Tipping point, Price per share….part deux!!!

THE THRIFT SAVINGS PLAN ALLOCATION GUIDE Forums Message Board Tipping point, Price per share….part deux!!!

This topic contains 2 replies, has 2 voices, and was last updated by  DanDan 4 years, 8 months ago.

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  • #12794

    DanDan
    Participant

    This is more of my rambling trying to maximize my TSP…..all fictional numbers to illustrate a point going against the grain!! I will start by saying the S fund has had the highest returns on average in the past, but what about the future while the economy is recovering/growing/mature (I do not know which, it’s upward trending though).

    Why don’t investors all place their money in the highest return then? Risk has something to do with it, but wouldn’t the number of shares also have something to do with it as well? Since time is a huge factor and there is no guarantee of which fund will be best in the future, you diversify investment to minimize risk or how do we know the C fund will not outperform in the growth/mature stage?

    Earlier I asked how the return is evaluated, if the return was per share or how do the “shares” play in the scenario. If it is true per share, then why not buy the majority of a cheaper Fund with at least half the return? Receiving at least 2x the shares makes up for the less of a return. This and the fact that you can increase your balance by purchasing more shares than relying on the increase of a share price. Lets give an example of fund A and fund B:
    Fund A is 15.00 while fund B is 35.00, fund A costs 43% of fund B, fund B has a return of 40% while fund A is half of that 20%. The purchasing of fund A you gain 2.3 shares per B’s 1 share. While fund B has a higher return, you gain 2.3 times more shares of A to counteract the difference.

    But wait…..what if there was a Fund C, that has no relation to the C Fund ;), that has similar investments as fund B, similar returns, but costs 71% that of fund B (25.00 per share), but will have a similar high return.

    Fund A will NEVER have as high of a return of fund B or C (whichever is higher), but will also NEVER has a high of a loss. Fund A is for a cautious investor who isn’t as sure where the market is heading, fund B has the highest return in the past, fund C has a similar return of B for less money and more cost effective. The market is not linear and there is no guarantee the past can predict the future, but getting the # of shares makes up for the lower return.

    All of this to state the fact, to increase your balance quicker you up the number of shares,
    # of shares x share price = balance. Uping a multiplier seems to be a faster way to up the value to me.

    The best buy is what I consider purchasing: for 10 shares of the S fund….errr Fund B I pay 350, while for Fund C for 350 I get 14 shares.

    I say a tipping point because is A, B, C, or other the best buy? With $350 you can buy 10 for fund B, Buy 14 for fund C or you can buy fund A getting 23.3 shares. Fund B has the highest returns though, but if the return is per share then aren’t you receiving more money when purchasing more shares? In my opinion, the best buy has migrated to C because we are heading to growth/mature, which I believe will perform the best for the share price.

    The question is do you want your money in one fixed area or spread it out and “Let Jesus take the wheel” (It’s a song lyric, relax) meaning you’re not in control, do you think we’re in a positive or negative trend for the future? Which is the best decision for you?

    Rant over 😉

    #12802

    TS Paul
    Keymaster

    Hi Dan, welcome back.

    The basic question I got out of today’s rant was:

    – does number of shares impact return?

    The number of shares you own in a fund does not impact your rate of return. The rate of return is based on the hypothetical $350 you invested above, not on the number of shares you purchased with that money.

    If Fund A goes up 10% and Fund B goes up 20%, it doesn’t matter how many shares of each you own based on that $350 investment. With Fund A you have made $35 (a return of 10%), and with Fund B you have made $70 (a return of 20%).

    So at the end of the day, whichever fund you believe is going to perform best is where you want your money, without regard for how many shares they arbitrarily assign to represent that money.

    The TSP Allocation Guide www.TSPallocation.com

    #12819

    DanDan
    Participant


    On January 1, you have $100 invested in each Fund A and Fund B.

    Fund A is worth $1 per share, so you own 100 shares.

    Fund B is worth $10 per share, so you own 10 shares.

    On December 31, Fund A is worth $1.50 per share, so your return is 1.00 / 1.50 = 50%, and the total value in your account is $150.

    On December 31, Fund B is worth $14.00 per share, so your return is 10 / 14 = 40%, and the total value in your account is $140.

    So even though Fund B went up $4 per share while Fund A went up only $0.50, Fund A has a higher return.

    So this scenario is not true because the return has nothing to do with the # of shares, only the dollar amounts that is invested? Shares are an arbitrary #…well my bubble has been burst……now I shall invest everything in the S-fund become one of the followers.

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