- When you change your TSP contribution allocation, do you also change which fund your existing TSP balance is invested in?
- I panicked (or followed someone’s advice), sold when the market dropped, and was in the TSP G Fund when it went back up to new highs. Should I wait until another dip before I go back to the stock fund?
- I am currently invested in one TSP fund, but want to move my balance to another. Should I move it all at once?
- I am nearing retirement, should I change my TSP allocation to be more conservative?
- Why aren’t you sending out an update to address the news from DC or the current market downturn?
- I’m new to investing and it’s all pretty overwhelming. Where should I start?
- How did the business cycle strategy perform in years prior to 2013?
- Does a TSP loan appear on my credit report?
- Everybody talks about diversification in investing. Doesn’t that mean it is a bad idea to be 100% in a particular TSP fund?
- What’s the difference between the TSP Allocation Guide strategy and the other TSP services and guides on the internet?
- How do you invest your non-TSP funds?
When you change your Thrift Savings Plan contribution allocation, do you also change which TSP fund your existing balance is invested in?
I panicked (or followed someone’s advice), sold when the market dropped, and was in the TSP G Fund when it went back up to new highs. Should I wait until another dip before I go back to the stock fund or lock in my losses and move it back now?
Mistakes are part of investing. The hard part is putting it behind you and moving on. With respect to locking in losses, I try to look at every decision as if my Thrift Savings Plan balance is all in cash and I am deciding where to put it that day. Whatever happened in the past doesn’t matter – all that does is where the best place for the money is today.
I am currently invested in one Thrift Savings Plan fund, but want to move my balance to another. Should I move it all at once?
I am nearing retirement, should I change my Thrift Savings Plan allocation to be more conservative?
I believe that with some very rare exceptions, Thrift Savings Plan allocations should not change based on age. You don’t stop earning when you retire unless you handicap yourself. This is because I believe that at any given time, there is one Thrift Savings Plan fund which is the right fund to be in and all of the others are going to do relatively poorly in comparison. My allocation almost certainly won’t change when I near retirement because my goals for my money won’t change. When I retire at 60, let’s say, I will hopefully still have another 30 years or so left and I am going to want for my Thrift Savings Plan balance to keep growing as much as possible for all of that time. Why would I switch to something “safe” like the TSP G Fund which is going to just barely keep up with inflation as I start approaching retirement when my earnings horizon goes out for decades to come? Imagine the difference between the 1.5% I could get for the G Fund right now, compared to the 38%+ which I got for the S Fund in 2013. Now compound that for 20 or 30 years.
That said, the market is occasionally going to have a “correction” of 5 to 10% for reasons unrelated to the economic cycle. You can’t predict those, but the market is typically back to break-even within two months. Even when we see a major “crash” of 30% or more, the market has returned to break-even on average within 14 months. For that reason, if I am planning to take a large withdrawal from my Thrift Savings Plan upon retirement to pay off a property, start a business, or travel the world – it would make sense to me to protect that portion of funds which I am counting on using from a significant decline for a year or two prior to withdrawing it. But the rest of my TSP balance will remain invested in whichever fund is indicated by the phase of the economic cycle we are in.
Why aren’t you sending out an update to address the news from DC or the current market downturn?
I’m new to investing and it’s all pretty overwhelming. Where should I start?
Read everything. Please don’t read only this website and make investment decisions based on what you see here. Read everything you can lay your hands on and decide what make sense to you and works for your situation. Please remember that most of the stuff out there in the day-to-day media is drivel intended to sell advertising. I do have a few books listed on my Recommended Reading page which would be a good place to start your investing education, including A Random Walk Down Wall Street and Investing Without Wall Street.
How did your business cycle strategy perform in years prior to 2013?
All in all, I think someone being fairly moderate with this strategy would have lost about 10% in the early market drops, but would have missed out on the catastrophic fall in the second half of 2008. They would have profited nicely from the rise in bond values as interest rates were slashed. And as soon as the indicators showed signs of a recovery they would have been back into the TSP S Fund and seen returns of 30%+ for three of the past five years, 18% in 2012, and one essentially flat year (-3.3%) in 2011 due to the Eurozone crisis.
Does a TSP loan show up on my credit report?
Everybody talks about diversification in investing. Doesn’t that mean it is a bad idea to be 100% in a particular Thrift Savings Plan fund? And isn’t that why the TSP LifeCycle Funds are the default for new employees?
What’s the difference between the TSP Allocation Guide strategy and the other Thrift Savings Plan guides on the internet?
The short answer is that this strategy anticipates downturns in the economy, which inevitably lead to downturns in the stock market. We don’t try to time the stock market, we try to time the economy which is much more predictable and is not subject to manipulation by Wall Street.
Other guides seem to fall into two categories: (1) “safe” allocations which are guaranteed to get average returns and which largely look like the TSP LifeCycle funds, and (2) market timers who attempt to use technical analysis and news events to predict short term moves in the stock market.
I haven’t spent any time looking at the paid services except to note that their annual returns look poor to average. Maybe I’m missing something, but I can’t imagine paying hundreds of dollars a year to under-perform the S&P.
How do you invest your non-TSP funds?
The vast majority of my non-TSP investments are in mutual funds or ETFs invested in the same sectors which my Thrift Savings Plan strategy follows. I generally use Vanguard funds because of their low expense ratios. See this page for the Vanguard equivalents to the TSP funds.
TS – Thanks much. Do you by chance have information regarding USAA equivalents to the TSP funds? Stan
I haven’t really looked at the USAA mutual funds in any detail, but I imagine they must have some proxies for the TSP funds. Just taking a quick look I see:
USSPX is their S&P 500 fund, which should track along with the TSP C Fund. The only thing I would note is that the expense ratio is about double that of the corresponding Vanguard fund and five times that of the Vanguard ETF.
USMIX can be used as a proxy for the TSP S Fund. It’s not exactly the same index, but because these are all cap weighted, it is certainly close enough.
I would have to do some digging to figure out which of the USAA bond funds and international stock funds would be the closest match to the TSP.
Is your investment strategy the same for your Vanguard funds as it is for your TSP? I.e., do you sell them all off and buy more appropriate funds when the phase of the business cycle changes?
Yes, that is exactly what I do.
My question then is how do you avoid capital gains taxes, etc. Is there a way to structure your investments to do this?
Also, I assume you use Vanguard’s Total Stock Market Index, Small-Cap Growth Index, and Bond Market Index to represent what TSP does. Are there any other Vanguard funds you think are worth looking at.
I have several tax advantaged Roth IRA accounts which a portion of my non-TSP investments are in. Even though I make more than the cap for Roth contributions, I am able to add to those accounts each year through a “back door Roth” in which I make a non-deductible contribution to a traditional IRA and then convert it to a Roth. I plan to write a detailed post on exactly how to do that when I find some time. But outside of the tax advantaged accounts I also largely follow the same strategy because my strategy is largely buy and hold until the economy starts to contract and I would much rather pay capital gains than watch my balances plunge 40%.
The Vanguard equivalents to the TSP funds are listed here: http://www.tspallocation.com/mutual-fund-etf-equivalents-tsp-funds/
The funds and ETFs listed on that page are mainly what I use (I generally select ETFs over mutual funds these days because of the lower expense ratios). I have a few other odd funds mixed in – some are roughly equivalent funds but which focus more on value stocks such as VBR (small cap value). And I have a few things outside Vanguard, such as WMCR which is a micro-cap ETF.
What would make you choose a mutual fund over an ETF?
In my case, I have a Roth IRA at Vanguard which is a mutual fund account. In that account I am invested in VSAIX (the Admiral shares version of the Small Cap Value Index Fund). I am sure I could sort out a way to add a Vanguard brokerage account and swap that over to the equivalent ETF (VBR) if it had a lower expense ratio, but it doesn’t – they both are at 0.09%.
I suspect the most common reason to invest in a mutual fund these days is that many investors may have access to mutual funds in their 401k account, but not to ETFs.
That may actually become an option under the TSP – I believe they are going to decide in September 2014 whether to create a “mutual fund window” which would allow us to invest in various mutual funds (but not ETFs) through our TSP accounts.
Last week I got scared and moved all the TSP to the G fund. All mine and gov’t matching have been lost for entire 2014. With less than 50 k, and three years to retire it scars the he… Out of me.
I look at economy and it seems to be booming a!long, new housing everywhere. But the market just keeps fluttering. How do you manage to stay the course?
Malbecs, mostly.
The market will do some unpredictable things over the short and medium terms, but in the long term when we are not experiencing recession it has always gone up. Absent a recession, I don’t give a second thought to some volatility and the corrections we know will take place every few months.
Reference your response to How do you invest your non-TSP funds?
The vast majority of my non-TSP investments are in mutual funds or ETFs invested in the same sectors which my Thrift Savings Plan strategy follows. I generally use Vanguard funds because of their low expense ratios. See this page for the Vanguard equivalents to the TSP funds.
I also invest in mutual funds or ETFs invested in the same sectors which my Thrift Savings Plan strategy follows. But, I am also a big DRIP investor and bypass brokers and deal directly with transfer agents like Computershare and Wells Fargo and utilize Temper of the Times service as well (directinvesting.com)…allows wide diversification among companies (and Industries), dollar-cost-averaging and low or no fees.
Hi, Thank you so much for the initiative on this website. I’m new on this so I would like to read a little more about the topic. I got this app on my cellphone that offered me some recommendations or advice about my TSP contributions allocations. The past May 29, they suggested to me change my allocations to this: G 3%. F 20%, C 7%, S 40%, and I 30%.
What do you think??? Do you think that it would be great to follow their advice?
Hi, thanks for reading. I’m assuming you meant March 29th as opposed to May 29 of last year. Without sounding all judgey about someone else’s website, I wouldn’t be a big fan of that allocation for my Thrift Savings Plan. I’m okay with almost any combination of S, C and I right now (although 30% is more than I would put into I these days), but the allocations to the G and F funds don’t make any sense to me at all. The F Fund is going to get slaughtered when rates go up, and there is every indication that is going to happen sooner rather than later. And what does 3% in the G Fund do? The purpose of the G Fund is to protect principal either (1) in a major market downturn or (2) that you plan to withdraw in the short term. Having some minuscule percentage in the G Fund during a rising market sounds like a misguided attempt to look diversified.
Any advice as to withdrawal strategies? I am trying to plan for my upcoming retirement and I am confused as to whether I should “make my own annuity” by selecting annual payments within the TSP or withdraw and put the money in a non-tsp fund, touted for more flexibility and diversity. You have been a valuable resource for helping me save. Can you offer any insight on how to spend? Many thanks
An observation regarding your statement, “The F Fund is going to get slaughtered when rates go up, and there is every indication that is going to happen sooner rather than later.” I’m typing this reply on 25 May 2016, about 13 months after the initial post. Here are the TSP Fund returns since then: F Fund +2.28%; G Fund +2.25%; C Fund: +1.06%; S Fund -8.16%; I Fund -10.30%. I guess you never really know what will happen until it does.
BTW – I enjoy your commentary, analyses and recommendations very much! I’m wondering if the logo you use for TS Paul means you’re a fan of Paulaner Munchen Brewery or at least their logo!
Jim
No question about it, rates have never stayed this low, this long before. So all the smart guys who are sure they are about to start shooting up have been wrong for a long time.
As for the avatar, please don’t tell the nice folks at Paulaner.
Hi there, do you invest in the roth tsp or traditional tsp or both? I started investing in the Roth about 2 years ago and haven’t looked back since especially because the agency matching 5% goes into the traditional tsp. If you don’ t invest into the Roth tsp why not? It seems like it is the best thing to do for retirement. Also I have a Roth account with Vanguard and Fidelity as well. It seems to me tax free earnings is the way to go especially with our pension and social security and tsp and other investments. Thanks so much for your advice.
I am in the traditional TSP. I discuss the reasons why i thought that made sense for me in this post: http://www.tspallocation.com/traditional-vs-roth-tsp/
AFTER PAYING OFF THE LOAN, HOW LONG DOES IT HAVE TO BE BEFORE YOU CAN APPLY FOR ANOTHER LOAN?
Is it possible in the case of a divorce for the none federal employee to leave their portion of the thrift savings plan in a separate account and can they contribute to it?
Is there going to be a TSP allocation guide update? I believe last one was in Sep, and a lot of market volatility since. Thx