3 Fund Portfolio with TSP help

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
time4life
Posts: 13
Joined: Sat May 06, 2017 8:24 pm

3 Fund Portfolio with TSP help

Postby time4life » Sat May 06, 2017 9:03 pm

Hello all,

I am young and new admirer of the BogleHead style of investing and accumulated a wealth of knowledge from the 3 Fund Portfolio thread from Taylor. My head is about to explode with all the knowledge I gained and I am only 1/3 through the thread. However I was eager to make some changes to my current investments and future actions.

I am 25 years old and in the military. The only investments for retirement I have is TSP and after reading the forum here, i would like to open a Vanguard account. Have been investing into the TSP and starting next month (with proper budgeting and an emergency fund set up), I'll be maxing out my TSP ROTH IRA at 18k.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Based on ladygeek's wiki link:( https://www.bogleheads.org/wiki/Three-fund_portfolio ) I changed my investments into the C, I , F/G funds (60, 30 and 5/5 % ) However, in her note : "An investor in the Thrift Savings Plan seeking to gain US small cap and mid cap exposure must add the S fund (an S&P completion index fund) to the TSP three-fund portfolio. Also, the I fund (tracking the EAFE index) does not invest in emerging market stocks or Canadian stocks, and has minimal exposure to small cap international stocks" as well as from one of the posters on the thread:

Postby BornInCA » Tue Mar 12, 2013 2:08 am

I don't think a 3-fund portfolio would be adequate when the government's Thrift Savings Plan (TSP) constitutes a majority of one's life savings. The Thrift Savings Plan:
1.) Doesn't have a Total Stock Market (TSM) Index Fund. You have to build your own U.S. TSM from the allocations to the "C Fund" and the "S Fund"
2.) Excludes equities from Canada and the Emerging Markets.
3.) Excludes small-cap stocks from outside the U.S.

If one wants to keep the number of funds small, how about this? 4 TSP + 2 non-TSP?
From the TSP side: "C Fund", "S Fund", "I Fund", and "G Fund"
From the non-TSP side: Vanguard Emerging Markets (VEIEX/VWO) and Vanguard FTSE All-World ex-US Small Cap (VSS)

----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

I would like to stick with the TSP and also have a Vanguard investment. Unless advocated otherwise, I was planning on opening a ROTH IRA (since my income is low and i'm in the low tax bracket) with vanguard and supplementing my "TSP 3 fund portfolio" and in the future, possibly switching all my funds from TSP to a "Vanguard 3 fund portfolio." But for now while i am in the military, i would like some guidance on how to supplement my TSP.

1. Being that the VG portfolio is TSM, TIM, TBM, and my TSP lacks things that VG would give me, what should i do? Am I to invest only in C, I, F of the TSP or as stated above invest in C, S, I, F or G and then have VG Emerging Markets (VEIEX/VWO) and Vanguard FTSE All-World ex-US Small Cap (VSS)?

2. Since i don't really know better yet, If i open a ROTH IRA, and i am to invest in the VG funds above, do i just take that 5500 and put it towards those 2 funds?

2. Also i understand you can just invest in a VG target retirement funds or life strategy funds, but the benefit of having individual funds is so that you can put TSM and TIM in a taxable account and TBM in a tax deferred account. How does one go about just having individual funds?

I would like to express my gratitude to everyone for their insight and helping out a young, new investor like my self.

PoppyA
Posts: 299
Joined: Sat Oct 11, 2014 4:24 pm

Re: 3 Fund Portfolio with TSP help

Postby PoppyA » Sat May 06, 2017 11:39 pm

So you know, you can currently only place a total of $18,000 in tax sheltered retirement accounts.

Here is the IRS info: https://www.irs.gov/retirement-plans/ho ... ement-plan

If I were you, I would continue to fully fund ($18,000) your TSP and keep reading here. Take your time to learn. I get the feeling you are rushing and over complicating your "plan". Many, many people Never leave the TSP because of it's low cost and access to the G fund that you can't find anywhere else.

Good luck. You are lucky to find this site so early in your career!

gtwhitegold
Posts: 187
Joined: Fri Sep 21, 2012 1:55 pm

Re: 3 Fund Portfolio with TSP help

Postby gtwhitegold » Sat May 06, 2017 11:46 pm

Depending on your TSP balance, I would personally recommend to keep your international funds in your Vanguard account and US and bonds in the TSP. If you already have a sizeable TSP balance, then use the I Fund for a portion of your international exposure.

Since the TSP doesn't have a total stock market fund, just keep around 85% of your US exposure in the C Fund and the other 15% in the S Fund. Maybe another poster can be more specific for current allocations between the S&P 500 and an extended market fund.

Just realize that you are treating your portfolio as a single asset, not multiple. So, allocate to your desired portfolio throughout your accounts.

Finance-MD
Posts: 109
Joined: Sun Mar 26, 2017 9:27 am

Re: 3 Fund Portfolio with TSP help

Postby Finance-MD » Sun May 07, 2017 12:10 am

Vanguard extended market is 50% small cap.
Vanguard Total Stock market is 9% small cap.

Usually people do SP500 to Extended Market in a 4:1 ratio (80%/20%). The bogleheads wiki on approximating TSM says 81%/19%. If sp500 is anywhere in the 80-85% range, results will be very very similar.

Swansea
Posts: 320
Joined: Sat Feb 13, 2016 5:16 am

Re: 3 Fund Portfolio with TSP help

Postby Swansea » Sun May 07, 2017 5:36 am

At your stage, I would not hold any monies in the G fund; just go 10% F. If you compare F and G over a ten year span, F out performs G, but is more risky. You can select the G fund as you get closer to retirement.

Chip
Posts: 1305
Joined: Wed Feb 21, 2007 4:57 am

Re: 3 Fund Portfolio with TSP help

Postby Chip » Sun May 07, 2017 6:07 am

PoppyA wrote:So you know, you can currently only place a total of $18,000 in tax sheltered retirement accounts.

Here is the IRS info: https://www.irs.gov/retirement-plans/ho ... ement-plan


Note that the link you posted does NOT include traditional and Roth IRAs. OP is eligible to contribute to one of those in addition to 18k to the TSP, assuming he/she meets the other eligibility requirements. So 23.5k total.

Chip
Posts: 1305
Joined: Wed Feb 21, 2007 4:57 am

Re: 3 Fund Portfolio with TSP help

Postby Chip » Sun May 07, 2017 6:27 am

time4life wrote:I am 25 years old and in the military. The only investments for retirement I have is TSP and after reading the forum here, i would like to open a Vanguard account. Have been investing into the TSP and starting next month (with proper budgeting and an emergency fund set up), I'll be maxing out my TSP ROTH IRA at 18k.

Based on ladygeek's wiki link:( https://www.bogleheads.org/wiki/Three-fund_portfolio ) I changed my investments into the C, I , F/G funds (60, 30 and 5/5 % ) However, in her note : "An investor in the Thrift Savings Plan seeking to gain US small cap and mid cap exposure must add the S fund (an S&P completion index fund) to the TSP three-fund portfolio. Also, the I fund (tracking the EAFE index) does not invest in emerging market stocks or Canadian stocks, and has minimal exposure to small cap international stocks" as well as from one of the posters on the thread:



Hi, welcome, and thanks for serving!

If you want it simple, the L fund options in the TSP are great. One of the reasons for the emphasis on the 3 fund portfolio here is that outside of the TSP, target date or all-in-one funds are typically more expensive than buying the components. That's not the case in the TSP. The L funds have the same .038% expense ratio as the component funds. L2050 is about 17% bonds right now. Certainly not your 90/10 target, but honestly, close enough. You're firing a shotgun here, not a sniper rifle. :D

I wouldn't worry at all about the lack of Canada, emerging markets and small cap in the I fund. Since you're early in your investing career any return differences from their exclusion is going to be small and overwhelmed by the level of your contributions. Don't overthink this.

It's great if you can save more by opening an IRA. If you really want that EM and Int'l SC exposure, then sure, buy VWO and VSS in the IRA. You'll just need to pay attention after a few years of contributions that you aren't overweighting them.

Chip
Posts: 1305
Joined: Wed Feb 21, 2007 4:57 am

Re: 3 Fund Portfolio with TSP help

Postby Chip » Sun May 07, 2017 6:32 am

Swansea wrote:If you compare F and G over a ten year span, F out performs outperformed G, but is more risky.


Fixed that for you. :D

I personally like the free lunch aspect of the G fund. If I had access to it I would put ALL of my fixed income allocation in it.

nps
Posts: 405
Joined: Thu Dec 04, 2014 10:18 am

Re: 3 Fund Portfolio with TSP help

Postby nps » Sun May 07, 2017 6:47 am

Agree with the 4:1 ratio for C:S to approximate TSM.

For approximating Total International, think you are on the right track with VWO (emerging markets) and VSS (international small) or their mutual fund equivalents. Something like 65 - 70 percent TSP I fund with the remaining in a 2:1 ratio of VWO to VSS should be pretty close.

rkhusky
Posts: 3800
Joined: Thu Aug 18, 2011 8:09 pm

Re: 3 Fund Portfolio with TSP help

Postby rkhusky » Sun May 07, 2017 7:14 am

One minor thing is that Vanguard's Emerging Markets now contains small caps, so if you also use their small cap int'l fund, you'd be double counting small emerging. However, this would be only a very small portion of your portfolio and so shouldn't cause any issues.

NiceUnparticularMan
Posts: 1363
Joined: Sat Mar 11, 2017 7:51 am

Re: 3 Fund Portfolio with TSP help

Postby NiceUnparticularMan » Sun May 07, 2017 7:47 am

So two approaches:

The simplest: Use an L fund in the TSP, add VSS and VWO in an IRA (note you could also just use VSS, since it includes EM--you only need VWO if the EM in VSS is not enough for your target EM allocation). Stock-wise, L funds are about 30% international. I don't think there is a problem going up to about 50% international. So as long as your VSS/VWO are only getting you up to about that level total when including all your stocks, this works. If this would ever be too much international, you can just add something like a US TSM fund to your IRA to balance out (note you can set the trigger lower than 50%--say 40%, another common international target). If this would ever be too much stock, you can tweak the date on your L fund. So, this is a long-term four (maybe just three) fund plan--an L Fund, VSS/VWO, and TSM.

A little more complicated: Use your own preferred mix of C, S, F, and G in the TSP, do your own thing with international in the IRA. For balancing purposes, though, you might need to add the I fund in the TSP and/or a TSM fund in the IRA. This will involve more funds, maybe as many as nine (all five TSP funds plus as much as all of a basic international, VSS, VWO, and a TSM fund in an IRA). This is manageable, but again you could do it simpler with the above approach.

NiceUnparticularMan
Posts: 1363
Joined: Sat Mar 11, 2017 7:51 am

Re: 3 Fund Portfolio with TSP help

Postby NiceUnparticularMan » Sun May 07, 2017 7:52 am

Swansea wrote:At your stage, I would not hold any monies in the G fund; just go 10% F. If you compare F and G over a ten year span, F out performs G, but is more risky. You can select the G fund as you get closer to retirement.


Depending on your reason for holding bonds at all, you can use less G and more stocks and perhaps do a better job meeting your goals than using less stocks and F instead of G.

I think it is worth noting that in the L2050 portfolio, they current use about 12% G and 5% F. So that is a decent baseline ratio, since the TSP's economic consultants have put a lot of work into trying to predict what ratio makes sense (although of course no one really knows).

time4life
Posts: 13
Joined: Sat May 06, 2017 8:24 pm

Re: 3 Fund Portfolio with TSP help

Postby time4life » Sun May 07, 2017 10:20 pm

First and foremost, I would like to thank everyone for their responses. Your guidance and insight is much appreciated.

So far what I have summed up and not trying to be too conservative since I have time to invest:
Going with individual TSP funds and international with VG ROTH IRA. If the L funds in TSP is doing 17% on bonds, i think i would want less than that and a percentage in F funds only or small split of both , and invest into the G funds as I get closer to retirement if I am still in by that time.

I do like this approach :
"A little more complicated: Use your own preferred mix of C, S, F, and G in the TSP, do your own thing with international in the IRA. For balancing purposes, though, you might need to add the I fund in the TSP and/or a TSM fund in the IRA. This will involve more funds, maybe as many as nine (all five TSP funds plus as much as all of a basic international, VSS, VWO, and a TSM fund in an IRA). This is manageable, but again you could do it simpler with the above approach." - NiceUnparticularMan
-it's very easy to manipulate the TSP funds and there are no re-allocation fees

"The simplest: Use an L fund in the TSP, add VSS and VWO in an IRA (note you could also just use VSS, since it includes EM--you only need VWO if the EM in VSS is not enough for your target EM allocation). Stock-wise, L funds are about 30% international. I don't think there is a problem going up to about 50% international. So as long as your VSS/VWO are only getting you up to about that level total when including all your stocks, this works. If this would ever be too much international, you can just add something like a US TSM fund to your IRA to balance out (note you can set the trigger lower than 50%--say 40%, another common international target). If this would ever be too much stock, you can tweak the date on your L fund. So, this is a long-term four (maybe just three) fund plan--an L Fund, VSS/VWO, and TSM. - NiceUnparticularMan
-Unless I can invest in the L funds with less in the G/F funds and more in international, and then i just need VSS/WVO. But don't know how to manipulate the L funds (thought it was a set and stone if you choose that package, could be wrong)

2 Questions
A)how to allocate my assets into the funds, pretty confused on the percentages.
If I were to invest 23.5k in an TSP and IRA. Do the percentages below make sense ?

TSP Individual funds (18k) :
G: 5% of 18k = 900
F: 5 % of 18k = 900
C: 40 % % of 18k = 7200
S: 10 % of 18k = 1800
I: 40% of 18k = 7200

ROTH IRA funds (5.5K)
VSS: 40 % of 5.5k = 2200
VWO: 40% of 5.5k = 2200
TSM: 20 % of 5.5k = 1100

4:1 "C" : "S" to approximate TSM... 7200 : 1800
2:1 "I" fund + TSM : VSS + VMO to approximate Total international market ... 8300 : 4200

I apologize if I completed butchered this haha, still trying to make sense of it.

B) Someone mentioned mutual fund equivalents. If I remember correctly, the 3 fund portfolio was for index funds and then there is mutual fund equivalents. What funds would be better for me or does it make a difference?

Fishing50
Posts: 124
Joined: Tue Sep 27, 2016 1:18 am

Re: 3 Fund Portfolio with TSP help

Postby Fishing50 » Tue May 09, 2017 7:13 am

You're on a great path.
Calculate your percentages across all accounts to determine allocation.
Don't worry too much about exact allocation. During early accumulation years new contributions will rebalance back to the target.
If you start a taxable brokerage, prefer total international or total stock market index in taxable account for tax efficiency.
Roth TSP is the perfect choice for you.

time4life
Posts: 13
Joined: Sat May 06, 2017 8:24 pm

Re: 3 Fund Portfolio with TSP help

Postby time4life » Wed May 10, 2017 7:13 am

Fishing50 thanks for your response. Can anyone help me with my allocation or provide me with a ball park on percentages ?

Lou354
Posts: 399
Joined: Sun Apr 03, 2016 10:51 pm

Re: 3 Fund Portfolio with TSP help

Postby Lou354 » Wed May 10, 2017 7:57 am

time4life wrote:2 Questions
A)how to allocate my assets into the funds, pretty confused on the percentages.
If I were to invest 23.5k in an TSP and IRA. Do the percentages below make sense ?

TSP Individual funds (18k) :
G: 5% of 18k = 900
F: 5 % of 18k = 900
C: 40 % % of 18k = 7200
S: 10 % of 18k = 1800
I: 40% of 18k = 7200

ROTH IRA funds (5.5K)
VSS: 40 % of 5.5k = 2200
VWO: 40% of 5.5k = 2200
TSM: 20 % of 5.5k = 1100

4:1 "C" : "S" to approximate TSM... 7200 : 1800
2:1 "I" fund + TSM : VSS + VMO to approximate Total international market ... 8300 : 4200

I apologize if I completed butchered this haha, still trying to make sense of it.

B) Someone mentioned mutual fund equivalents. If I remember correctly, the 3 fund portfolio was for index funds and then there is mutual fund equivalents. What funds would be better for me or does it make a difference?


B). There are index mutual funds and there are index exchange-traded funds (ETFs). A three-fund portfolio can be implemented using either kind. The ticker symbols you listed are for ETFs. Mutual funds are easier to work with than ETFs.

A). There is no Vanguard fund having the ticker symbol "TSM". What did you intend when you wrote "TSM"? Total US stock fund? Or total international (i.e. Ex-US) stock fund? Or perhaps something else?

In your portfolio as a whole what is your desired percentage of bonds?
What is your desired ratio of US stocks to international stocks?

You suspect that you may have butchered the percentages and you're still trying to make sense of it. That's fine. We've all been there. While you're learning I think it would be a good idea for you to use an L fund in TSP and a target date retirement fund in the IRA. Once you have a better sense of things you can always switch from an all-in-one portfolio to a three(ish)-fund portfolio if you want.

NiceUnparticularMan
Posts: 1363
Joined: Sat Mar 11, 2017 7:51 am

Re: 3 Fund Portfolio with TSP help

Postby NiceUnparticularMan » Wed May 10, 2017 9:03 am

So what I found it easiest to do in the long run is build a simple Excel spreadsheet. Across the top you have your different asset categories. Down the side you have your different accounts. In each cell you have how much in dollars that account has in that asset.

Then at the bottom, you total everything up, both by asset category and overall.

Now off to one side, you have your asset category percentage targets. So below that summary row, you put another row which takes your overall total and multiplies it by those target percentages. You compare your actual totals by asset category to your target totals, and make adjustments until they more or less match. The first time you do this, it will tell you how to allocate things initially. In the future, you can use this to rebalance (I recommend no more than annually).

One complication is if you are using two funds, like C and S, in one account to duplicate one fund, like VTSMX, in another account. This just takes a little programming, however: take the total of your C and S, figure out what percentages that should be to match VTSMX and report that on your target line in the C and S cells (so the C target cell formula, for example, might be something like total in C and S, times 0.8). Then subtract that total in C and S from your TSM target total (so the formula in that cell is total in all funds times target percentage in TSM minus target total in C and minus target total in S). If your C and S are off in relation to each other, you will see that when comparing your target C and S totals to your actual C and S totals. If your entire TSM target is off, you will see that in your TSM totals comparison.

Same deal with International: you set your target cells for the completion set to the right targets in light of the total in that completion set, and then subtract that total from the Total International target cell.

If all this sounds complicated--that's why the L Fund is handy to simplify things. But once I got this sort of spreadsheet set up, it became easy to use it each year for rebalancing, and I think if you are going to be doing this sort of thing yourself it is worth the initial investment of time.

nps
Posts: 405
Joined: Thu Dec 04, 2014 10:18 am

Re: 3 Fund Portfolio with TSP help

Postby nps » Wed May 10, 2017 7:19 pm

time4life wrote:Can anyone help me with my allocation or provide me with a ball park on percentages ?


One approach is to look at your asset allocation across your entire retirement portfolio. So for example from your initial post if you wanted a stock/bond allocation of 90/10 and an international allocation of 33 percent of stocks, you would take the money you want to invest ($18k + 5.5k = 23.5k) and divide it accordingly.

Bonds = 10 percent = 2350
International stock = 30 percent = 7050
Domestic stock = 60 percent = 14100

Then if you know you want to keep bond funds in the TSP and split them 50/50 G/F, put 1175 in each.

You can put your entire domestic stock allocation in the TSP also. 14100 at a 4:1 ratio C:S is 11280 C, 2820 S.

The rest of the TSP space (1550) put in the I fund. Then you can put the balance of your international allocation (5500) in the IRA Total International fund.

I personally wouldn't sweat the difference between the small amount of I Fund and Total International for some time, at least until the TSP balance starts growing a bit.

time4life
Posts: 13
Joined: Sat May 06, 2017 8:24 pm

Re: 3 Fund Portfolio with TSP help

Postby time4life » Wed May 10, 2017 9:56 pm

Thank you again everyone, definitely cleared things up.

time4life
Posts: 13
Joined: Sat May 06, 2017 8:24 pm

Re: 3 Fund Portfolio with TSP help

Postby time4life » Thu May 18, 2017 2:48 am

Thank you all for your help. Update to my portfolio.

TSP funds (18,000)
G/F: 12% = 2160
C: 63% = 11340
S: 16% = 2880
I: 9% = 1620

Roth IRA (5500)
Total International Fund: 100% = 5500

I have re-allocated my TSP funds and now all i have to do is set up a VG account and open a ROTH IRA. For approximating Total International, how do i allocate between VWO (emerging markets) and VSS (international small). Am I just splitting the 5500 between VMO and VSS?

nps
Posts: 405
Joined: Thu Dec 04, 2014 10:18 am

Re: 3 Fund Portfolio with TSP help

Postby nps » Thu May 18, 2017 6:00 am

time4life wrote:For approximating Total International, how do i allocate between VWO (emerging markets) and VSS (international small). Am I just splitting the 5500 between VMO and VSS?


The only part of your international portfolio that could not be directly invested in Total International is the $1620 in I Fund. If you use the breakout I gave earlier (about 70 percent to I Fund, 20 percent to VWO, and 10 percent to VSS) you would need to put $460 in VWO and $230 in VSS to compensate. So your $5500 in Roth would be allocated $460 to VWO, $230 to VSS, and the rest in Total International.

Again I'm not sure it's worth it until your portfolio grows a bit. You can't buy mutual funds in emerging or international small with those low amounts so you would need to use ETFs which have a couple of downsides: you have to trade during market hours and you can only buy in increments of the ETF price.

NiceUnparticularMan
Posts: 1363
Joined: Sat Mar 11, 2017 7:51 am

Re: 3 Fund Portfolio with TSP help

Postby NiceUnparticularMan » Thu May 18, 2017 6:06 am

So Total International has about 16% EM, and an average market cap of about $20.8B, per Morningstar. The I Fund should have about 0% EM, and an average market cap about $33.9B. VSS is about 14% EM and $1.5B, VWO is 80% (different definitions of EM) and $14.5.

If you did 80% I Fund and 20% VWO, you'd have about the right amount of EM, and your market cap would be about $30B. Still too big. Fortunately, VSS does not materially change the EM percentage, so we can keep that 80/20 I/VWO and just add VSS until it gets to the right size. 65% parts I/VWO and 35% gets you about $20.1B--good enough.

That works out to 52% I, 13% VWO, 35% VSS. It is OK to round this out, and to be off target for a while as you build up accounts.

I also agree that if you want to stay on target at that I Fund level in your TSP, you would need to add something else to your Roth. It depends on whether you want more Total International, more U.S., or so on.

time4life
Posts: 13
Joined: Sat May 06, 2017 8:24 pm

Re: 3 Fund Portfolio with TSP help

Postby time4life » Thu May 18, 2017 6:34 am

NiceUnparticularMan wrote:So Total International has about 16% EM, and an average market cap of about $20.8B, per Morningstar. The I Fund should have about 0% EM, and an average market cap about $33.9B. VSS is about 14% EM and $1.5B, VWO is 80% (different definitions of EM) and $14.5.

If you did 80% I Fund and 20% VWO, you'd have about the right amount of EM, and your market cap would be about $30B. Still too big. Fortunately, VSS does not materially change the EM percentage, so we can keep that 80/20 I/VWO and just add VSS until it gets to the right size. 65% parts I/VWO and 35% gets you about $20.1B--good enough.

That works out to 52% I, 13% VWO, 35% VSS. It is OK to round this out, and to be off target for a while as you build up accounts.

I also agree that if you want to stay on target at that I Fund level in your TSP, you would need to add something else to your Roth. It depends on whether you want more Total International, more U.S., or so on.


So would a ROTH IRA that only allows 5500 the way to go or should i go with a different account? Looking to invest 30% of 23.5k into International so do I need to adjust my I fund amount to accommodate 52% I, 13% VMO, and 35% VSS (my I fund now only has 9% of 23.5k) ?

What do i need to add to my Roth IRA being that my TSP I fund only has 9% of 23.5k in it (Im assuming to go with more international as I have 60% of 23.5k invested in U.S domestic...)

NiceUnparticularMan
Posts: 1363
Joined: Sat Mar 11, 2017 7:51 am

Re: 3 Fund Portfolio with TSP help

Postby NiceUnparticularMan » Thu May 18, 2017 11:49 am

time4life wrote:
NiceUnparticularMan wrote:So Total International has about 16% EM, and an average market cap of about $20.8B, per Morningstar. The I Fund should have about 0% EM, and an average market cap about $33.9B. VSS is about 14% EM and $1.5B, VWO is 80% (different definitions of EM) and $14.5.

If you did 80% I Fund and 20% VWO, you'd have about the right amount of EM, and your market cap would be about $30B. Still too big. Fortunately, VSS does not materially change the EM percentage, so we can keep that 80/20 I/VWO and just add VSS until it gets to the right size. 65% parts I/VWO and 35% gets you about $20.1B--good enough.

That works out to 52% I, 13% VWO, 35% VSS. It is OK to round this out, and to be off target for a while as you build up accounts.

I also agree that if you want to stay on target at that I Fund level in your TSP, you would need to add something else to your Roth. It depends on whether you want more Total International, more U.S., or so on.


So would a ROTH IRA that only allows 5500 the way to go or should i go with a different account? Looking to invest 30% of 23.5k into International so do I need to adjust my I fund amount to accommodate 52% I, 13% VMO, and 35% VSS (my I fund now only has 9% of 23.5k) ?

What do i need to add to my Roth IRA being that my TSP I fund only has 9% of 23.5k in it (Im assuming to go with more international as I have 60% of 23.5k invested in U.S domestic...)


I'd start with the premise you want something that will work in the long run. Over time, differences in asset returns will force rebalancing, of course, if you want to stay on target. But you might as well set it up with your targets in mind.

As I understand it, annually you are putting $18K in your TSP and $5.5K in a Roth. If that is the annual plan, $5.5 is only 23.4% of your total, so you need another 6.6% in international to hit 30% (this is of total value, right, not just stocks?). 9% of the $18K make up the difference, so it makes sense to have 9% of your TSP in I, and the rest of your Roth in international too.

An ETF equivalent to I is EFA. So, now you want 52% I/EFA, 35% VSS, 13% VWO. My math says initially you need to do your Roth as about 38% EFA, 45% VSS, 17% VWO. That applied to $5500 plus 9% of $18000 should get you to 30% divided up as planned.

But as I believe I recommended before, to keep this on track when you need to rebalance, a spreadsheet you program might be a good idea.

Note it would also work to figure out what VSS and VWO amounts you need in your Roth to "complete" your I Fund holdings, then do Total International for the rest of your Roth, as another poster recommended. My guess is that would prove more complicated to keep track of over time as you re-balanced, rather than using an I Fund equivalent like EFA. But it is just two different paths to the same end.

time4life
Posts: 13
Joined: Sat May 06, 2017 8:24 pm

Re: 3 Fund Portfolio with TSP help

Postby time4life » Thu May 18, 2017 1:26 pm

NiceUnparticularMan wrote:
time4life wrote:
NiceUnparticularMan wrote:So Total International has about 16% EM, and an average market cap of about $20.8B, per Morningstar. The I Fund should have about 0% EM, and an average market cap about $33.9B. VSS is about 14% EM and $1.5B, VWO is 80% (different definitions of EM) and $14.5.

If you did 80% I Fund and 20% VWO, you'd have about the right amount of EM, and your market cap would be about $30B. Still too big. Fortunately, VSS does not materially change the EM percentage, so we can keep that 80/20 I/VWO and just add VSS until it gets to the right size. 65% parts I/VWO and 35% gets you about $20.1B--good enough.

That works out to 52% I, 13% VWO, 35% VSS. It is OK to round this out, and to be off target for a while as you build up accounts.

I also agree that if you want to stay on target at that I Fund level in your TSP, you would need to add something else to your Roth. It depends on whether you want more Total International, more U.S., or so on.


So would a ROTH IRA that only allows 5500 the way to go or should i go with a different account? Looking to invest 30% of 23.5k into International so do I need to adjust my I fund amount to accommodate 52% I, 13% VMO, and 35% VSS (my I fund now only has 9% of 23.5k) ?

What do i need to add to my Roth IRA being that my TSP I fund only has 9% of 23.5k in it (Im assuming to go with more international as I have 60% of 23.5k invested in U.S domestic...)


I'd start with the premise you want something that will work in the long run. Over time, differences in asset returns will force rebalancing, of course, if you want to stay on target. But you might as well set it up with your targets in mind.

As I understand it, annually you are putting $18K in your TSP and $5.5K in a Roth. If that is the annual plan, $5.5 is only 23.4% of your total, so you need another 6.6% in international to hit 30% (this is of total value, right, not just stocks?). 9% of the $18K make up the difference, so it makes sense to have 9% of your TSP in I, and the rest of your Roth in international too.

An ETF equivalent to I is EFA. So, now you want 52% I/EFA, 35% VSS, 13% VWO. My math says initially you need to do your Roth as about 38% EFA, 45% VSS, 17% VWO. That applied to $5500 plus 9% of $18000 should get you to 30% divided up as planned.

But as I believe I recommended before, to keep this on track when you need to rebalance, a spreadsheet you program might be a good idea.

Note it would also work to figure out what VSS and VWO amounts you need in your Roth to "complete" your I Fund holdings, then do Total International for the rest of your Roth, as another poster recommended. My guess is that would prove more complicated to keep track of over time as you re-balanced, rather than using an I Fund equivalent like EFA. But it is just two different paths to the same end.


What's an EFA? So is it simple to open a Roth IRA and invest 38% in EFA , 45% in VSS and 17% in VMO? Is it as simple as me just telling the rep to divide it that way from 5500 ?

NiceUnparticularMan
Posts: 1363
Joined: Sat Mar 11, 2017 7:51 am

Re: 3 Fund Portfolio with TSP help

Postby NiceUnparticularMan » Thu May 18, 2017 2:55 pm

time4life wrote:What's an EFA? So is it simple to open a Roth IRA and invest 38% in EFA , 45% in VSS and 17% in VMO? Is it as simple as me just telling the rep to divide it that way from 5500 ?


Sorry, EFA is an Exchange-Traded Fund, aka ETF. Specifically, it is iShares MSCI EAFE ETF, and therefore it tracks the same index as the I Fund (the MSCI EAFE Index).

VSS and VWO are also ETFs. To invest in them through a Roth IRA, it will need to be a Roth IRA with a brokerage account. The brokerage account can then be used to buy these ETFs. It is just like buying stocks in a taxable brokerage account. You can submit orders online or by telephone.

Usually the best way to do this is to use a cheap online brokerage. As it happens, all of those particular ETFs are available commission-free from TD Ameritrade, so you could use them if you wanted to (commissions are fees charged on trades at a brokerage, and in this case those fees are waived for these ETFs at that brokerage). Note you have to hold them for 30 days, or they will then charge you the commission.

Vanguard itself is also popular for Roth IRAs. You can buy mutual fund versions of VSS and VWO, but you'll face certain minimums. I believe you can also buy Vanguard ETFs without commission. Other ETFs, like EFA, may cost you something--I believe $7 per trade when you are just starting out.

We've got our IRAs at Vanguard in mutual funds. We've got a taxable account with TD Ameritrade where we use free ETFs. I'd recommend either, and you can get a lot more information on this subject if you like.

time4life
Posts: 13
Joined: Sat May 06, 2017 8:24 pm

Re: 3 Fund Portfolio with TSP help

Postby time4life » Fri May 19, 2017 12:36 am

NiceUnparticularMan wrote:
time4life wrote:What's an EFA? So is it simple to open a Roth IRA and invest 38% in EFA , 45% in VSS and 17% in VMO? Is it as simple as me just telling the rep to divide it that way from 5500 ?


Sorry, EFA is an Exchange-Traded Fund, aka ETF. Specifically, it is iShares MSCI EAFE ETF, and therefore it tracks the same index as the I Fund (the MSCI EAFE Index).

VSS and VWO are also ETFs. To invest in them through a Roth IRA, it will need to be a Roth IRA with a brokerage account. The brokerage account can then be used to buy these ETFs. It is just like buying stocks in a taxable brokerage account. You can submit orders online or by telephone.

Usually the best way to do this is to use a cheap online brokerage. As it happens, all of those particular ETFs are available commission-free from TD Ameritrade, so you could use them if you wanted to (commissions are fees charged on trades at a brokerage, and in this case those fees are waived for these ETFs at that brokerage). Note you have to hold them for 30 days, or they will then charge you the commission.

Vanguard itself is also popular for Roth IRAs. You can buy mutual fund versions of VSS and VWO, but you'll face certain minimums. I believe you can also buy Vanguard ETFs without commission. Other ETFs, like EFA, may cost you something--I believe $7 per trade when you are just starting out.

We've got our IRAs at Vanguard in mutual funds. We've got a taxable account with TD Ameritrade where we use free ETFs. I'd recommend either, and you can get a lot more information on this subject if you like.


Unparticularman, thank you again for your responses. Most appreciated for your wisdom. After trying to gain some more knowledge on the funds you were talking about, I found this summary of ETF, Index, and mutual funds..

Q: What is the difference between index funds, ETFs, and mutual funds? -- Gary
A: An easy way to think about it is this: Exchange-traded funds, or ETFs, are a subset of index funds; and index funds are a subset of mutual funds.
"It's like a funnel," says Christine Benz, director of personal finance at fund tracker Morningstar.
Let's start with the broadest of the three categories: mutual funds.

What is a mutual fund
A mutual fund is a basket of stocks, bonds, or other types of assets. This basket is professionally managed by an investment company on behalf of investors who don't have the time, know-how, or resources to buy a diversified collection of individual securities on their own.
In exchange, the fund charges investors a fee, which may run around 1% of assets annually or more. That means $100 for every $10,000 you invest.
In the case of most stock funds, holdings are selected by a portfolio manager, whose job it is to pick the stocks that he or she thinks are poised to perform the best while avoiding the clunkers. This process is referred to as "active management."
But "active management" isn't the only way to run a mutual fund.

What is an index fund
An index fund adheres to an entirely different strategy.
Instead of picking and choosing just those stocks that the portfolio manager thinks will outperform, an index fund buys all the shares that make up a particular index, like the Standard & Poor's 500 index of blue chip stocks or the Russell 2000 index of small-company shares. The aim is to replicate the performance of that entire market.
But because index funds buy and hold rather than trade frequently — and require no analysts to research companies — they are much cheaper to operate. The Schwab S&P 500 Index fund, for example, charges just 0.09%, or $9 for every $10,000 you invest.
By definition, when you own all the stocks that make up a market, you'll earn just "average" returns of all the stocks in that market. This raises the question: Who would want to settle for just "average" performance?
As it turns out, plenty of investors around the world. While it's counter-intuitive, academic research has shown that the higher expenses associated with active management and the inherent difficulty of picking winning stocks consistently over long periods of time means that most funds that aim to beat the market actually end up behind in the long run.
"In general, active funds have not delivered impressive performance," Benz says. Indeed, S&P Dow Jones Indices has studied the performance of actively managed funds. Over the past 10 years, less than 20% of actively managed blue chip stock funds have outperformed the S&P 500 index of blue chip stocks while fewer than 15% of small-company stock funds have beaten the Russell 2000 index of small-cap shares.

What are ETFs
Okay, index funds sound like a good bet. But what type of index fund should you go with?
Broadly speaking, there are two types. On the one hand, there are traditional index mutual funds like the Vanguard 500 Index. Then there are so-called exchange-traded funds, such as the SPDR S&P 500 ETF .
Both will give you similar results, but they are structured somewhat differently.
For starters, with a mutual fund, you often buy and sell shares directly with the fund company. The fund company will let you trade those shares once a day, based on that day's closing price.
ETFs, on the other hand, aren't sold directly by fund companies. Instead, they are listed on an exchange, and you must have a brokerage account to buy and sell those shares. That convenience typically comes at a price: Just like with stocks, investors pay a brokerage commission whenever they buy and sell.
That means for small investors, traditional index mutual funds are often more cost effective. "If you are on the hook for trading costs, that can really eat into your returns," says Benz.On the other hand, because they are exchange traded, ETF shares can be traded throughout the day. Being able to trade in and out of funds during the day is a convenience that has proved popular for many investors. For the past decade exchange-traded funds have been one of the fastest growing corners of the fund business.

They all sound good haha.
If i were to purchase ETFs, it would be ishares along with VSS, and VMO with a ROTH IRA brokerage account. That brought up another question, am I purchasing iShares MSCI EAFE ETF because it represents the "I" fund or that is the ETF i should purchase to replicate the international market?

If VG provide ETF without commission, i'll go with them.

NiceUnparticularMan
Posts: 1363
Joined: Sat Mar 11, 2017 7:51 am

Re: 3 Fund Portfolio with TSP help

Postby NiceUnparticularMan » Fri May 19, 2017 6:35 am

time4life wrote:They all sound good haha.
If i were to purchase ETFs, it would be ishares along with VSS, and VMO with a ROTH IRA brokerage account. That brought up another question, am I purchasing iShares MSCI EAFE ETF because it represents the "I" fund or that is the ETF i should purchase to replicate the international market?

If VG provide ETF without commission, i'll go with them.


EFA replicates the I Fund, so is "incomplete" in the same sense the I Fund is incomplete (it is large and developed only).

If you want to do the total international approach instead, you could use VXUS. If you are using all-Vanguard ETFs, you could just use Vanguard for your Roth IRA. You could also just use their mutual funds (there are pros and cons each way).

time4life
Posts: 13
Joined: Sat May 06, 2017 8:24 pm

Re: 3 Fund Portfolio with TSP help

Postby time4life » Fri May 19, 2017 11:27 pm

NiceUnparticularMan wrote:
time4life wrote:They all sound good haha.
If i were to purchase ETFs, it would be ishares along with VSS, and VMO with a ROTH IRA brokerage account. That brought up another question, am I purchasing iShares MSCI EAFE ETF because it represents the "I" fund or that is the ETF i should purchase to replicate the international market?

If VG provide ETF without commission, i'll go with them.


EFA replicates the I Fund, so is "incomplete" in the same sense the I Fund is incomplete (it is large and developed only).

If you want to do the total international approach instead, you could use VXUS. If you are using all-Vanguard ETFs, you could just use Vanguard for your Roth IRA. You could also just use their mutual funds (there are pros and cons each way).


Ah I see. So VXUS, VSS and VMO (ETFs) in VG ROTH IRA... Would that still be 38% in VXUS , 45% in VSS and 17% in VMO?

NiceUnparticularMan
Posts: 1363
Joined: Sat Mar 11, 2017 7:51 am

Re: 3 Fund Portfolio with TSP help

Postby NiceUnparticularMan » Sat May 20, 2017 7:38 am

time4life wrote:Ah I see. So VXUS, VSS and VMO (ETFs) in VG ROTH IRA... Would that still be 38% in VXUS , 45% in VSS and 17% in VMO?


No, this is a different plan now. Now your VXUS is already what you want it to be, and you are using the VSS and VWO just to complete your I Fund holdings. You'd have to figure out how much VSS and VWO you need to get your I Fund/VSS/VWO ratios at 52%/35%/13%. Once you did that, you would add enough VXUS to get up to your target of 30% international stock total.

time4life
Posts: 13
Joined: Sat May 06, 2017 8:24 pm

Re: 3 Fund Portfolio with TSP help

Postby time4life » Sun May 21, 2017 4:56 am

NiceUnparticularMan wrote:
time4life wrote:Ah I see. So VXUS, VSS and VMO (ETFs) in VG ROTH IRA... Would that still be 38% in VXUS , 45% in VSS and 17% in VMO?


No, this is a different plan now. Now your VXUS is already what you want it to be, and you are using the VSS and VWO just to complete your I Fund holdings. You'd have to figure out how much VSS and VWO you need to get your I Fund/VSS/VWO ratios at 52%/35%/13%. Once you did that, you would add enough VXUS to get up to your target of 30% international stock total.


I think my confusion is the 2 different set of percentage ratios along with 2 different paths...

"So Total International has about 16% EM, and an average market cap of about $20.8B, per Morningstar. The I Fund should have about 0% EM, and an average market cap about $33.9B. VSS is about 14% EM and $1.5B, VWO is 80% (different definitions of EM) and $14.5.

If you did 80% I Fund and 20% VWO, you'd have about the right amount of EM, and your market cap would be about $30B. Still too big. Fortunately, VSS does not materially change the EM percentage, so we can keep that 80/20 I/VWO and just add VSS until it gets to the right size. 65% parts I/VWO and 35% gets you about $20.1B--good enough.

That works out to 52% I, 13% VWO, 35% VSS. It is OK to round this out, and to be off target for a while as you build up accounts.

An ETF equivalent to I is EFA. So, now you want 52% I/EFA, 35% VSS, 13% VWO. My math says initially you need to do your Roth as about 38% EFA, 45% VSS, 17% VWO. That applied to $5500 plus 9% of $18000 should get you to 30% divided up as planned."

If i want to complete my portfolio through an EFA.... this is the path
ETF equivalent to I is EFA, so in the ROTH i need to do:
38% EFA of 5500 = 2090 + 1620 (9% of 18k)
45% VSS of 5500 = 2475
17% VMO of 5500= 935
This as a whole gives me 30% of international stock....

OR

I don't use an EFA and follow this path....
"Now your VXUS is already what you want it to be, and you are using the VSS and VWO just to complete your I Fund holdings. You'd have to figure out how much VSS and VWO you need to get your I Fund/VSS/VWO ratios at 52%/35%/13%. Once you did that, you would add enough VXUS to get up to your target of 30% international stock total."

Is this correct? On which one i should choose, are they both the same in terms of complexity?

NiceUnparticularMan
Posts: 1363
Joined: Sat Mar 11, 2017 7:51 am

Re: 3 Fund Portfolio with TSP help

Postby NiceUnparticularMan » Sun May 21, 2017 8:40 am

Yes, these are two different paths to the same end. I don't think it really matters which you choose, as long as these are tax-protected accounts and you aren't paying any fees for rebalancing when necessary.

time4life
Posts: 13
Joined: Sat May 06, 2017 8:24 pm

Re: 3 Fund Portfolio with TSP help

Postby time4life » Mon May 22, 2017 2:43 am

NiceUnparticularMan wrote:Yes, these are two different paths to the same end. I don't think it really matters which you choose, as long as these are tax-protected accounts and you aren't paying any fees for rebalancing when necessary.


Tax-protected same as pre-tax accounts?

Looked into Vanguard, are these the funds I'm investing in:

Vanguard FTSE All-World ex-US Small-Cap ETF (VSS)
Vanguard Global Momentum Factor ETF (VMO)

As far as EFA goes, am I investing in Vanguard MSCI EAFE (NYSEArca: VEA) or iShares MSCI EAFE ?

HawkDriver
Posts: 24
Joined: Fri Aug 14, 2015 12:05 pm
Location: Kodiak, AK

Re: 3 Fund Portfolio with TSP help

Postby HawkDriver » Mon May 22, 2017 3:24 am

time4life,

If your name is any indication, this is becoming way too complicated. The goal of the 3 fund portfolio is simplicity. The L fund is likely close enough. Vanguard Total Retirement is good enough for your IRA. All the rebalancing is done for you and you reduce the opportunity for behavioral mistakes.

As a fellow active-duty BH, please let me give you some advice: Let TSP/Vanguard do the work for you and live your life.

time4life
Posts: 13
Joined: Sat May 06, 2017 8:24 pm

Re: 3 Fund Portfolio with TSP help

Postby time4life » Mon May 22, 2017 5:32 am

HawkDriver wrote:time4life,

If your name is any indication, this is becoming way too complicated. The goal of the 3 fund portfolio is simplicity. The L fund is likely close enough. Vanguard Total Retirement is good enough for your IRA. All the rebalancing is done for you and you reduce the opportunity for behavioral mistakes.

As a fellow active-duty BH, please let me give you some advice: Let TSP/Vanguard do the work for you and live your life.


Appreciate your thoughts. I'm not interested in L/Retirement Fund controlling my allocations and I rather it be in my hands. I understand this concept might be complex for me at this moment but better to learn now, ask the dumb questions, and make mistakes early on than waiting 30-40 years to understand...


Return to “Investing - Help with Personal Investments”