April 19, 2014 at 10:59 am #11598
Excellent informative site that is helping the masses with their TSP site. I share about TSPallocation with people willing to listen.
I am relatively young in my career and still trying to grasp how the TSP functions. I understand the S fund does have the highest return rate (38.35/Annually), but how does this relate to the share price?
I would think that each share (x) grows annually at that return rate, for the S fund that means each share is (1.3835x)….so each share is returning 1.3835 dollars?
If this is the case, then a share price half the cost may have less a return rate, but you are gaining double the shares to reflect this?
All this rambling to get to the point. My retirement date is hovering around 2050, so I look at this 2050 L fund which costs less than half of the S fund while returning 68% of the S funds annual return.
I DO NOT want your advice, I ask the question is the return rate per share or is my thinking wrong?April 20, 2014 at 11:28 pm #11642
Just one flaw in your math – you are trying to use a fund’s return to find its return.
To determine the return of a fund over any given length of time, you divide the value of that fund at the beginning of the time period by the value at the end of the time period. The 38% which the TSP S Fund returned last year could be obtained by doing that math with the value of a single share, any set number of shares, or the total value of all the shares.
The difference in value of between shares of different TSP funds does not have any impact on returns. Let’s do a simple example:
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.
Hope that makes some sense. Good luck.
The TSP Allocation Guide www.TSPallocation.comApril 21, 2014 at 7:27 am #11647
Good deal, thanks for the clarification. My math was flawed, but the core concept was right 🙂
P.S. I now associate the face of the “cheap investor” with TS Paul now. Just thought you would like to know 😀
You must be logged in to reply to this topic.