TSP Allocations 43 yr old

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Rad-1
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TSP Allocations 43 yr old

Post by Rad-1 » Mon Dec 05, 2016 3:06 pm

Hello Bogleheads,
I am new to this forum and think this is a great source of information. I would like your opinion on how to allocate my TSP for the long term. I little background: Fed Gov employee, 43 yrs old, I will have zero debt at the end of this month with $25k in Emergency fund (Thank you Dave Ramsey) currently have $40k in my TSP with 5% match for contributions in Traditional side, Just finished reading "The Bogleheads guide to Investing 2nd edition."

I currently have my TSP Allocations set as follows:
C45
S25
I10
F10
G10

My main concern is long term diversification. I have money in each fund which according to the book is the way to go for the long term. I know allot of people on this forum that have indicated that G fund should be the only Bond fund since it can't lose money, and there are also several people that don't like the I fund since it lacks Intl emerging market and Intl small cap stocks.

My plan is to open a Vanguard Roth account in addition to my TSP and contribute the bulk of my money to the Roth which gives me access to more investment options like TIPs, Total Intl fund, and REIT fund.

I guess my question for you all is what do you think about my allocation above for a long term buy and hold strategy?

Thank you in advance
-Tom

retiredjg
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Re: TSP Allocations 43 yr old

Post by retiredjg » Mon Dec 05, 2016 4:17 pm

Typical response here is between 23% bonds and 43% bonds (age minus 20 to age in bonds). Some would say less. Few would say more unless you are a particularly conservative investor.

The I fund does not contain emerging markets, but the truth is it performs very similarly to a fund that does contain emerging markets.

G Fund alone is fine. F fund alone is fine. A combination is fine.

Not sure you need TIPS if you have G fund. It is not an inflation protected fund, but it has always kept up with inflation (last I heard). Roth IRA is a good place for REIT.

Rad-1
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Joined: Mon Dec 05, 2016 1:30 am

Re: TSP Allocations 43 yr old

Post by Rad-1 » Mon Dec 05, 2016 5:08 pm

Ok thanks for the quick response. That makes sense.
How much would you recommend in the I fund? Am I safe with 10% or do u think I would be better suited
to go more? (Say 15-20%)

retiredjg
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Re: TSP Allocations 43 yr old

Post by retiredjg » Mon Dec 05, 2016 5:47 pm

A common recommendation is between 20% and 40% of stocks. So if you had 70% of the portfolio in stocks, something between 14% and 28% of the portfolio would be in international and the rest of the 70% would be in US stocks.

Many people are hesitant to use international stocks right now because they have not done well lately. But that is the wrong way to look at it. There will come a time when the international stocks will do very well. If you already hold them when that time comes, you will reap the benefit as they increase in value. If you do not hold them but buy after they start doing well….you will not get the full benefit and will just be buying foreign stocks that cost more.

BarryZuckerkorn
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Re: TSP Allocations 43 yr old

Post by BarryZuckerkorn » Mon Dec 05, 2016 8:36 pm

As another data point to consider, it might be worthwhile to take a look at the Lifecycle Fund that most closely matches your projected retirement date as a benchmark. For example, the 2040 Fund (geared toward participants who will withdraw their money beginning 2035 through 2044) shows this current allocation:

G - 20.46%
F - 5.79%
C - 39.44%
S - 12.18%
I - 22.13%

These mixes are not far off from what retiredjg noted above. In terms of the percent of bonds, retiredjg indicated common rule would be between 23% to 43% based on your age; and 2040 has it at 26.25%. As for international, retiredjg noted between 20-40% of all stocks and 2040 has it at approximately 30%.
The solution to all our problems is staring you in the face and it can't even see you!

Rad-1
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Joined: Mon Dec 05, 2016 1:30 am

Re: TSP Allocations 43 yr old

Post by Rad-1 » Mon Dec 05, 2016 9:05 pm

Ok guys thanks allot for the information. I really appreciate it. I am likely going to increase my Intl to 20% and bond contributions to 25% Stay the coarse... :D

Rad-1
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Joined: Mon Dec 05, 2016 1:30 am

Re: TSP Allocations 43 yr old

Post by Rad-1 » Mon Dec 05, 2016 9:13 pm

I thought this was worth sharing with you guys as well if you haven't seen it already. Lines up exact with what you guys are saying. I should be at 75 stocks 25 bonds for May age range.

Here is the link:
http://www.npr.org/2015/10/17/436993646 ... portfolios

About half way down Mr. Bogle gives his allocation recommendations based on age including Social Security.

Good stuff!

trueblueky
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Joined: Tue May 27, 2014 3:50 pm

Re: TSP Allocations 43 yr old

Post by trueblueky » Mon Dec 05, 2016 10:32 pm

Rad-1 wrote:Hello Bogleheads,
I am new to this forum and think this is a great source of information. I would like your opinion on how to allocate my TSP for the long term. I little background: Fed Gov employee, 43 yrs old, I will have zero debt at the end of this month with $25k in Emergency fund (Thank you Dave Ramsey) currently have $40k in my TSP with 5% match for contributions in Traditional side, Just finished reading "The Bogleheads guide to Investing 2nd edition."

I currently have my TSP Allocations set as follows:
C45
S25
I10
F10
G10

My main concern is long term diversification. I have money in each fund which according to the book is the way to go for the long term. I know allot of people on this forum that have indicated that G fund should be the only Bond fund since it can't lose money, and there are also several people that don't like the I fund since it lacks Intl emerging market and Intl small cap stocks.

My plan is to open a Vanguard Roth account in addition to my TSP and contribute the bulk of my money to the Roth which gives me access to more investment options like TIPs, Total Intl fund, and REIT fund.

I guess my question for you all is what do you think about my allocation above for a long term buy and hold strategy?

Thank you in advance
-Tom
As long as you continue to get the max employer match on TSP.

ABQ4804
Posts: 389
Joined: Sun Jul 24, 2011 4:08 pm

Re: TSP Allocations 43 yr old

Post by ABQ4804 » Mon Dec 05, 2016 11:26 pm

Here is the link:
http://www.npr.org/2015/10/17/436993646 ... portfolios

About half way down Mr. Bogle gives his allocation recommendations based on age including Social Security.
Rad-1, thanks for the link to the NPR article and Jack Bogle recommendations. I hadn't seen the bar graph of stock/bond percentages, factoring Social Security. Very helpful!

And yes, it sounds as if the changes you are making with your TSP fund allocations are spot on for you.

unwitting_gulag
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Re: TSP Allocations 43 yr old

Post by unwitting_gulag » Tue Dec 06, 2016 5:47 pm

My personal impression is that for a mid-career professional who has a relatively small TSP balance (I don't mean this in any snide or condemnatory way, of course), the crucial point is to maximize annual TSP contributions, without worrying too much about allocation. $18K/year max contribution will overwhelm the most heinous fluctuations in a $40K account, unless we have another 2008. This means that for the near future, it's not important to wrack one's brain with deliberation over whether some percentage-allocation into bonds is too much or too little, whether the I-fund is too spooky or a screaming bargain, and so forth. Years later, when one's TSP balance grows to some multiple of gross annual salary, it becomes imperative to get the allocation "right".

The above notwithstanding, my own TSP is more heavily tilted towards equities, than my taxable portfolio. The latter has lots of tax-free short-term and intermediate-term bonds. I figure that fluctuations in the TSP – due to overweighting in equities – are more tolerable than fluctuations in my taxable account. So if one is keen on say a 70/30 allocation in one's overall holdings, perhaps it makes sense to go 80/20 in the TSP and 60/40 outside of it (these numbers are of course phony, and are just for illustration-purposes).

Back to what to do about the I-fund…. It has been an inveterate (for "I"? Ha ha… sorry) loser. C and S have been playing leapfrog for many years, and allocation between those two might score some clever MPT volatility-reduction points. Maybe. But the I-fund has been a perennial source of tribulation and sorrow. There's another thread on this topic currently active – about international allocations. The quandary is whether we should reasonably anticipate a return to the mean, where the downtrodden rise again, the last shall be first, and so forth; or – to continue the metaphor, whether the "Matthew principle" applies, where the strong performer keeps performing ever more strongly.

What is the prevailing sentiment around the office? What are other folks doing with their TSP? Is there a convivial atmosphere at work, where people compare TSP-anecdotes and offer each other solace during tough times? Or is it hush-hush?

tigermilk
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Re: TSP Allocations 43 yr old

Post by tigermilk » Tue Dec 06, 2016 6:06 pm

unwitting_gulag wrote:What is the prevailing sentiment around the office? What are other folks doing with their TSP? Is there a convivial atmosphere at work, where people compare TSP-anecdotes and offer each other solace during tough times? Or is it hush-hush?
First, agree with equity position not being important relative to not putting $18k/year in. You could be 100/0 with that low balance and be pretty sheltered for years due to the $40k current balance.

To your point, at 47 I am 40/40/20 C/S/I. I guess I still have that long term hope that the I will break out of it's funk. I've been buying on the cheap for a few years now. During the down times I just put my head down and kept plugging away at my 100/0 allocation. This applies too all the bad years since 1994. Every time I think about adding G and/or F, I run the math and realize it is unlikely rebalancing would put me ahead during down years and I'd be behind in general. I can retire well when I hit 57, so my attitude may shift in 5 years. But for now my strategy has paid off with e being about 15% ahead compared to a typical bond allocatio. Further, I figure the FERS pension and hopefully SS allow me to be quite bullish.

TSR
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Re: TSP Allocations 43 yr old

Post by TSR » Tue Dec 06, 2016 6:15 pm

My opinion: you should just choose the L2040 fund and be done with it.

The reasons:

1. You have given no reason not to do it. The only good reasons I can think of not to choose one of the L funds would be: (1) other assets that make it harder to maintain your desired asset allocation with a lifecycle fund, or (2) some strongly held belief about how your asset allocation should differ from these funds. You have neither, so why not go the easiest route?

2. As discussed above, you're in a position where you need to focus all your investment energy on your contributions, so why not let someone else handle maintaining your allocation.

3. Some of your references to allocation choices (TIPS, REITs, etc.) suggest that you might be a "tinkerer" and want to make lots of small changes. As you'll learn when you stick around here, that's a bad thing. You may need some separation from those choices, and the L funds do that nicely. The TSP is great precisely because it is simple and limits choices. Read enough around here and you'll learn that that can be a very good thing. The L funds are the simplest they've got.

You've gotten good advice so far, and you won't go wrong with those proposed allocations. But I say go for simplicity above all else, and don't put yourself in a position to make any bad choices.

Best of luck!

Rad-1
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Joined: Mon Dec 05, 2016 1:30 am

Re: TSP Allocations 43 yr old

Post by Rad-1 » Tue Dec 06, 2016 7:24 pm

All very good points you guys are making. That's what I like about this forum. Good viewpoints.
1) The primary reason I have stayed away from the L funds is the fees that are incurred over a long period of time which according to a Jack Bogle is a bad thing. My understanding is the L funds are rebalanced daily, which incurs transaction fees (low fees but still a fee as compared to rebalancing once a year or every 24 months) which add up over the course of years compounded daily. Obviously this makes money for the TSP fund manager BlackRock
2) the L funds appear to be underweighted
in S fund (Smallcaps) and potentially overweighted in I fund Intl for my personal tastes. This is just my opinion, and I am sure there are several people that will disagree with me here.

As for the reason I would like access to TIPS, REIT, fund, etc. On page 105 of the "The Bogleheads guide to Investing Book, Second Edition" (Excellent book btw) it gives recommended allocations for young, middle aged, early retirement investors. The middle aged portion giv s a recommendation which includes a REIT and TIPS bond fund to a diversified portfolio. That's where
I am getting this from.

Rad-1
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Re: TSP Allocations 43 yr old

Post by Rad-1 » Tue Dec 06, 2016 7:34 pm

Btw-unwitting_gulag, tigermilk,
Good points about contributing the max $18,000 and flooding it with contributions.

I plan to start contributing 15% of my gross pay next month. Maybe Dave Ramsey isn't that far off recommending C60/S20/I20 Allocations for the TSP.
I am a little bit more bullish and not opposed to a more aggressive portfolio.

Everything I have been reading says a little in the bond fund will help smooth out the bumps though. I guess it comes down to how much risk you think you can take.

nova1968
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Joined: Wed May 18, 2016 12:00 pm

Re: TSP Allocations 43 yr old

Post by nova1968 » Wed Dec 07, 2016 8:59 am

The 18K contribution is a step in the right direction, you could also consider maximizing 5500 into a Roth and when you turn 50 you can additional 6000 into the TSP catch up. and 6500 into the Roth.

Rad-1
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Joined: Mon Dec 05, 2016 1:30 am

Re: TSP Allocations 43 yr old

Post by Rad-1 » Wed Dec 07, 2016 11:50 am

Hi nova1968,
Thank you. Yeah that sounds like the way to go for me.
I wish I was in a position I could have done this years ago. Have 20 yrs to go so if I kick into high gear now hopefully should be good with FERS and SS when I hit 62.

As far as the Roth goes, I am opening a Vanguard Roth account. Should I be maxing this out first before the TSP after the match point? (I.E.: contributing 5% already for TSP match).

Thank you :)

qwertyjazz
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Joined: Tue Feb 23, 2016 4:24 am

Re: TSP Allocations 43 yr old

Post by qwertyjazz » Wed Dec 07, 2016 12:24 pm

Rad-1 wrote:All very good points you guys are making. That's what I like about this forum. Good viewpoints.
1) The primary reason I have stayed away from the L funds is the fees that are incurred over a long period of time which according to a Jack Bogle is a bad thing. My understanding is the L funds are rebalanced daily, which incurs transaction fees (low fees but still a fee as compared to rebalancing once a year or every 24 months) which add up over the course of years compounded daily. Obviously this makes money for the TSP fund manager BlackRock
2) the L funds appear to be underweighted
in S fund (Smallcaps) and potentially overweighted in I fund Intl for my personal tastes. This is just my opinion, and I am sure there are several people that will disagree with me here.

As for the reason I would like access to TIPS, REIT, fund, etc. On page 105 of the "The Bogleheads guide to Investing Book, Second Edition" (Excellent book btw) it gives recommended allocations for young, middle aged, early retirement investors. The middle aged portion giv s a recommendation which includes a REIT and TIPS bond fund to a diversified portfolio. That's where
I am getting this from.
Where did you hear the L funds have transaction fees for between underlying funds transfers?
https://www.tsp.gov/PDF/formspubs/FundsL.pdf

I have not seen that anywhere before.

Thank you
QJ
G.E. Box "All models are wrong, but some are useful."

rkhusky
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Re: TSP Allocations 43 yr old

Post by rkhusky » Wed Dec 07, 2016 12:38 pm

unwitting_gulag wrote: The above notwithstanding, my own TSP is more heavily tilted towards equities, than my taxable portfolio. The latter has lots of tax-free short-term and intermediate-term bonds. I figure that fluctuations in the TSP – due to overweighting in equities – are more tolerable than fluctuations in my taxable account. So if one is keen on say a 70/30 allocation in one's overall holdings, perhaps it makes sense to go 80/20 in the TSP and 60/40 outside of it (these numbers are of course phony, and are just for illustration-purposes).
As a counter-point, one can tax-loss-harvest (TLH) losses in a taxable account, but losses provide no tax benefit in a 401K/IRA/TSP. Also, cap gains in a Traditional 401K/TSP/IRA account are taxed at your income tax rate, whereas they are taxed at lower cap gain rates in taxable. Gains in a Roth account are not taxed, so this is best for investments that are expected to have the largest gains.

For a more complete discussion, see https://www.bogleheads.org/wiki/Tax-eff ... _placement

retiredjg
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Re: TSP Allocations 43 yr old

Post by retiredjg » Wed Dec 07, 2016 1:08 pm

Rad-1, one of the nice things about the TSP is that each fund has the same expense ratio. They have set it up that way intentionally because in real life it is not like that. For example, International funds are actually more expensive to run than US stocks, yet in the TSP the C, S, and I Fund are the same cost. And the L funds cost just the same as everything else.

If you prefer individual funds and if you want REIT, there are some good ways to do this. I know that the TIPs fund was suggested a lot back when the book was written, but few people are suggesting TIPs these days. Not that it is going to hurt much but you may be hard pressed to find space in the Roth IRA for it.

This is one common way to set things up:

TSP
C Fund (500 index)
S Fund (extended market index)
bonds of your chosing

Roth IRA
a Total International (containing emerging markets)
REIT

Or if the Roth IRA is too small, hold I Fund in the TSP and only emerging markets in the Roth IRA (along with REIT).

Of course, the easiest thing to do is just hold a L fund in the TSP and a target fund in the Roth IRA, but I don't think that is what you are interested in.

As for where to send the money…as long as you get the match, whatever you do after that is not going to make a great deal of difference. Sending more to Roth IRA will cost just a tiny bit more because there is nothing you can buy in Roth IRA as cheap as the TSP funds. However, the difference is so minuscule, I would not let that be an influence.

Rad-1
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Re: TSP Allocations 43 yr old

Post by Rad-1 » Wed Dec 07, 2016 2:10 pm

qwertyjazz wrote:
Rad-1 wrote:All very good points you guys are making. That's what I like about this forum. Good viewpoints.
1) The primary reason I have stayed away from the L funds is the fees that are incurred over a long period of time which according to a Jack Bogle is a bad thing. My understanding is the L funds are rebalanced daily, which incurs transaction fees (low fees but still a fee as compared to rebalancing once a year or every 24 months) which add up over the course of years compounded daily. Obviously this makes money for the TSP fund manager BlackRock
2) the L funds appear to be underweighted
in S fund (Smallcaps) and potentially overweighted in I fund Intl for my personal tastes. This is just my opinion, and I am sure there are several people that will disagree with me here.

As for the reason I would like access to TIPS, REIT, fund, etc. On page 105 of the "The Bogleheads guide to Investing Book, Second Edition" (Excellent book btw) it gives recommended allocations for young, middle aged, early retirement investors. The middle aged portion giv s a recommendation which includes a REIT and TIPS bond fund to a diversified portfolio. That's where
I am getting this from.
Where did you hear the L funds have transaction fees for between underlying funds transfers?
https://www.tsp.gov/PDF/formspubs/FundsL.pdf

I have not seen that anywhere before.

Thank you
QJ
Good discussion about L funds and daily rebalancing:
viewtopic.php?t=8703

Rad-1
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Re: TSP Allocations 43 yr old

Post by Rad-1 » Wed Dec 07, 2016 2:33 pm

Retiredjg
I like that approach. I hadn't though about that before using the Roth for Intl emerging and using the I fund for my developed Intl. That's what I am going to do :beer

rkhusky
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Re: TSP Allocations 43 yr old

Post by rkhusky » Wed Dec 07, 2016 3:26 pm

Note also that the I Fund also does not include small caps. Vanguard's Emerging Market fund has large and small caps. Vanguard's FTSE Small ex-US has developed and emerging small caps. If you use both, you will be double counting small emerging, but it shouldn't be a big deal.

unwitting_gulag
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Re: TSP Allocations 43 yr old

Post by unwitting_gulag » Wed Dec 07, 2016 6:08 pm

Rad-1 wrote: I wish I was in a position I could have done this years ago. Have 20 yrs to go so if I kick into high gear now hopefully should be good with FERS and SS when I hit 62.
The beauty of the FERS defined-benefit portion, is that it offers more reward for finishing late, than for starting early; it's the opposite traditional investment.

Consider a contrary view; suppose that you started as a government employee at age 20, dutifully contributing the max to TSP, as soon as you became eligible; plus the max to the Roth-IRA (admittedly the terminology is anachronistic) and a healthy dollop to taxable accounts. At this point in your life, you'd be seriously considering early-retirement, approaching 25 years of service. Even 30 years of service isn't far removed. And yet, there are the minimum-age requirements. Wouldn't this feel like golden handcuffs?

qwertyjazz
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Re: TSP Allocations 43 yr old

Post by qwertyjazz » Wed Dec 07, 2016 6:42 pm

Rad-1 wrote:
qwertyjazz wrote:
Rad-1 wrote:All very good points you guys are making. That's what I like about this forum. Good viewpoints.
1) The primary reason I have stayed away from the L funds is the fees that are incurred over a long period of time which according to a Jack Bogle is a bad thing. My understanding is the L funds are rebalanced daily, which incurs transaction fees (low fees but still a fee as compared to rebalancing once a year or every 24 months) which add up over the course of years compounded daily. Obviously this makes money for the TSP fund manager BlackRock
2) the L funds appear to be underweighted
in S fund (Smallcaps) and potentially overweighted in I fund Intl for my personal tastes. This is just my opinion, and I am sure there are several people that will disagree with me here.

As for the reason I would like access to TIPS, REIT, fund, etc. On page 105 of the "The Bogleheads guide to Investing Book, Second Edition" (Excellent book btw) it gives recommended allocations for young, middle aged, early retirement investors. The middle aged portion giv s a recommendation which includes a REIT and TIPS bond fund to a diversified portfolio. That's where
I am getting this from.
Where did you hear the L funds have transaction fees for between underlying funds transfers?
https://www.tsp.gov/PDF/formspubs/FundsL.pdf

I have not seen that anywhere before.

Thank you
QJ
Good discussion about L funds and daily rebalancing:
viewtopic.php?t=8703
Could not find anything on that thread that talks about costs of L funds rebalancing. Self rebalancing is clearly problematic, but the documents that I have read from TSP state no increased costs. There are no charges costs for shifting allocations for an individual in TSP so I am not sure of the accounting math where the fact they rebalance daily (using other funds they control) necessarily increases the costs. What am I missing? I get the feeling it may be obvious in retrospect.

Thank you
QJ
G.E. Box "All models are wrong, but some are useful."

Rad-1
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Re: TSP Allocations 43 yr old

Post by Rad-1 » Wed Dec 07, 2016 8:19 pm

L fund buys and sells because it rebalances daily correct? And every time you trade they take a fee don't they? (I could be wrong here with the TSP and index funds?). Maybe someone with more knowledge can chime in here.

Wouldn't the constant daily buying and selling add up to a sizeable amount of fees over time?

Everything that I have read including "The Bogleheads Guide to a Investing Book" and the PBS Frontline special called "The retirement gamble" featuring Jack Bogle himself indicate to pay close attention to the fees.

I know index funds have extremely low fees especially the TSP index funds. But they are still fees and the more you trade the more fees are
incurred over time is my understanding. Please
Correct me if I am wrong here guys.

I don't want to bag to much on the L funds as they appear to be an excellent choice for someone who doesn't have the time or patience to mess with Allocations or for someone who wants the autopilot option.

Unless I am way off base here it seems like the way to go is to set your Allocations manually and rebalance once a year minimum to not incur unnecessary fees.

Sounds like the important thing is to contribute as much as possible $18k preferably above all else. The rest of this might be insignificant, although Mr. Bogle seems to think fees are a major drain on retirement accounts.

"The Stock Broker services his clients in the same way that Bonnie & Clyde serviced banks" William Bernstein, The Four Pillars to Investing Book

qwertyjazz
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Re: TSP Allocations 43 yr old

Post by qwertyjazz » Wed Dec 07, 2016 8:38 pm

Rad-1 wrote:L fund buys and sells because it rebalances daily correct? And every time you trade they take a fee don't they? (I could be wrong here with the TSP and index funds?). Maybe someone with more knowledge can chime in here.

Wouldn't the constant daily buying and selling add up to a sizeable amount of fees over time?

Everything that I have read including "The Bogleheads Guide to a Investing Book" and the PBS Frontline special called "The retirement gamble" featuring Jack Bogle himself indicate to pay close attention to the fees.

I know index funds have extremely low fees especially the TSP index funds. But they are still fees and the more you trade the more fees are
incurred over time is my understanding. Please
Correct me if I am wrong here guys.

I don't want to bag to much on the L funds as they appear to be an excellent choice for someone who doesn't have the time or patience to mess with Allocations or for someone who wants the autopilot option.

Unless I am way off base here it seems like the way to go is to set your Allocations manually and rebalance once a year minimum to not incur unnecessary fees.

Sounds like the important thing is to contribute as much as possible $18k preferably above all else. The rest of this might be insignificant, although Mr. Bogle seems to think fees are a major drain on retirement accounts.

"The Stock Broker services his clients in the same way that Bonnie & Clyde serviced banks" William Bernstein, The Four Pillars to Investing Book
Look at the prospectus I linked to on my first post. Most lifecycle funds have an ER higher than the composite funds. The L funds are unique in that is not true - if you have no particular knowledge on them I will go with what they wrote.

Now if you were to do this on your own, then Bogle and Bernstein are of course correct.

The L funds unless you have a reason to not use them are a pretty sweet deal. Their ER is less than most of equivalent composite funds anywhere else. And as Bogle and Bernstein remind us, costs matter.

If you find something else, please post it.

Thank you
QJ
G.E. Box "All models are wrong, but some are useful."

tigermilk
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Re: TSP Allocations 43 yr old

Post by tigermilk » Wed Dec 07, 2016 10:19 pm

unwitting_gulag wrote:
Rad-1 wrote: I wish I was in a position I could have done this years ago. Have 20 yrs to go so if I kick into high gear now hopefully should be good with FERS and SS when I hit 62.
The beauty of the FERS defined-benefit portion, is that it offers more reward for finishing late, than for starting early; it's the opposite traditional investment.

Consider a contrary view; suppose that you started as a government employee at age 20, dutifully contributing the max to TSP, as soon as you became eligible; plus the max to the Roth-IRA (admittedly the terminology is anachronistic) and a healthy dollop to taxable accounts. At this point in your life, you'd be seriously considering early-retirement, approaching 25 years of service. Even 30 years of service isn't far removed. And yet, there are the minimum-age requirements. Wouldn't this feel like golden handcuffs?
Golden handcuffs for sure. My MRA will have me at 36 years of service. What's worse is that when I started, there was the 15% contribution limit rather than the $ limit. My first years with low salary hurt me there. Fortunately my work is rewardin, so I plan to stay until at least 56 years and 10 months. But what we do have now, and hopefully in 10 years, is phased retiremen. At least a potential 40 hour pat period is a carrot.

trueblueky
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Re: TSP Allocations 43 yr old

Post by trueblueky » Wed Dec 07, 2016 10:34 pm

The only funds in the L Funds are the five TSP funds. Every day, thousands (millions?) of shares of those five funds are bought and sold. Likely, much of this cancels so that BlackRock need only deal with the net.

Rad-1
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Re: TSP Allocations 43 yr old

Post by Rad-1 » Wed Dec 07, 2016 11:59 pm

unwitting_gulag wrote:
Rad-1 wrote: I wish I was in a position I could have done this years ago. Have 20 yrs to go so if I kick into high gear now hopefully should be good with FERS and SS when I hit 62.
The beauty of the FERS defined-benefit portion, is that it offers more reward for finishing late, than for starting early; it's the opposite traditional investment.

Consider a contrary view; suppose that you started as a government employee at age 20, dutifully contributing the max to TSP, as soon as you became eligible; plus the max to the Roth-IRA (admittedly the terminology is anachronistic) and a healthy dollop to taxable accounts. At this point in your life, you'd be seriously considering early-retirement, approaching 25 years of service. Even 30 years of service isn't far removed. And yet, there are the minimum-age requirements. Wouldn't this feel like golden handcuffs?
Really good point about golden hand cuffs. For sure!
Well, based on what everyone has posted here it sounds like we've got it pretty good with the TSP. Can't really go wrong as long as you have the majority in equity funds. I can understand the reasons behind investing in the L funds and the hands off approach. Good advice guys! Really appreciate everyone's input here. Very helpful

retiredjg
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Re: TSP Allocations 43 yr old

Post by retiredjg » Thu Dec 08, 2016 7:39 am

Rad-1 wrote:Please Correct me if I am wrong here guys.
Your concern is misplaced.

Everybody agrees that fees are important, but the L Funds have the exact same expense ratio as the other funds in the TSP. There are no extra fees for the L funds as the result of frequent rebalancing.

Rad-1
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Re: TSP Allocations 43 yr old

Post by Rad-1 » Thu Dec 08, 2016 2:04 pm

Ok thanks for clarifying retiredjg.
So maybe the L fund is the way to go
Seems to be the consensus here on the forum
Guess it depends on how bullish you want to be

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Re: TSP Allocations 43 yr old

Post by Rad-1 » Sun Dec 11, 2016 1:41 am

Ok guys,
Based on your advise and the simplicity factor I have decided to just go with the L2040 fund for my TSP. I appreciate everyone's input. I would like your opinion on my Vanguard Roth side to supplement my TSP.

I was thinking of going with a fund of funds "Lifestyle Growth" for my Vanguard Roth account. Is this a good fund for me? I plan to contribute the $5500 max annually as well as continue to feed my TSP.

Thanks again for your wise knowledge
Rad-1

retiredjg
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Re: TSP Allocations 43 yr old

Post by retiredjg » Sun Dec 11, 2016 8:37 am

I think the L 2040 is a perfect choice. It is about 26% bonds right now and will continue to add on bonds slowly as you age.

I think the LifeStrategy Growth is not your best choice. It is 80% stock and 20% bonds and will stay that way forever. A better choice is LifeStrategy Moderate Growth which is 60% stock and 40% bonds. That might seem a little conservative right now, but it will be a small portion of your portfolio. As it gets bigger, you will be getting older and the higher percentage of bonds will be fine.

An alternative (and perhaps better) choice is Vanguard's Target 2030 fund. It is currently about 27% bonds (or Target 2025 which is at 35% bonds). Like the L fund, it will continue to add bonds as you age. This fund contains the same stuff as the LifeStrategy funds. The only difference is that it moves to a more conservative allocation with time.

Iorek
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Re: TSP Allocations 43 yr old

Post by Iorek » Sun Dec 11, 2016 9:37 am

I think the L Fund is the right way to go. A couple of cautions on TSP vs Roth.

I would encourage you to decide to max out TSP before contributing to Roth. Contributing to TSP/traditional 401k instead of a Roth allows you to put more away and I think you are unlikely to be in a higher tax bracket in retirement.

Also keep in mind that emerging markets are perhaps the single most volatile market segment (other than commodities which I wouldn't even consider)-- they can down for years, then make it back in a few months, then go back down. If you decide to "complete" the I fund by holding an emerging markets fund in your Roth you will concentrating that volatility in that investment. Unless you know you have an iron stomach and are committed to EM I would consider just skipping them-- you can do perfectly fine without them.

A Roth is a good place to hold REITS, but it may make sense to just invest in a VG target fund rather than complicate your portfolio with small positions in additional investments.

Also keep in mind that if you have more money to save after TSP and Roth, then i-bonds are great because 1) they are liquid after a year (so they can double as back-up emergency fund); 2) they give you inflation protection (similar to TIPS); and 3) they are tax-deferred (without taking up space in your Roth or TSP).

Rad-1
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Re: TSP Allocations 43 yr old

Post by Rad-1 » Sun Dec 11, 2016 7:25 pm

Ok thanks guys,
I am going to take a look at the Vanguard L2030 fund. That sounds like the best and easiest option for me. If the funds are the same four as what makes up the Lifestyle funds than this is perfect for me.

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Re: TSP Allocations 43 yr old

Post by Slacker » Sun Dec 11, 2016 7:47 pm

retiredjg wrote:I think the L 2040 is a perfect choice. It is about 26% bonds right now and will continue to add on bonds slowly as you age.

I think the LifeStrategy Growth is not your best choice. It is 80% stock and 20% bonds and will stay that way forever. A better choice is LifeStrategy Moderate Growth which is 60% stock and 40% bonds. That might seem a little conservative right now, but it will be a small portion of your portfolio. As it gets bigger, you will be getting older and the higher percentage of bonds will be fine.

An alternative (and perhaps better) choice is Vanguard's Target 2030 fund. It is currently about 27% bonds (or Target 2025 which is at 35% bonds). Like the L fund, it will continue to add bonds as you age. This fund contains the same stuff as the LifeStrategy funds. The only difference is that it moves to a more conservative allocation with time.
Why have such a high bond allocation when you have a pension and then a few years later social security?
In tough times and market dips living off the pension (and pension plus Soc Sec) and not touching your nest egg should be easy.

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Re: TSP Allocations 43 yr old

Post by retiredjg » Sun Dec 11, 2016 8:03 pm

Slacker wrote:Why have such a high bond allocation when you have a pension and then a few years later social security?
In tough times and market dips living off the pension (and pension plus Soc Sec) and not touching your nest egg should be easy.
1) I don't think having about 27% in bonds is a high allocation for someone who is 43 years old. Right now, the poster has no Roth IRA at all. Adding a tiny bit of 60/40 to the $40k in the L Fund (at 74% stock and 26% bonds) is not going to move his stock to bond ratio much at all.

As already mentioned, if this poster is willing to use a Target fund, the TR 2030 from Vanguard suits his needs well.

2) Perhaps you don't realize how small a federal pension is under the FERS system. A federal pension and SS is not necessarily enough to live on "easily". Obviously many factors exist, but spending the TSP is part of the model for how it is all supposed to work.

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Re: TSP Allocations 43 yr old

Post by Rad-1 » Sun Dec 11, 2016 8:16 pm

I am ok with going a little more aggressive since I am getting a late start on my IRA Roth if you think it would boost my growth a little over the long haul. I am a novice though. I trust your opinions over mine. I should also mention that I have no debt whatsoever so I plan to contribute as much as I can to my retirement

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Re: TSP Allocations 43 yr old

Post by Slacker » Mon Dec 12, 2016 1:16 pm

retiredjg wrote:
Slacker wrote:Why have such a high bond allocation when you have a pension and then a few years later social security?
In tough times and market dips living off the pension (and pension plus Soc Sec) and not touching your nest egg should be easy.
1) I don't think having about 27% in bonds is a high allocation for someone who is 43 years old. Right now, the poster has no Roth IRA at all. Adding a tiny bit of 60/40 to the $40k in the L Fund (at 74% stock and 26% bonds) is not going to move his stock to bond ratio much at all.

As already mentioned, if this poster is willing to use a Target fund, the TR 2030 from Vanguard suits his needs well.

2) Perhaps you don't realize how small a federal pension is under the FERS system. A federal pension and SS is not necessarily enough to live on "easily". Obviously many factors exist, but spending the TSP is part of the model for how it is all supposed to work.
I am in the FERS system and my pension at early retirement (55ish) will be 23% drawable at age 60 with no penalty. This nearly covers all of my basic expenses including a mortgage. Pay off the mortgage, add in social security (and the social security bridge payments) and I can live quite well on pension and social security alone. I can't live like the "glittering rich", but I don't need that. (estimating my high 3 pension + social security at age 70 will be roughly $70,000/yr and at age 60 roughly $35,000/yr so my nest egg should provide $70,000 from age 55-60 and $35,000 from age 60-70 and can be RMDs from 70+ where today's expenses are $36,000) Some modifications on those numbers will occur due to inflation, Cost of Living raises while working, etc.

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Re: TSP Allocations 43 yr old

Post by retiredjg » Mon Dec 12, 2016 1:54 pm

I guess you do realize how small the FERS pension is. You are fortunate to expect that your living expenses will be less than your income.

Iorek
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Re: TSP Allocations 43 yr old

Post by Iorek » Mon Dec 12, 2016 8:03 pm

But if you retire at 55 and don't draw your pension until 60 don't you give up your ability to participate in federal employee health benefits? Do you have a plan for health insurance, esp if the ACA goes away?

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Re: TSP Allocations 43 yr old

Post by MichDad » Tue Dec 13, 2016 9:51 am

Rad-1 wrote:Ok guys,
Based on your advise and the simplicity factor I have decided to just go with the L2040 fund for my TSP. I appreciate everyone's input. I would like your opinion on my Vanguard Roth side to supplement my TSP.

I was thinking of going with a fund of funds "Lifestyle Growth" for my Vanguard Roth account. Is this a good fund for me? I plan to contribute the $5500 max annually as well as continue to feed my TSP.

Thanks again for your wise knowledge
Rad-1
Many people want to allow their Roth tax free assets to grow for as long as possible and thereby choose to withdraw and use those assets after they've depleted their taxable and tax-deferred accounts. Some even use their Roth accounts as inheritance vehicles for their children, grandchildren, etc. Thus, these Roth account holders may have a longer time horizon for investing their Roth accounts than they do for their other accounts. If any of this applies to you, you may want to consider a higher equities to bond ratio for your Roth accounts than you do for your tax-deferred TSP account. One of the deficiencies of the TSP is that is does not permit participants to hold or withdraw their Roth TSP assets in different funds and in different proportions than their regular TSP assets.

MichDad

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Re: TSP Allocations 43 yr old

Post by Slacker » Tue Dec 13, 2016 9:51 pm

Iorek wrote:But if you retire at 55 and don't draw your pension until 60 don't you give up your ability to participate in federal employee health benefits? Do you have a plan for health insurance, esp if the ACA goes away?
No, you don't give up health benefits. 55 is the minimum age to be able to retain the federal employee health benefits but all the costs are shifted to you (for example, one of the "cheapest" health plans, an HDHP with HSA for a single person, has a monthly cost of $117 for the federal employee - at age 55 if you retire then you will be responsible to pay $468 per month for this plan).

55 is also the age at which they will let you draw from the TSP (fed 401K) without penalty and without doing rollovers for a Roth-IRA ladder, 72T or substantially equal payments (and to be clear - I am not 100% certain on exactly what the TSP offers in the matter of early withdrawals as distributions with TSP is one area where it often is criticized). Of course you could always just pay the 10% penalty as you won't have the pension or soc sec at this time so your income taxes will likely be low.

Editing to alter my response:

I had read previously what I typed in response to you above, but now I cannot find anything to support my statements. The best I could find is minimum retirement age (MRA) allows you to suspend your coverage until you take your annuity (so if you were born before 1948 then you can have an MRA of 55 and you'd be fine, for me it appears that I'd have to work until 57 to meet these standards).

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Re: TSP Allocations 43 yr old

Post by Rad-1 » Tue Dec 13, 2016 11:10 pm

MichDad wrote:Some
You make an excellent point. Hadn't thought about that until now. Yes I will likely want to tap into my TSP tax deferred account first and try and keep my Roth going as long as I can. I was going to just go with the Vanguard Lifestrategy Moderate Growth or the Vanguard Target 2030 fund for my Roth IRA. My understanding is when it hits the target date it moves to the Target income fund which is primarily made up of bonds.

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Re: TSP Allocations 43 yr old

Post by Rad-1 » Tue Dec 13, 2016 11:20 pm

hey guys,
In your opinion do you think it would be beneficial to add say 5% in Vanguard REIT index fund or ETF (vnq or vnqi) in addition to my Target date fund? I know typically the Target funds are a fund of funds and they work well by themselves, however they don't appear to contain a REIT fund and it seems like this would add even more diversification and may offer a small amount of dividend income to supplement my TSP. What's your thoughts on REITs?
Thanks in advance
Rad-1

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Re: TSP Allocations 43 yr old

Post by ABQ4804 » Wed Dec 14, 2016 12:13 am

I'm pretty sure that a federal employee has to retire on an immediate annuity in order to retain FEHB health benefits into retirement. This is a very important federal retirement issue. Check on the OPM website to validate the rules on continuing FEHB, rather than depending on our Boglehead opinions, please!

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Re: TSP Allocations 43 yr old

Post by mrc » Wed Dec 14, 2016 5:43 am

According to OPM:
Federal retirees and their surviving spouses retain their eligibility for FEHB health coverage at the same cost as current employees. In order to carry your FEHB coverage into retirement, you must be entitled to retire on an immediate annuity under a retirement system for civilian employees (including the Federal Employees Retirement System (FERS) Minimum Retirement Age (MRA) + 10 retirement); and you must have been continuously enrolled (or covered as a family member) in any FEHB plan(s) for the 5 years of service immediately before the date your annuity starts, or for the full period(s) of service since your first opportunity to enroll (if less than 5 years). The 5 year requirement period can include the following: the time you are covered as a family member under another person's FEHB enrollment; or the time you are covered under the Uniformed Services Health Benefits Program (also known as TRICARE) as long as you were covered under an FEHB enrollment at the time of your retirement.
Confirm your plan with an OPM rep, for sure! There is language elsewhere about service gaps. Sounds like you are in the MRA+10 category.
If it’s not long term it’s small talk

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Re: TSP Allocations 43 yr old

Post by retiredjg » Wed Dec 14, 2016 6:46 am

Rad-1 wrote:hey guys,
In your opinion do you think it would be beneficial to add say 5% in Vanguard REIT index fund or ETF (vnq or vnqi) in addition to my Target date fund? I know typically the Target funds are a fund of funds and they work well by themselves, however they don't appear to contain a REIT fund and it seems like this would add even more diversification and may offer a small amount of dividend income to supplement my TSP. What's your thoughts on REITs?
Thanks in advance
Rad-1
The target funds do contain REIT stocks. Some people do like to add a little more. However, there is no way to know if it will be beneficial, a wash, or harmful.

If you decide to have it, a small slice of REIT fund in Roth IRA would be OK, but do not put it in a taxable account.

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