- This topic has 2 replies, 2 voices, and was last updated 4 years, 8 months ago by Matias.
March 14, 2015 at 1:47 pm #16218aoakGuest
Hey TSPaul, how do you use the Business Cycle Theory for your outside investments? I would assume the same way you use it for the Thrift Savings Plan, but what are the tax implications? Say you have held 100% of your assets in the Vanguard Small Cap Index fund for 3 years and feel that you need to get out and be 100% invested in the Vanguard equivalent C-fund because you feel we are in Mid Growth business cycle. Will you just be taxed on long term capital gains based on your tax bracket and just have to deal with that any time you may switch out of TSP equivalent funds? I ask because if a person can mimic the Business Cycle Theory with their outside investments…that would be great…as long as the tax implications are not too harsh.
Thanks!March 17, 2015 at 1:30 am #16258TS PaulKeymaster
Taxes are the unfortunate part of most investing outside the Thrift Savings Plan.
As much as I can, I use tax advantaged accounts outside the TSP. I create a “backdoor Roth IRA” every year, and trade more actively in that account than in my regular brokerage account as there are no tax consequences.
In my regular account, I do move some of my money around to match the current phase, but am slower to sell existing holdings and more likely to buy ETFs for the next phase early with new money. So for example, for about the last year and half I have been buying large cap ETFs with new money I was ready to invest. That lets me (1) avoid paying taxes in the near term when I switch funds, and (2) start averaging into the next phase’s indicated fund so I’m not making the switch all at once in all of my accounts (because there is no bright line so if I ever hit it within a few months that will be pure dumb luck. This blend into the next phase helped me a lot last year when large caps defied the odds and outperformed small caps.
The TSP Allocation Guide www.TSPallocation.comMay 25, 2015 at 4:54 pm #16538MatiasGuest
I think it’s complete bull that TSP is even on the table when it comes to divorce… You should both keep your own since its YOUR retirement money and you should rightfully get what you put into it. That’s just me though I guess. 🙁
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