TSP investors
 

Ant TSP investors here? What strategy do you use? The plan allows two interfund allocations per month. Initially I'm looking at 20% in GFCSI. Then adjusting to try and time the market...Although, the idea of timing feels like a waste and easy way to lose money...Maybe I should just re-allocate to 40% bonds , 60%stocks twice a year and maximize my 17,500K per year opportunity...

Your thoughts?

Just starting tsp? Too young to be that much bonds. Dollar cost into the s c and I funds until your 40s at least.

tsp Roth
 

Also unless making good coin outside the military you should consider tsp Roth. Taxes will never be less than active duty military pay unless you retire to under a rock.

L Funds
 

Why not use the "L" funds - pick the one timed to when you need the money. At least that's what the $$ geek on federaltimes.com says.

I agree - chasing the market by moving %'s 2/mo is not going to help over the long haul - as you also alluded to.

Our financial adviser does our percentages (we were in the L). It's really a matter of your risk tolerance.

Thanks for the inputs...Have decided to go with the following to start:

C: 25%, S: 25%, I: 25%, G:20%, F: 10%

As for the amount per month...I can (after crunching some number) put $475 per pay period into TSP. That gives me some play / vacation money and will also allow me to put 5K into my Roth 401K.

My friend says to max out the TSP is possible...I can understand his reasoning...But, I really do like putting some cash away in a Roth IRA thru Vanguard (more options that TSP for investing)...I've got 63K currently in a Roth IRA (Vanguard Energy fund) and I like that fund quite a bit...

I plan to reallocate twice per year (April and August)...

Should I dial down the bonds a bit more? Say make it 20% for a few years?

L fund is the way to go. Choose one that matures around the year you need the money. As the years go by it becomes more conservative. The allocation is rebalanced at the end of each trading day. If stocks go up they need to be sold to rebalance the allocation and keep the percentages between investment types constant. If stocks go down they buy more to balance. Therefore you are buying low and selling high. Best part is it is automatic.

#1. Never take financial advice from a pilot. #2. Go with the TSP "L" funds unless you are smarter than the fund managers who do this stuff for a living EVERY DAY.

I gotta get in here with an opposing view (to L funds). Like someone said in an early post, you are too young to need the bond allocation you're planning. Dial them down as much as you can stand - I'd say max of 10% for now if you must have some at all. Go all S, C & I. No need to rebalance as often as you're planning to (IMHO), but great if it keeps you engaged and thinking about your allocations. L funds are too conservative a mix for too much of your life. But easy and brainless because someone else reallocates for you. Good luck! TSP started a bit too late in my career for me have much in it, but it's great that the military finally got it.

Yeah....I went all in on the TSP. C,S, and I funds only. I've got 220k in a Balanced fund (Vanguard Wellington) so that gives me plenty of bond exposure.

I agree with the L fund advice... Think your strategy of maxing the ROTH first, then TSP (my personal game plan) is the way to go. Only time I switch this up is when a tax free pops up, then I try to max that month's contribution, but that's tricky in the reserves!

Thanks for the inputs folks...It difficult to know if your game plan is sound or going to work...I'm just glad I'm in the game and have a good job...

Couldn't disagree more, especially if the guy you're giving the advice to is currently in a high tax bracket. Every time I read about airline/military guys with likely 6 figure+ incomes telling everyone how they're maxing out their Roth 401K or IRA, in lieu of a deductible option without telling us how they actually arrived at that conclusion, I cringe. Uncle Sugar likes it though.

Roths IRAs/401Ks are great. Deductible IRAs/401Ks are great too. They're tools just like a hammer. Sometimes a hammer is a great tool. Sometimes it isn't. Just because one has the ability to use a hammer or a Roth doesn't mean they should.

P.S. Love the TSP. Wish all state employees could contribute to it, too.

Ran across this on fedsmith and thought I'd post...

have read a similar argument by other people and my assumption is that they are kidding themselves because they feel better than they would if they actually calculated how much money they would have had with more aggressive investing in stocks. That is just my opinion but I did some calculations using a calculator readily available to anyone to come up with an example.

Here is an example. The C fund has returned a little more than 11% a year, on average, since it was started in the 1980's (that includes the big up years and the big down years). If you took $10,000 and invested it in the C fund when it started (the first full year of returns was in 1988), and did not invest a single penny more, that $10,000 as of January 1, 2013 would be worth about $135,854 (based on returns through all of 2012.)

What about the G fund? It has had an average rate of return of 5.6% since its first year of returns in 1988. If you took that same $10,000 as the nest egg investment you used for the C fund but put it into the G fund instead, did not invest any more money in the TSP G fund, and let it ride for 25 years, as of January 1, 2013, you would have had a total of $39,048.

Obviously, most people would rather have almost $136,000 instead of $39,000. That is a very large price to pay in order to achieve the "safety" of the G fund.

A better example since most people would invest some money into the TSP on a regular basis: Assume you started off with the same $10,000 referenced above in 1988 and invested $100 per month for 25 years. In the G fund, as of January 1, 2013, you would have a total of: $104,779.

On the other hand, if I were a much smarter investor and put all of my money in the C fund by starting off my initial investment the the $10,000 nest egg, added $100 a month for 25 years, as of January 1, 2013 I would have a total of: $288,253 in stead of $104,779.

That roller coaster ride you referenced, to some people, would be worth an extra $183,474 to put up with the ups and downs of the stock market.

So, I am not sure why you think the C fund money would only be worth $1.05 as that does not make sense based on the magic of compounded returns you would see with the more aggressive investment

By the way, so no one thinks i just made up the figures from thin air, I just used the calculator on Dave Ramsey's website using the figures noted above. I took the average rate of return for the two funds as calculated by the author in the article at 2013 Archive - FedSmith.com... to arrive at the figures.

Good advice, even better its backed with facts. The roller coaster ride is your risk tolerance. Near the bottom of this last downturn, it was scary how close my balance was to just my lifetime contributions. I was still mostly C fund and rode it back up again to a much better balance. The point is if you you needed to withdrawl that money for retirement it won't be there for the ride back up. That's why I am now mostly L fund. In order to be more aggressive, I am in longer term funds (for example L2040 rather than L2020) even though I'll be retired soon and flying for fun and profit.

Congrats on making it to retirement...Do you do any or did you in the past do any interfund trades? I know TSP lets you do two per month.

I did the 401K max thing as a contractor for years and I agree with the tax break aspect of your post...Its just that in the past year I've had some life experiences and am unable to max it out and can only put in the minimum to get the full match from the fed government. Once the legal bills are paid ( September 2014) I can get back to putting more into 401 until I max it out...

Retiring at 62 (minimum age needed to get 1.1% vs. 1% towards retirement) with 30 years...$75K highest average 3 years...

The largest portion of our retirement will be our TSP followed by social security. Our retirement is 1.1% of our highest 3 year average salary for each year of service. If one has 30 years, for example, he or she will get 33% of the highest 3 year average salary. If, for example, the highest average 3 years is $75K, then the yearly pension is less than $2,100 a month. The social security amount will be slightly greater than this and assuming a 15% TSP contribution, The monthly TSP distribution would be quite a bit more. For many years, we experienced very low pay and small increases in exchange for reasonable benefits. We have had no raise in more than 4 years and prior to that saw raises under 2%, even when private employees saw huge raises in the 1990's. The purpose of the FERS system is to help compensate for our lower pay increases.

A few but not often. Near the end of the bubble in 2007 I had "a feeling" things were getting too high and I meant to pull some out of the C fund but I never did. Then when it tanked the only thing pulling out would do in my opion was lock in the loss. Hence the ride down and up. That is part of why I'm in the L funds now. That said, it also proves over the long term what stocks can do.

Hello all, I apologize for crashing the thread, but he's a real noob question(s); as a guardsman, is it worth getting into TSP? I have an American Funds Roth IRA since high school, and Roth 401k with small match from my civilian employer. Is there any reason to get into TSP, or should I instead just use the same amount of money to put in my American Funds IRA? Also, I notice you talk about Vanguard. What do you think of them? Vanguard has piqued my interest, but I believe their initial investment minimum is $3,000. If I were still single, no problem. But with anything now, my wife nixes just about any spending I do.

Yes. ROTH TSP as mil is a good deal. Tax free month = Tax free in = Tax free out with free growth. A will deal all around.

The TSP, in my opinion, is excellent. It doesn't overwhelm the novice with a huge list of choices. The expenses are extremely low. It allows you to invest in a diversified portfolio. As I've said before, I wish I had the TSP at my work. And I certainly wish my wife's crappy, expense laden plan was a TSP.

I would NOT invest any more money with American Funds, ESPECIALLY if they are charging you a 5.5% front end load. The only good thing I can say about American (in my opinion) is that for an actively managed company, their big funds have done pretty OK. If you have to invest in an actively managed fund family, you could have certainly done worse.

If it were my money, I would do what is called a "trustee to trustee" transfer and roll whatever money you have with American and put it into a similar Vanguard index fund, which will have much lower costs and will likely outperform its actively managed peers anyway......and no lame a$$ loads!!! If you do a "trustee to trustee" transfer, it will be a non-taxable event if done correctly. I believe the trustee to trustee transfer my get you around their minimum account balances but not sure.

Tell you wife you're not "spending." You're investing. Big difference.

Just as FYI, a few TSP trading sites are out there. Obviously its up to the TSP participant to manage his own funds

TSP Pilot

The Fed Trader

TSP Talk

Thanks everyone for then input, I really do appreciate it! I try to get signed up soon...first baby is on the way really soon, so things will be a little hectic. And global, as far as what you are saying, I totally agree. The trouble is my wife's dad got burned in some investment years ago, and ever since he told his kids to stay away. So my wife's plan was to just put money into your savings account and CDs. :eek:

Yikes! Well those savings accounts and CDs are NCUA or FDIC insured. The government bond fund is insured by that same entity.....the US government. At the very least you'd probably want to put money in a government bond fund rather than a savings account or CD.

And with a little one on the way, once he/she gets a social security number, you'd want to consider opening a 529 plan for his/her future college expenses. Good luck.

I am 54. Between my wife and I we have IRAs, Roth IRAs and my 401k. All are set up as brokerage accounts (meaning that we can buy and sell just about anything). I think that we would be considered to be fairly knowledgeable, and have both picked stocks and used options (mostly selling covered Calls and buying protective Puts). We have done OK over the years.

My wife also has a TSP account. It is very, very impressive. And after years of watching it sit there and simmer I finnally got it. Fees kill you in the long term. You are not, without great luck and risk, going to beat the market over the long term. Individual investors are just chum in the water for the professionals.

So we not only use the TSP, we have gone that route with everything. I selected an asset allocation that I felt was appropriate for our situation, and then created it across all of our accccounts using very low cost index funds and ETFs. Just like what the TSP offers. This is very simple, takes little maintenance and is not going to blow up on me. I don't have to worry about some MBA investing "my" mutual fund in the Pakistan pork belly market, CEOs leaving for Israel with the company cash or CFOs who have created financial houses of cards.

So: Select an asset allocation. Fill it with low cost index funds and ETFs. Rebalance once a year. Adjust the allocation model every 5 years. Not only max the TSP, use it as the standard for everything else.

Another major advantage of the TSP is that it's annuities are excellent. These are not the annuities of various forms that crawl out of the sewers around Wall Street, but the simple single payment annuities that at are in effect retirement plans. These are going to become more and more important in a world of self financed retirement, and the TSP's are by far the best that you are going to find. Again, fees are critical. This is not something that you need to do anything about until your actual retirement, but at that point you need money in the TSP in order to have this option.

So TSP? Absolutely!

As for your wife, perhaps she is wary of you trying to invest aggressively. She may have friends who have had spouses lose money in the market. But most women fear living on cat food in retirement, so it should not be hard to get her onboard with a retirement plan (yes, I am being a bit sexist here). Emphasis on the word "plan". And she might be more comfortable with a passive index approach as opposed to one that involves active management.

Sorry for the long answer. And best of luck.

Thanks again for the responses. Global, I am indeed looking into 529s. Begrudgingly, my wife has let me do some investing. I think she is also pleased and reassured with what I was able to squirrel away back in 2008 when the market tanked...that has now more than doubled.

Ok, so I am looking at TSP information, and it looks like TSP has a really low expense ratio (.027%). I am looking at my American Funds, of which I have five different funds, and their expenses according to MorningStar range from a touch over 1.0% to .8%. My funds also have a load of 5.75. Is the difference in load and expense why TSP comes highly recommended?

As always, thanks everyone. Also, I did go into mypay and start a percentage contribution to the Roth TSP. Being able to do that electronically is nice, especially for a traditional guardsman living away from base. I'm excited to get this started!

Yup, that's why I wouldn't touch American Funds with a 10 foot pole (or any loaded fund). You're paying American Fund salesmen 5.75% of your money, up front, for the "privilege" of investing in their funds. Then you're paying another 1/2 to 3/4 percent in higher expenses EVERY YEAR, year after year, whether the fund does well or not, over what you would pay in the TSP. That's a lot of drag to overcome. I'd ditch the American Funds ASAP if they were mine.

Ok, great information, and thanks to everyone again. So I had been wanting to get into TSP, and finally pulled the trigger on that. I have also looked at Vanguard for some time, and I think next year I will finally do the same with them. Sounds like Vanguard comes highly recommended.

Ok, dumb question: how does Vanguard make money with no load and really low expenses?

Also, as far as me investing in American Funds, the brokers were my family's neighbors, at least as far as country living goes. My parents had been happy with their services and how their portfolio performed, and so I started investing at the end of high school.

0.17% of someone else's money is not a bad deal (VTSMX is the example here). institutions, such as Vanguard, can also benefit from more efficient trading through systems that are not open to small investors.

And then you have the fact that they run a lean operation without an army of sales people, which is where most of your front end load goes in the form of commissions.

Here comes a plug. The American Association of Independent Investors (AAII) is an organization that you might want to consider joining. I do not use their model portfolios (I am an index investor), but they are a good resource for unbiased education and broad research. They write to a level well above Money Magazine, but still basic enough for us little people to understand.

I think that you will find that the two most important factors to long term results for individual investors have proven to be 1/asset allocation and 2/fees.

Fees and asset allocation...Right on...Everything I've read is pointing me in that direction...Lower fees and allocate according to your risk...

Volume. 9 of the top 25 largest funds are Vanguard funds. Taking a small percentage of close to a couple trillion dollars ain't that bad. And Vanguard is owned by the shareholders that own their mutual funds, so the profit motive of high expenses is not there.

Yeah, with American Funds, Ameriprise, Edward Jones, etc., that's how it is. These types of entities work on the "trust" established by their legions of salespeople. When I initially wanted to get into financial planning, a few companies were VERY interested that I was an airline pilot and had little interest in my credentials. Why? Because people look up to and trust airline pilots. What better way to sell product! Tell a potential client that you're an airline pilot and if you can be entrusted with a $100M airplane and the lives of a couple hundred people, you can be entrusted with their portfolio. As I have said repeatedly, the vast majority of financial planners are salesmen, and your best interests are SECONDARY to the sale of whatever product they have to sell.

I mean look at your parents and American Funds. They could have easily found a decent financial planner that could have put them in good funds that didn't take 5%+ of their money, UP FRONT, every time they invested. The American Funds salesperson -ahem- financial planner probably knew that too. But 5% is 5% and American Funds salespeople don't sell Vanguard, so the 5% load they paid! Imagine if your company TOOK the first 5% of any money you put into your 401K or 403b or TSP at work for the "privilege" of being able to take advantage of the benefits of having a 401K. That's what American Funds (and others) do every day!

I am currently a federal employee but was recently hired by an airline and will be separating from federal service soon. Does anyone know if there are penalties that you must pay on your TSP if they are rolled into your new employers 401K?

NO penalties to go from a TSP to 401K. I went from corporate (SAIC) 401K to TSP - no issues...TSP web - site has the forms you need...

I am a financial noob, but from what I've read, the TSP is the best deal out there. Extremely low overhead (load?), something like .0027%

Why not keep what you have in your TSP and start a "new" 401K at your new place of employment? Those in the know, please add your .02.

TSP is best plan going. I would try to roll 401k into the TSP, not the other way around. That is if possible, not sure, if this action can be done after leaving govt service. I know for a fact that after leaving govt service, you can leave your TSP account in the TSP. Rolling over 401ks after leaving the govt, not sure.

IMO keep the TSP. Very low fees and excellent annuities for when you hit retirement.