy - but their trades are acted on very quickly if such a trade can be made. Your request will follow the big boys. The big boys also have brilliant quants and automated systems. You really don't want to play that game with retirement money. Maybe with play money, but not with the money that keeps you from turning into the Alpo lane of the supermarket while in retirement...
    Lookin' up at the 'G Fund'!!!

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  9. #1097

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    Thumbs down Re: Question: Why is the S Fund booming

    Politicians discussing a tax 'reform' that increases investment taxes is not a good time to be invested:

    • G: 22%
    • F: 27%
    • C: 24%
    • S: 20%
    • I: 7%

    Expected Annual Return: Probably in the 6% range
    Expected Risk: Probably in the 5% range

    Summer is coming a anyway. Go away in May. But, why not bail out now... Who wants to be invested when CongressCritters and the President are making tax sausage
    Lookin' up at the 'G Fund'!!!

  10.  
  11. #1098

    Default Re: Question: Why is the S Fund booming

    I'm close to that:
    G 20
    F 30
    C 30
    S 10
    I 10


  12.  
  13. #1099

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    Default Super Duper Conservative Allocation

    So, this super super very conservative allocation:

    • G: 22%
    • F: 27%
    • C: 24%
    • S: 20%
    • I: 7%

    generates a 7% average annual return with 7% risk (1)...

    (1) As documented by the NeverWrong Quicken Investor|Allocation tool. As a note, the 'Expected Return' is an inflation adjusted return. Thus, you add 3% to that number to get the average return most folks use. In this case, the inflation adjusted annual return is 4% so the annual return is 7%. Clear as mud...
    Lookin' up at the 'G Fund'!!!

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  15. #1100

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    Default Super Duper Conservative Allocation

    Using PortfolioVisualizer BackTest Portfolio Asset Class Allocation (crossroaded to TSP):

    • G: Short Term Treasury 22.00%
    • F: Total US Bond Market 27.00%
    • C: US Large Cap 24.00%
    • S: US Small Cap 20.00%
    • I: Intl Developed ex-US Market 7.00%


    Allocation CAGR Risk Best CY Worst CY Max Dump
    22/27/24/20/7 8.19% 8.15% 23.61% -16.15% -26.47%
    S&P500 (C Fund) 10.80% 15.12% 37.45% -37.02% -50.97%
    Lookin' up at the 'G Fund'!!!

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  17. #1101

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    Default Re: Super Duper Conservative Allocation

    I'm thinking of demonstrating my confidence by reducing my C & S holdings.
    Likewise, my pleasure in holding G while the Treasury borrows from it will also be evident.
    Although it seems odd, the best place to show my confidence in our leadership might be the F Fund.
    Lookin' up at the 'G Fund'!!!

  18.  
  19. #1102

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    Default Re: Super Duper Conservative Allocation

    I am really, really regretting my letting my guard down yesterday. What a lousy open today. If we ever needed dip buyers, today's the day. If it doesn't look up by the cutoff, I'm probably joining you in the good ol' G Fund.
    Scott Harrison
    Senatobia, MS

  20.  
  21. #1103

    Default Re: Super Duper Conservative Allocation

    Quote Originally Posted by rangerray View Post
    I am really, really regretting my letting my guard down yesterday. What a lousy open today. If we ever needed dip buyers, today's the day. If it doesn't look up by the cutoff, I'm probably joining you in the good ol' G Fund.
    I have the G fund nice and warm for you to drop in. The most likely outcome is mom and pop get hurt here as the smart buyers leave the table. I see the S fund is almost down 4 percent from its highs...but the C fund...well...pie in the sky and no room for error. With the political instability fallout from Afghanistan...the inflationary numbers...and the underlying weakness in the market that has been masked as of late (S fund)...we may not seen the worse yet. I'm tempted to wade in on the S but it could drop another 200 points on a very ugly day...I would think by then we would have a decent buy in price there. C fund would follow of course if that happens. so a relief rally might be possible then.

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  23. #1104

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    Red face Re: Super Duper Conservative Allocation

    Quote Originally Posted by rangerray View Post
    I am really, really regretting my letting my guard down yesterday. What a lousy open today. If we ever needed dip buyers, today's the day. If it doesn't look up by the cutoff, I'm probably joining you in the good ol' G Fund.
    Not the 'G Fund' my friend, not the 'G Fund'.
    • G: 15%
    • F: 50%
    • C: 16%
    • S: 12%
    • I: 7%


    CAGR: 7.46%
    Risk: 5.86%
    Best Year: 20.63%
    Worst Year: -9.66
    Max Drawdown: -17.10

    I am inspired and feel a type of confidence in the direction of both the market and Federal finances I have not felt recently. President Biden's speech inspired this move. Party like it's 2007

    NOTE: I don't think that the 'F Fund' holds much in the way of Federal Treasuries and Bonds. The 'G Fund' is being borrowed against because going $3+ Trillion in debt is good to go. I am confident that the Feds will pay me my 1.5% in interest. I do believe that bonds (F) is/was in a slow correction, but a dump of 3% - 5% in F which has little dependence on my confidence in our Federal Executive leadership and our Congressional Budget/Allocation leadership seems worth!!!
    Lookin' up at the 'G Fund'!!!

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