TSP to Increase Stock Holdings in L Funds

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autolycus
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TSP to Increase Stock Holdings in L Funds

Post by autolycus » Wed Sep 19, 2018 7:57 am

I thought some would like to know about this:

https://www.govexec.com/pay-benefits/20 ... oref=river
Under the new investment plan, known as a glide path, the next L Fund to open—L 2060—will begin with 99 percent of contributions invested in equities. It will maintain that percentage until the average participant reaches age 35, at which point investments will begin to shift toward securities. When the average participant is age 58, the fund will be 60 percent stocks, and it will bottom out at 30 percent equities at age 63.
Existing accounts will maintain their current equity-to-securities ratio until they intersect with the new glide path, at which point they will shift towards securities investment at the new rate. For instance, the L 2050 is currently 80 percent invested in stocks. Instead of continuing on its previously planned trajectory, it will remain at 80 percent equities until 2020, when it will intersect with the new glide path and decrease along with it accordingly.
Additionally, the L funds will increase the proportion of stock holdings that come from international equities from 30 percent to 35 percent.

Theoretical
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Re: TSP to Increase Stock Holdings in L Funds

Post by Theoretical » Wed Sep 19, 2018 8:13 am

I continue to be amazed by how actively managed TDFs are.

azanon
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Re: TSP to Increase Stock Holdings in L Funds

Post by azanon » Wed Sep 19, 2018 8:14 am

Another sign this bull market is nearing it's end. We still have a bit to go probably, because my office-mates aren't daytrading yet like they were in 97-99'.

On point, so I wonder if that means that those funds already below the target path (take the L-Income fund for instance), will gradually rise up over 15 years to the new target (so from 20% equities to 30%).
Last edited by azanon on Wed Sep 19, 2018 8:16 am, edited 1 time in total.

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Re: TSP to Increase Stock Holdings in L Funds

Post by azanon » Wed Sep 19, 2018 8:15 am

Theoretical wrote:
Wed Sep 19, 2018 8:13 am
I continue to be amazed by how actively managed TDFs are.
An excellent point, and one of my biggest beefs with "buy-and-hold" balanced funds. Virtually none of them stay the course. They're constantly being tweaked. VG does it too with Lifestrategy.

If one plans to buy-and-hold for a long time - say 30 years, the only viable way to do it is with individual funds.

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vineviz
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Re: TSP to Increase Stock Holdings in L Funds

Post by vineviz » Wed Sep 19, 2018 9:02 am

azanon wrote:
Wed Sep 19, 2018 8:14 am
On point, so I wonder if that means that those funds already below the target path (take the L-Income fund for instance), will gradually rise up over 15 years to the new target (so from 20% equities to 30%).
It looks like the L-Income fund is the only one that would need to actually INCREASE its equity allocation under the new glide path. The other four funds (2050, 2040, 2030, & 2020) will simply be reducing the equity allocation more slowly than they previously would have.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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vineviz
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Re: TSP to Increase Stock Holdings in L Funds

Post by vineviz » Wed Sep 19, 2018 9:03 am

azanon wrote:
Wed Sep 19, 2018 8:15 am
An excellent point, and one of my biggest beefs with "buy-and-hold" balanced funds. Virtually none of them stay the course. They're constantly being tweaked. VG does it too with Lifestrategy.
Personally I view these improvements as a feature, not a bug.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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SquawkIdent
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Re: TSP to Increase Stock Holdings in L Funds

Post by SquawkIdent » Wed Sep 19, 2018 9:17 am

I like parts of this and don't like other parts.

The part I don't like is increasing the stock allocations in each fund. I think this is market timing and it's a sure sign this bull market has affected their thinking. I would be more accepting of this if their education to the employees about the TSP would be greater. But it hasn't been and won't be in the future.

I personally like the decision to increase the international portion of the equity holdings. It will get us to a more accurate market weighting. But that's just my opinion. I know many people want US holdings only.

IMHO, it's so much easier to divide your account exactly the way you want it by allocating to the separate funds by yourself. However, I do realize there is a need for these types of lifecycle funds by folks who want nothing to do with this except contributing their bi weekly contributions. :sharebeer

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mrc
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Re: TSP to Increase Stock Holdings in L Funds

Post by mrc » Wed Sep 19, 2018 10:14 am

Until we discovered the three-fund portfolio, we used an L fund that was a (much) later date than actual retirement age. We did this because the date fund was a too conservative for our taste.

They still are: The 2040 fund (23 years out) at 28% bonds, remains higher than our desired bond allocation.

One could split between or among L funds, but that math is more involved than just allocating among the GFCSI funds.
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Re: TSP to Increase Stock Holdings in L Funds

Post by WanderingDoc » Wed Sep 19, 2018 10:56 am

autolycus wrote:
Wed Sep 19, 2018 7:57 am
I thought some would like to know about this:

https://www.govexec.com/pay-benefits/20 ... oref=river
Under the new investment plan, known as a glide path, the next L Fund to open—L 2060—will begin with 99 percent of contributions invested in equities. It will maintain that percentage until the average participant reaches age 35, at which point investments will begin to shift toward securities. When the average participant is age 58, the fund will be 60 percent stocks, and it will bottom out at 30 percent equities at age 63.
Existing accounts will maintain their current equity-to-securities ratio until they intersect with the new glide path, at which point they will shift towards securities investment at the new rate. For instance, the L 2050 is currently 80 percent invested in stocks. Instead of continuing on its previously planned trajectory, it will remain at 80 percent equities until 2020, when it will intersect with the new glide path and decrease along with it accordingly.
Additionally, the L funds will increase the proportion of stock holdings that come from international equities from 30 percent to 35 percent.
Euphoria is strong on this one. Get your cash positions up there, gents!
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

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Re: TSP to Increase Stock Holdings in L Funds

Post by azanon » Wed Sep 19, 2018 10:57 am

vineviz wrote:
Wed Sep 19, 2018 9:03 am
azanon wrote:
Wed Sep 19, 2018 8:15 am
An excellent point, and one of my biggest beefs with "buy-and-hold" balanced funds. Virtually none of them stay the course. They're constantly being tweaked. VG does it too with Lifestrategy.
Personally I view these improvements as a feature, not a bug.
I was referencing the base tenants of Boglehead philosophy, which is to pick a reasonable allocation strategy, and then stay the course - staying it regardless of whether other competing funds are becoming more aggressive (as stated in the press release), staying the course regardless of whether some new asset class is now more popular, etc.

If one's allocation changes, .... even slightly, then we know one thing for absolute certain; They did not stay the course at the exact moment the change was made. And, worse, if they changed it because they think more of x asset class is now better in current investing climate, that's called market timing.

That's not a bug; That's just not being Boglehead.

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Re: TSP to Increase Stock Holdings in L Funds

Post by azanon » Wed Sep 19, 2018 10:58 am

I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.

WanderingDoc
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Re: TSP to Increase Stock Holdings in L Funds

Post by WanderingDoc » Wed Sep 19, 2018 11:00 am

azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
To be fair, I I think the change to include developing markets in the I fund was a great and prudent idea, not just to remain hip.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

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Re: TSP to Increase Stock Holdings in L Funds

Post by azanon » Wed Sep 19, 2018 11:26 am

WanderingDoc wrote:
Wed Sep 19, 2018 11:00 am
azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
To be fair, I I think the change to include developing markets in the I fund was a great and prudent idea, not just to remain hip.
That was a separate change announced several months ago, and not the target of my comments here.

That being said, although technically also a violation of what I'm saying, I have to agree in that one particular case because emerging markets represent a large and growing component of global GDP, where back and before the TSP funds started, that was not true. It's roughly 10% of total world stock if I'm not mistaken, so yes in that case, it is adding in a piece that has been outright missing.

My base point though is that if you want a portfolio that will stay the course of a 30 year retirement, and do nothing more than rebalance, you can't pick a lifestrategy or L-income fund. It's only a matter of time before those change again, and again.

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vineviz
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Re: TSP to Increase Stock Holdings in L Funds

Post by vineviz » Wed Sep 19, 2018 11:43 am

azanon wrote:
Wed Sep 19, 2018 10:57 am
If one's allocation changes, .... even slightly, then we know one thing for absolute certain; They did not stay the course at the exact moment the change was made. And, worse, if they changed it because they think more of x asset class is now better in current investing climate, that's called market timing.
Leaving aside the fact that "stay the course" is more of a platitude than anything else, I don't think it necessarily follows that the "course" (whatever that means) is necessarily and always a straight line.

A "course" that never adapts to new discoveries or new information is more akin to a game of chicken than a prudent navigational strategy, IMHO.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Theoretical
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Re: TSP to Increase Stock Holdings in L Funds

Post by Theoretical » Wed Sep 19, 2018 11:57 am

Here’s the difference. It’s asset class active management.

It would be like if the fruit basket at work carried both apples and oranges. As new varieties come into market or become easier to get you add more varieties, the selections increase. If total market funds (singly or combined) are in the TDF change here, it’s to be expected.

The problem here is that the proportions of apples and oranges are getting thrown all over the place. That will make far greater changes to the return profile than the marginal changes of adding small caps or emerging markets to such a folio.

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Re: TSP to Increase Stock Holdings in L Funds

Post by Whakamole » Wed Sep 19, 2018 12:30 pm

This bothers me a bit.

On the other hand, I've seen too many people who I think would be better suited towards target date funds - simply because they're not interested in investing, won't rebalance, etc. - who reject them because recent returns have lagged compared to the S&P 500, or any domestic equity fund. You can explain that the fund has other components that have lagged the market - international, bonds, and (depending on the fund) international bonds, extra weighting for REITs, commodities, TIPS, etc. But then we're back to explaining how the market works.

For people that interested in investing, and the impact that international/bonds/etc. have on a portfolio, they'd likely be better off rolling their own anyway, since they can optimize for taxes and perhaps save a few basis points in the process.

For those who aren't interested, the ones that I try to convince to use target date funds, it can be a difficult pitch.

I think setting up the 2060 fund to be extremely stock heavy - making recent returns very comparable to domestic stock returns - has the advantage of getting freshly minted graduates and thus new to investing to pick the target date fund over pure domestic equities. Then I think we have a chance of, later in their careers and once they start saving in taxable, to think more about asset allocation.

Iorek
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Re: TSP to Increase Stock Holdings in L Funds

Post by Iorek » Wed Sep 19, 2018 12:41 pm

In addition to what has been said above, I think fundamentally TSP needs to wrestle with the question of whether/how much they expect people to annuitize their accounts at retirement because I think will significantly affect the decision about appropriate glide paths.

The amount of risk you want to take depends a lot on whether you are trying to maximize the amount available to annuitize at retirement vs trying to maximize funds available over a 20-30 year retirement.

My impression (or perhaps WAG) is that the L funds were originally designed with the idea that people might annuitize, so they reduced risk sharply in the 5 years or so before that might happen. The consultant quoted in the article seems to assume that people will not annuitize, but just balance withdrawals over retirement by relying the pension and SS.

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Re: TSP to Increase Stock Holdings in L Funds

Post by azanon » Wed Sep 19, 2018 12:57 pm

vineviz wrote:
Wed Sep 19, 2018 11:43 am
azanon wrote:
Wed Sep 19, 2018 10:57 am
If one's allocation changes, .... even slightly, then we know one thing for absolute certain; They did not stay the course at the exact moment the change was made. And, worse, if they changed it because they think more of x asset class is now better in current investing climate, that's called market timing.
Leaving aside the fact that "stay the course" is more of a platitude than anything else, I don't think it necessarily follows that the "course" (whatever that means) is necessarily and always a straight line.

A "course" that never adapts to new discoveries or new information is more akin to a game of chicken than a prudent navigational strategy, IMHO.
Just wanted to know that I did read your opinion on this, and wanted to confirm that we disagree on all points.

You either stick to your asset allocation or you don't, and despite whatever pundits say in a given year, unless something significant changes in your life warranting the change. Most don't, and I get that. Being Boglehead is simple, but it's anything but easy.

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vineviz
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Re: TSP to Increase Stock Holdings in L Funds

Post by vineviz » Wed Sep 19, 2018 1:11 pm

Theoretical wrote:
Wed Sep 19, 2018 11:57 am
The problem here is that the proportions of apples and oranges are getting thrown all over the place.
Given that we are discussing a 10% shift in equity allocation, phased in smoothly over a 15 year period, I don't think I'm going out on a limb to say that "proportions ... getting thrown all over the place" might be a tad hyperbolic.

The computer I'm using to type this was built in 2011 and I, for one, am grateful (not upset) that Apple continues to update the operating system to make it safer and more functional over time rather than blindly "staying the course" in order to preserve the user experience I had six years ago.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: TSP to Increase Stock Holdings in L Funds

Post by rkhusky » Wed Sep 19, 2018 1:19 pm

azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
The TSP is hip. You must be joking. They take forever to do anything. In order to do a withdrawal, you must either mail hard-copy forms or fax them. And the forms need notarized signatures from both spouses. And you can't do Roth conversions within the TSP. And you can't just withdraw Roth or Traditional funds, they have to be pro-rated between them. And the L Funds reach their terminal allocation of 20/80 at the target year. And their international fund has no emerging markets, no small stocks and no Canadian stocks. The TSP is still back in the 90's.

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Re: TSP to Increase Stock Holdings in L Funds

Post by SquawkIdent » Wed Sep 19, 2018 1:48 pm

rkhusky wrote:
Wed Sep 19, 2018 1:19 pm
azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
The TSP is hip. You must be joking. They take forever to do anything. In order to do a withdrawal, you must either mail hard-copy forms or fax them. And the forms need notarized signatures from both spouses. And you can't do Roth conversions within the TSP. And you can't just withdraw Roth or Traditional funds, they have to be pro-rated between them. And the L Funds reach their terminal allocation of 20/80 at the target year. And their international fund has no emerging markets, no small stocks and no Canadian stocks. The TSP is still back in the 90's.
+1

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mrc
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Re: TSP to Increase Stock Holdings in L Funds

Post by mrc » Wed Sep 19, 2018 2:28 pm

SquawkIdent wrote:
Wed Sep 19, 2018 1:48 pm
rkhusky wrote:
Wed Sep 19, 2018 1:19 pm
azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
The TSP is hip. You must be joking. They take forever to do anything. In order to do a withdrawal, you must either mail hard-copy forms or fax them. And the forms need notarized signatures from both spouses. And you can't do Roth conversions within the TSP. And you can't just withdraw Roth or Traditional funds, they have to be pro-rated between them. And the L Funds reach their terminal allocation of 20/80 at the target year. And their international fund has no emerging markets, no small stocks and no Canadian stocks. The TSP is still back in the 90's.
+1
+2

To transfer funds out of the TSP into a former company 403b plan, one must a) obtain spouses notarized signature on the TSP paperwork, and b) obtain a signature of the plan administrator (along with the destination plan information). I cannot pull the funds to the new custodian — the TSP does not honor any other custodian's paperwork. The notary I can understand, but the requirement to obtain a sig from the destination plan ON THE TSP-77 is simply archaic. We'll go through this one time, on separation from service. Rather than remain with TSP and then put up with the withdrawal limitations forever.
If it’s not long term it’s small talk

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SquawkIdent
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Re: TSP to Increase Stock Holdings in L Funds

Post by SquawkIdent » Wed Sep 19, 2018 2:48 pm

mrc wrote:
Wed Sep 19, 2018 2:28 pm
SquawkIdent wrote:
Wed Sep 19, 2018 1:48 pm
rkhusky wrote:
Wed Sep 19, 2018 1:19 pm
azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
The TSP is hip. You must be joking. They take forever to do anything. In order to do a withdrawal, you must either mail hard-copy forms or fax them. And the forms need notarized signatures from both spouses. And you can't do Roth conversions within the TSP. And you can't just withdraw Roth or Traditional funds, they have to be pro-rated between them. And the L Funds reach their terminal allocation of 20/80 at the target year. And their international fund has no emerging markets, no small stocks and no Canadian stocks. The TSP is still back in the 90's.
+1
+2

To transfer funds out of the TSP into a former company 403b plan, one must a) obtain spouses notarized signature on the TSP paperwork, and b) obtain a signature of the plan administrator (along with the destination plan information). I cannot pull the funds to the new custodian — the TSP does not honor any other custodian's paperwork. The notary I can understand, but the requirement to obtain a sig from the destination plan ON THE TSP-77 is simply archaic. We'll go through this one time, on separation from service. Rather than remain with TSP and then put up with the withdrawal limitations forever.
+1

And they wonder why people are leaving the TSP in droves after separation. Yes low expenses, but now Fidelity beats them. They do have the fabulous G fund. But lots of issues many, many people have chosen to rid themselves of by moving to an IRA.

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Re: TSP to Increase Stock Holdings in L Funds

Post by azanon » Wed Sep 19, 2018 3:11 pm

rkhusky wrote:
Wed Sep 19, 2018 1:19 pm
azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
The TSP is hip. You must be joking. They take forever to do anything. In order to do a withdrawal, you must either mail hard-copy forms or fax them. And the forms need notarized signatures from both spouses. And you can't do Roth conversions within the TSP. And you can't just withdraw Roth or Traditional funds, they have to be pro-rated between them. And the L Funds reach their terminal allocation of 20/80 at the target year. And their international fund has no emerging markets, no small stocks and no Canadian stocks. The TSP is still back in the 90's.
-1

You haven't heard they're adding additional withdrawal options (in addition to several of the changes we're already discussing)? 2. They'll be adding the ability to withdraw Roth and Traditional IRAs separately (this is also already announced by TSP). 3. What does pointing out that L fund terminates at 20/80 have to do with anything? Statistically speaking, the Sharpe ratio for a 20/80 is going to be about maxed out vs. most any other option, and certainly much higher than reckless, equity dominated retirement portfolios. (reckless, because maybe 10% of the population has what it takes to watch their portfolio vaporize in half or worse, with no human capital left, and make that 5% for traditionally conservative, Federal employees) 4. The I fund will be total international by 2019.

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Re: TSP to Increase Stock Holdings in L Funds

Post by azanon » Wed Sep 19, 2018 3:32 pm

Refocusing to the original topic, I thought I'd post this taken directly from TSP.gov, because I found the summary to be clearer that the OP link:

"Changes coming to the Lifecycle (L) Funds — (September 18, 2018) The TSP is planning adjustments to the L Funds in an effort to improve outcomes for participants who invest in them. Effective in January 2019, we will increase exposure to international stocks (the I Fund) from 30% to 35% in all L Funds. The L Income Fund stock allocation (C, S, and I Funds combined) will increase from 20% to 30% over a period of up to 10 years. The total stock allocation for the L 2030, L 2040, and L 2050 Funds will hold steady for a period of years to facilitate transition to the L 2060 Fund when it is introduced in 2020. Finally, at that time, the L 2060 Fund will begin with a 99% stock allocation."

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Re: TSP to Increase Stock Holdings in L Funds

Post by SquawkIdent » Wed Sep 19, 2018 3:33 pm

azanon wrote:
Wed Sep 19, 2018 3:11 pm
rkhusky wrote:
Wed Sep 19, 2018 1:19 pm
azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
The TSP is hip. You must be joking. They take forever to do anything. In order to do a withdrawal, you must either mail hard-copy forms or fax them. And the forms need notarized signatures from both spouses. And you can't do Roth conversions within the TSP. And you can't just withdraw Roth or Traditional funds, they have to be pro-rated between them. And the L Funds reach their terminal allocation of 20/80 at the target year. And their international fund has no emerging markets, no small stocks and no Canadian stocks. The TSP is still back in the 90's.
-1

You haven't heard they're adding additional withdrawal options (in addition to several of the changes we're already discussing)? 2. They'll be adding the ability to withdraw Roth and Traditional IRAs separately (this is also already announced by TSP). 3. What does pointing out that L fund terminates at 20/80 have to do with anything? Statistically speaking, the Sharpe ratio for a 20/80 is going to be about maxed out vs. most any other option, and certainly much higher than reckless, equity dominated retirement portfolios. (reckless, because maybe 10% of the population has what it takes to watch their portfolio vaporize in half or worse, with no human capital left, and make that 5% for traditionally conservative, Federal employees) 4. The I fund will be total international by 2019.
My "issue" with all of this is these changes take years to implement. People get impatient waiting around for something that is already offered elsewhere. So you have to weigh the good and bad and make the decision that is right for you and your retirement funds. Putting money in the TSP is easy but getting it out is somewhat difficult. Those difficulties are slowly being addressed but for some it's too little too late.

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Re: TSP to Increase Stock Holdings in L Funds

Post by azanon » Wed Sep 19, 2018 3:42 pm

SquawkIdent wrote:
Wed Sep 19, 2018 3:33 pm
azanon wrote:
Wed Sep 19, 2018 3:11 pm
rkhusky wrote:
Wed Sep 19, 2018 1:19 pm
azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
The TSP is hip. You must be joking. They take forever to do anything. In order to do a withdrawal, you must either mail hard-copy forms or fax them. And the forms need notarized signatures from both spouses. And you can't do Roth conversions within the TSP. And you can't just withdraw Roth or Traditional funds, they have to be pro-rated between them. And the L Funds reach their terminal allocation of 20/80 at the target year. And their international fund has no emerging markets, no small stocks and no Canadian stocks. The TSP is still back in the 90's.
-1

You haven't heard they're adding additional withdrawal options (in addition to several of the changes we're already discussing)? 2. They'll be adding the ability to withdraw Roth and Traditional IRAs separately (this is also already announced by TSP). 3. What does pointing out that L fund terminates at 20/80 have to do with anything? Statistically speaking, the Sharpe ratio for a 20/80 is going to be about maxed out vs. most any other option, and certainly much higher than reckless, equity dominated retirement portfolios. (reckless, because maybe 10% of the population has what it takes to watch their portfolio vaporize in half or worse, with no human capital left, and make that 5% for traditionally conservative, Federal employees) 4. The I fund will be total international by 2019.
My "issue" with all of this is these changes take years to implement. People get impatient waiting around for something that is already offered elsewhere. So you have to weigh the good and bad and make the decision that is right for you and your retirement funds. Putting money in the TSP is easy but getting it out is somewhat difficult. Those difficulties are slowly being addressed but for some it's too little too late.
I get that. I'm 19yrs federal service, and I've followed the TSP developments over the years. That being said (and maybe I'm a sucker), I actually believe virtually all of these changes will be in place by Jan 2020.

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Re: TSP to Increase Stock Holdings in L Funds

Post by SquawkIdent » Wed Sep 19, 2018 4:36 pm

azanon wrote:
Wed Sep 19, 2018 3:42 pm
SquawkIdent wrote:
Wed Sep 19, 2018 3:33 pm
azanon wrote:
Wed Sep 19, 2018 3:11 pm
rkhusky wrote:
Wed Sep 19, 2018 1:19 pm
azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
The TSP is hip. You must be joking. They take forever to do anything. In order to do a withdrawal, you must either mail hard-copy forms or fax them. And the forms need notarized signatures from both spouses. And you can't do Roth conversions within the TSP. And you can't just withdraw Roth or Traditional funds, they have to be pro-rated between them. And the L Funds reach their terminal allocation of 20/80 at the target year. And their international fund has no emerging markets, no small stocks and no Canadian stocks. The TSP is still back in the 90's.
-1

You haven't heard they're adding additional withdrawal options (in addition to several of the changes we're already discussing)? 2. They'll be adding the ability to withdraw Roth and Traditional IRAs separately (this is also already announced by TSP). 3. What does pointing out that L fund terminates at 20/80 have to do with anything? Statistically speaking, the Sharpe ratio for a 20/80 is going to be about maxed out vs. most any other option, and certainly much higher than reckless, equity dominated retirement portfolios. (reckless, because maybe 10% of the population has what it takes to watch their portfolio vaporize in half or worse, with no human capital left, and make that 5% for traditionally conservative, Federal employees) 4. The I fund will be total international by 2019.
My "issue" with all of this is these changes take years to implement. People get impatient waiting around for something that is already offered elsewhere. So you have to weigh the good and bad and make the decision that is right for you and your retirement funds. Putting money in the TSP is easy but getting it out is somewhat difficult. Those difficulties are slowly being addressed but for some it's too little too late.
I get that. I'm 19yrs federal service, and I've followed the TSP developments over the years. That being said (and maybe I'm a sucker), I actually believe virtually all of these changes will be in place by Jan 2020.
From what I've seen, the really special thing about the TSP in the withdrawal phase is the G fund. Nothing else like it anywhere. The other funds can easily be reproduced elsewhere for similar fees. Hopefully these positive changes keep coming because if they don't, retirees will look elsewhere for what they need/want.

rkhusky
Posts: 5554
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Re: TSP to Increase Stock Holdings in L Funds

Post by rkhusky » Wed Sep 19, 2018 5:14 pm

azanon wrote:
Wed Sep 19, 2018 3:11 pm
rkhusky wrote:
Wed Sep 19, 2018 1:19 pm
azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
The TSP is hip. You must be joking. They take forever to do anything. In order to do a withdrawal, you must either mail hard-copy forms or fax them. And the forms need notarized signatures from both spouses. And you can't do Roth conversions within the TSP. And you can't just withdraw Roth or Traditional funds, they have to be pro-rated between them. And the L Funds reach their terminal allocation of 20/80 at the target year. And their international fund has no emerging markets, no small stocks and no Canadian stocks. The TSP is still back in the 90's.
-1

You haven't heard they're adding additional withdrawal options (in addition to several of the changes we're already discussing)? 2. They'll be adding the ability to withdraw Roth and Traditional IRAs separately (this is also already announced by TSP). 3. What does pointing out that L fund terminates at 20/80 have to do with anything? Statistically speaking, the Sharpe ratio for a 20/80 is going to be about maxed out vs. most any other option, and certainly much higher than reckless, equity dominated retirement portfolios. (reckless, because maybe 10% of the population has what it takes to watch their portfolio vaporize in half or worse, with no human capital left, and make that 5% for traditionally conservative, Federal employees) 4. The I fund will be total international by 2019.
And how long did it take all these things to happen? The TSP certainly doesn't change things based on what is popular that year.

I imagine we will still be waiting for a number of years for the TSP to offer Roth conversions and stop requiring paper notarized forms for every withdrawal.

j0e0r7
Posts: 56
Joined: Sat Feb 16, 2008 1:42 pm

Re: TSP to Increase Stock Holdings in L Funds

Post by j0e0r7 » Wed Sep 19, 2018 8:39 pm

rkhusky wrote:
Wed Sep 19, 2018 5:14 pm
azanon wrote:
Wed Sep 19, 2018 3:11 pm
rkhusky wrote:
Wed Sep 19, 2018 1:19 pm
azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
The TSP is hip. You must be joking. They take forever to do anything. In order to do a withdrawal, you must either mail hard-copy forms or fax them. And the forms need notarized signatures from both spouses. And you can't do Roth conversions within the TSP. And you can't just withdraw Roth or Traditional funds, they have to be pro-rated between them. And the L Funds reach their terminal allocation of 20/80 at the target year. And their international fund has no emerging markets, no small stocks and no Canadian stocks. The TSP is still back in the 90's.
-1

You haven't heard they're adding additional withdrawal options (in addition to several of the changes we're already discussing)? 2. They'll be adding the ability to withdraw Roth and Traditional IRAs separately (this is also already announced by TSP). 3. What does pointing out that L fund terminates at 20/80 have to do with anything? Statistically speaking, the Sharpe ratio for a 20/80 is going to be about maxed out vs. most any other option, and certainly much higher than reckless, equity dominated retirement portfolios. (reckless, because maybe 10% of the population has what it takes to watch their portfolio vaporize in half or worse, with no human capital left, and make that 5% for traditionally conservative, Federal employees) 4. The I fund will be total international by 2019.
And how long did it take all these things to happen? The TSP certainly doesn't change things based on what is popular that year.

I imagine we will still be waiting for a number of years for the TSP to offer Roth conversions and stop requiring paper notarized forms for every withdrawal.
Right. When REITs were all the rage (even look at this board c. 2007) and people were clamoring for them to add that asset class, the TSP held fast against that fad. IMO the glide path really had to change. I'm relatively risk-averse, but the L funds went way beyond what I'd ever want in bond % near retirement. People accusing the TSP board of market timing don't seem to know how ultraconservative the board really is.

Crisium
Posts: 149
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Re: TSP to Increase Stock Holdings in L Funds

Post by Crisium » Thu Sep 20, 2018 7:45 am

Am I understanding this correctly?

"When the average participant is age 58, the fund will be 60 percent stocks, and it will bottom out at 30 percent equities at age 63."

Age 58 = 60/40 Stocks/Bonds
Age 63 = 30/70 Stocks/Bonds

So if a deep bear market hits at age 58, you will be selling half your stocks at lows?

azanon
Posts: 1923
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Location: Little Rock, AR

Re: TSP to Increase Stock Holdings in L Funds

Post by azanon » Thu Sep 20, 2018 8:09 am

j0e0r7 wrote:
Wed Sep 19, 2018 8:39 pm
rkhusky wrote:
Wed Sep 19, 2018 5:14 pm
azanon wrote:
Wed Sep 19, 2018 3:11 pm
rkhusky wrote:
Wed Sep 19, 2018 1:19 pm
azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
The TSP is hip. You must be joking. They take forever to do anything. In order to do a withdrawal, you must either mail hard-copy forms or fax them. And the forms need notarized signatures from both spouses. And you can't do Roth conversions within the TSP. And you can't just withdraw Roth or Traditional funds, they have to be pro-rated between them. And the L Funds reach their terminal allocation of 20/80 at the target year. And their international fund has no emerging markets, no small stocks and no Canadian stocks. The TSP is still back in the 90's.
-1

You haven't heard they're adding additional withdrawal options (in addition to several of the changes we're already discussing)? 2. They'll be adding the ability to withdraw Roth and Traditional IRAs separately (this is also already announced by TSP). 3. What does pointing out that L fund terminates at 20/80 have to do with anything? Statistically speaking, the Sharpe ratio for a 20/80 is going to be about maxed out vs. most any other option, and certainly much higher than reckless, equity dominated retirement portfolios. (reckless, because maybe 10% of the population has what it takes to watch their portfolio vaporize in half or worse, with no human capital left, and make that 5% for traditionally conservative, Federal employees) 4. The I fund will be total international by 2019.
And how long did it take all these things to happen? The TSP certainly doesn't change things based on what is popular that year.

I imagine we will still be waiting for a number of years for the TSP to offer Roth conversions and stop requiring paper notarized forms for every withdrawal.
Right. When REITs were all the rage (even look at this board c. 2007) and people were clamoring for them to add that asset class, the TSP held fast against that fad. IMO the glide path really had to change. I'm relatively risk-averse, but the L funds went way beyond what I'd ever want in bond % near retirement. People accusing the TSP board of market timing don't seem to know how ultraconservative the board really is.
Virtually no one (not counting individuals; fund companies like Vanguard) added REITs to their balanced portfolios, with very few exceptions such as Vanguard's own Managed Payout Fund where the very purpose of the fund was to mirror an Ivy strategy. 98% held fast, including the TSP.

Holding 99% stocks at any point and time where you breath air, is anything but "ultra conservative".

rkhusky
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Re: TSP to Increase Stock Holdings in L Funds

Post by rkhusky » Thu Sep 20, 2018 8:12 am

Crisium wrote:
Thu Sep 20, 2018 7:45 am
Am I understanding this correctly?

"When the average participant is age 58, the fund will be 60 percent stocks, and it will bottom out at 30 percent equities at age 63."

Age 58 = 60/40 Stocks/Bonds
Age 63 = 30/70 Stocks/Bonds

So if a deep bear market hits at age 58, you will be selling half your stocks at lows?
The L2050 fund is currently 82/18. Under the current glide path, it should be 70/30 in 2030, 60/40 in 2040, 50/50 in 2045, 40/60 in 2047, 30/70 in 2049, and 20/80 in 2050. It does have a steep drop off in the last 10 years, but that is true of most target date funds.

You wouldn't need to sell much stock because the market decline would have done most of that for you. If you were at 60/40 and the market dropped by 50%, your new allocation would be 43/57. If the drop happened fairly fast, you might even need to buy stock to bring your allocation up to the glide path.

Crisium
Posts: 149
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Re: TSP to Increase Stock Holdings in L Funds

Post by Crisium » Thu Sep 20, 2018 8:30 am

TSP rebalances daily. So if there's a 50% stock decline when you're 58, yes the L fund will be selling bonds/G Fund and buying stocks during the decent.

But what I'm talking about is if there's a long bear and the stocks stay far, far below historic lows for a few years. During this time, the L fund will be selling literally half it's stock allocation at very cheap valuations. It didn't matter that the L fund sold bonds and bought equities during the decline if it's selling off the equities at those same low prices a short time later.

It seems irresponsible to take that risk. I guess they take a similar risk to that now as you say. I don't like it, and I think more gradual glides lessen the impact of a risk like that.

Katietsu
Posts: 1577
Joined: Sun Sep 22, 2013 1:48 am

Re: TSP to Increase Stock Holdings in L Funds

Post by Katietsu » Thu Sep 20, 2018 8:57 am

mrc wrote:
Wed Sep 19, 2018 2:28 pm
SquawkIdent wrote:
Wed Sep 19, 2018 1:48 pm
rkhusky wrote:
Wed Sep 19, 2018 1:19 pm
azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
The TSP is hip. You must be joking. They take forever to do anything. In order to do a withdrawal, you must either mail hard-copy forms or fax them. And the forms need notarized signatures from both spouses. And you can't do Roth conversions within the TSP. And you can't just withdraw Roth or Traditional funds, they have to be pro-rated between them. And the L Funds reach their terminal allocation of 20/80 at the target year. And their international fund has no emerging markets, no small stocks and no Canadian stocks. The TSP is still back in the 90's.
+1
+2

To transfer funds out of the TSP into a former company 403b plan, one must a) obtain spouses notarized signature on the TSP paperwork, and b) obtain a signature of the plan administrator (along with the destination plan information). I cannot pull the funds to the new custodian — the TSP does not honor any other custodian's paperwork. The notary I can understand, but the requirement to obtain a sig from the destination plan ON THE TSP-77 is simply archaic. We'll go through this one time, on separation from service. Rather than remain with TSP and then put up with the withdrawal limitations forever.
If misery loves company, I have moved/or tried to move money 3 times from employer plans. All three had the same requirements you describe. Additionally, I have failed twice with one of the plans. You must start the process with the partially pre filled form that they have specifically issued after receiving a request of your intent. Then, you must get the spouse’s notarized signature, a signature that comes from HR at the current company and a part that must be completed by the provider for the receiving plan. You must then get the physical form back to them within 30 days of the start of the process or the deny it for exceeding the time limit. :annoyed

Katietsu
Posts: 1577
Joined: Sun Sep 22, 2013 1:48 am

Re: TSP to Increase Stock Holdings in L Funds

Post by Katietsu » Thu Sep 20, 2018 8:57 am

Katietsu wrote:
Thu Sep 20, 2018 8:57 am
mrc wrote:
Wed Sep 19, 2018 2:28 pm
SquawkIdent wrote:
Wed Sep 19, 2018 1:48 pm
rkhusky wrote:
Wed Sep 19, 2018 1:19 pm
azanon wrote:
Wed Sep 19, 2018 10:58 am
I wonder when the next change will be? Market timers should be so excited about this, that the TSP is always going to try to remain hip and viable to whatever's popular in a given year.
The TSP is hip. You must be joking. They take forever to do anything. In order to do a withdrawal, you must either mail hard-copy forms or fax them. And the forms need notarized signatures from both spouses. And you can't do Roth conversions within the TSP. And you can't just withdraw Roth or Traditional funds, they have to be pro-rated between them. And the L Funds reach their terminal allocation of 20/80 at the target year. And their international fund has no emerging markets, no small stocks and no Canadian stocks. The TSP is still back in the 90's.
+1
+2

To transfer funds out of the TSP into a former company 403b plan, one must a) obtain spouses notarized signature on the TSP paperwork, and b) obtain a signature of the plan administrator (along with the destination plan information). I cannot pull the funds to the new custodian — the TSP does not honor any other custodian's paperwork. The notary I can understand, but the requirement to obtain a sig from the destination plan ON THE TSP-77 is simply archaic. We'll go through this one time, on separation from service. Rather than remain with TSP and then put up with the withdrawal limitations forever.
If misery loves company...I have moved/or tried to move money 3 times from employer plans. All three had the same requirements you describe. Additionally, I have failed twice with one of the plans. You must start the process with the partially pre filled form that they have specifically issued after receiving a request of your intent. Then, you must get the spouse’s notarized signature, a signature that comes from HR at the current company and a part that must be completed by the provider for the receiving plan. You must then get the physical form back to them within 30 days of the start of the process or the deny it for exceeding the time limit. :annoyed

AnonJohn
Posts: 167
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Re: TSP to Increase Stock Holdings in L Funds

Post by AnonJohn » Thu Sep 20, 2018 9:16 am

azanon wrote:
Wed Sep 19, 2018 12:57 pm
vineviz wrote:
Wed Sep 19, 2018 11:43 am
azanon wrote:
Wed Sep 19, 2018 10:57 am
If one's allocation changes, .... even slightly, then we know one thing for absolute certain; They did not stay the course at the exact moment the change was made. And, worse, if they changed it because they think more of x asset class is now better in current investing climate, that's called market timing.
Leaving aside the fact that "stay the course" is more of a platitude than anything else, I don't think it necessarily follows that the "course" (whatever that means) is necessarily and always a straight line.

A "course" that never adapts to new discoveries or new information is more akin to a game of chicken than a prudent navigational strategy, IMHO.
Just wanted to know that I did read your opinion on this, and wanted to confirm that we disagree on all points.

You either stick to your asset allocation or you don't, and despite whatever pundits say in a given year, unless something significant changes in your life warranting the change. Most don't, and I get that. Being Boglehead is simple, but it's anything but easy.
This begs a question in my mind. When is it, in the Boglehead view, acceptable to change your AA? If it only significant changes in life, what defines significant?

There are many factors that impact need and ability to take risks. I think it's fair - necessary even - to revisit one's AA. To my mind the Boglehead approach is to have an IPS that specifies when / why you revisit AA, the circumstances under which changes should be made, and (perhaps) the time-scale for making changes (e.g. wait 6 months after planning a change before acting, phase in any AA change over at least 1-2 years, etc).

My personal example: I'm currently changing my asset allocation over a 2 year period to account for my mortgage as a negative bond. Having read enough here on that point, I decided that I was taking on too much risk by borrowing to invest.

azanon
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Re: TSP to Increase Stock Holdings in L Funds

Post by azanon » Thu Sep 20, 2018 1:50 pm

AnonJohn wrote:
Thu Sep 20, 2018 9:16 am
azanon wrote:
Wed Sep 19, 2018 12:57 pm
vineviz wrote:
Wed Sep 19, 2018 11:43 am
azanon wrote:
Wed Sep 19, 2018 10:57 am
If one's allocation changes, .... even slightly, then we know one thing for absolute certain; They did not stay the course at the exact moment the change was made. And, worse, if they changed it because they think more of x asset class is now better in current investing climate, that's called market timing.
Leaving aside the fact that "stay the course" is more of a platitude than anything else, I don't think it necessarily follows that the "course" (whatever that means) is necessarily and always a straight line.

A "course" that never adapts to new discoveries or new information is more akin to a game of chicken than a prudent navigational strategy, IMHO.
Just wanted to know that I did read your opinion on this, and wanted to confirm that we disagree on all points.

You either stick to your asset allocation or you don't, and despite whatever pundits say in a given year, unless something significant changes in your life warranting the change. Most don't, and I get that. Being Boglehead is simple, but it's anything but easy.
This begs a question in my mind. When is it, in the Boglehead view, acceptable to change your AA? If it only significant changes in life, what defines significant?

There are many factors that impact need and ability to take risks. I think it's fair - necessary even - to revisit one's AA. To my mind the Boglehead approach is to have an IPS that specifies when / why you revisit AA, the circumstances under which changes should be made, and (perhaps) the time-scale for making changes (e.g. wait 6 months after planning a change before acting, phase in any AA change over at least 1-2 years, etc).

My personal example: I'm currently changing my asset allocation over a 2 year period to account for my mortgage as a negative bond. Having read enough here on that point, I decided that I was taking on too much risk by borrowing to invest.
I would potentially argue your collective asset allocation didn't change, if you add enough bonds, or an appropriate amount of bonds, to mathematically compensate for the mortgage. (the only caution I would have with that view though, is that to remember that you can't rebalance with a mortgage.)

I agree with your view, but find that this view is actually rare; The view that if you have both a mortgage and investments at the same time, you're essentially using leverage to invest. Said another way, I always find it a little odd that many people would say they wouldn't dare have a margin investment account, only to later found out that they have both a mortgage and taxable investments in stocks. The only difference I see there is that the house is the collateral for the investments, instead of the investments themselves at a brokerage (because that would be no different than getting a HELOC from a paid-off house, for the purpose of sending the money to a brokerage for buying stocks). Interestingly enough, the cost of margin investments at, say, interactive brokers is about the same rate as a 15-yr mortgage.

j0e0r7
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Re: TSP to Increase Stock Holdings in L Funds

Post by j0e0r7 » Thu Sep 20, 2018 2:43 pm

azanon wrote:
Thu Sep 20, 2018 8:09 am
j0e0r7 wrote:
Wed Sep 19, 2018 8:39 pm

Right. When REITs were all the rage (even look at this board c. 2007) and people were clamoring for them to add that asset class, the TSP held fast against that fad. IMO the glide path really had to change. I'm relatively risk-averse, but the L funds went way beyond what I'd ever want in bond % near retirement. People accusing the TSP board of market timing don't seem to know how ultraconservative the board really is.
Virtually no one (not counting individuals; fund companies like Vanguard) added REITs to their balanced portfolios, with very few exceptions such as Vanguard's own Managed Payout Fund where the very purpose of the fund was to mirror an Ivy strategy. 98% held fast, including the TSP.

Holding 99% stocks at any point and time where you breath air, is anything but "ultra conservative".
Sorry for the confusion. I was referring to the addition of REITS as an asset class in the TSP, not as part of the L funds, but as an available fund in and of themselves.

I agree with you that 99% stocks is not ultraconservative. And I personally think they should have started at 10%. But for a 21-year-old freshly minted fed, where the glide path is set so that bonds are added in a timely manner, I'm not sure it's that far off.

Side note: as a middle-age person with a healthy amount of bonds, the Vanguard asset allocation questionnaire always recommends 100% stocks for me in my retirement fund. Crazy!

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vineviz
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Re: TSP to Increase Stock Holdings in L Funds

Post by vineviz » Thu Sep 20, 2018 2:51 pm

azanon wrote:
Thu Sep 20, 2018 8:09 am
Holding 99% stocks at any point and time where you breath air, is anything but "ultra conservative".
It's also not "ultra aggressive". In fact, for a retirement portfolio for someone who is at least 35 years from retirement, it's right down the middle of the road I'd say.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

azanon
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Location: Little Rock, AR

Re: TSP to Increase Stock Holdings in L Funds

Post by azanon » Thu Sep 20, 2018 7:54 pm

j0e0r7 wrote:
Thu Sep 20, 2018 2:43 pm
azanon wrote:
Thu Sep 20, 2018 8:09 am
j0e0r7 wrote:
Wed Sep 19, 2018 8:39 pm

Right. When REITs were all the rage (even look at this board c. 2007) and people were clamoring for them to add that asset class, the TSP held fast against that fad. IMO the glide path really had to change. I'm relatively risk-averse, but the L funds went way beyond what I'd ever want in bond % near retirement. People accusing the TSP board of market timing don't seem to know how ultraconservative the board really is.
Virtually no one (not counting individuals; fund companies like Vanguard) added REITs to their balanced portfolios, with very few exceptions such as Vanguard's own Managed Payout Fund where the very purpose of the fund was to mirror an Ivy strategy. 98% held fast, including the TSP.

Holding 99% stocks at any point and time where you breath air, is anything but "ultra conservative".
Sorry for the confusion. I was referring to the addition of REITS as an asset class in the TSP, not as part of the L funds, but as an available fund in and of themselves.

I agree with you that 99% stocks is not ultraconservative. And I personally think they should have started at 10%. But for a 21-year-old freshly minted fed, where the glide path is set so that bonds are added in a timely manner, I'm not sure it's that far off.

Side note: as a middle-age person with a healthy amount of bonds, the Vanguard asset allocation questionnaire always recommends 100% stocks for me in my retirement fund. Crazy!
Re: addition of REITs as an asset class to TSP, I personally wouldn't have an issue with that (though it could be harmful to others, as I'll explain). My original criticism against the TSP L fund and virtually all other balanced funds, is that they don't maintain the original allocation. So as long as the L fund didn't incorporate an REIT fund that was separately added later, then that wouldn't be the subject of my complaint. That being said, if I were on the TSP board, I would oppose its addition for the same reason that many other outlier asset classes are opposed, which is to prevent uninformed federal employees from having the ability to add up to 100% of a very narrowly focused, asset class.

Yes, you and I agree that the Vanguard asset class recommendations are too stock heavy - and I would add that virtually every one of these calculators are everywhere else too. That's recency bias at work. I don't see that changing until we have a longer, more drawn out bear market, like from 68' to 82'. History teaches that once upon a time, stocks were very frowned upon. I think the truth is in the middle, which is virtually all major asset class have an expected return that's comparable to the risk being taken for that return. "Risk Premiums" - not "Risk Premium, + a bonus on top of that because it's a superior asset class". Some very famous people, such as Warren B, outright say or suggest that stocks are superior. I think he's dead wrong.

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nedsaid
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Re: TSP to Increase Stock Holdings in L Funds

Post by nedsaid » Thu Sep 20, 2018 8:59 pm

azanon wrote:
Wed Sep 19, 2018 8:14 am
Another sign this bull market is nearing it's end. We still have a bit to go probably, because my office-mates aren't daytrading yet like they were in 97-99'.

On point, so I wonder if that means that those funds already below the target path (take the L-Income fund for instance), will gradually rise up over 15 years to the new target (so from 20% equities to 30%).
Yep, I was thinking exactly the same thing. During the last bear market of 2008-2009, Target Date Funds took criticism for this very thing. It seems like they amped up their stock allocation before the bear market.

I guess that is another Nedsaid market timing indicators, when Target Date Funds increase their allocation to stocks, it might be time to throw in the towel on the bull market. One would expect Thrift Savings Plan to be relatively conservative as they don't have to compete with Vanguard, Fidelity, and T Rowe Price. I guess the performance derby has tempted the TSP as well.
A fool and his money are good for business.

MnD
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Re: TSP to Increase Stock Holdings in L Funds

Post by MnD » Fri Sep 21, 2018 8:02 am

Still too conservative and the 5-year drop from 60% equity to 30% equity age 58-63 - hmmmmmmm......
TSP pioneer here (march 1987) and we've always been around 70/30 and will remain for life.
The FERS pension and SS is like having 50% or more in bonds so if you are 70/30 in your investment portfolio going into and around retirement you are effectively more like 35/70. Going to 30/70 in your retirement portfolio at age 63 might be fine for someone with no other safe income but for feds that's not even remotely the case.

stan1
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Re: TSP to Increase Stock Holdings in L Funds

Post by stan1 » Fri Sep 21, 2018 8:28 am

nedsaid wrote:
Thu Sep 20, 2018 8:59 pm
One would expect Thrift Savings Plan to be relatively conservative as they don't have to compete with Vanguard, Fidelity, and T Rowe Price. I guess the performance derby has tempted the TSP as well.
Actually they do have to compete. Definitely after retirement and the cost advantage of the TSP compared to an IRA at Vanguard or Fidelity has for the most part evaporated. The G Fund is really the only advantage TSP has over the others for retirees now. Most of the costs of operating the TSP are fixed not variable so they need to grow AUM to improve efficiency and keep expense ratio down. We just have to look at Vanguard to see how trillions in AUM have lowered expense ratios.

MnD
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Re: TSP to Increase Stock Holdings in L Funds

Post by MnD » Fri Sep 21, 2018 9:09 am

azanon wrote:
Thu Sep 20, 2018 7:54 pm

Yes, you and I agree that the Vanguard asset class recommendations are too stock heavy - and I would add that virtually every one of these calculators are everywhere else too. That's recency bias at work. I don't see that changing until we have a longer, more drawn out bear market, like from 68' to 82'. History teaches that once upon a time, stocks were very frowned upon.
You're aware that bonds were a dreadful investment 1968-1982? (postWWII-1982 actually).
Try increasing bonds in a historical portfolio survival tool like cfiresim.
The only thing adding more bonds does is help you go broke slightly sooner.

The real "recency bias" at work on this board is the impression that bonds are a safe alternative to stocks on account of a 35 year bull market in bonds 1982-July 2016. Ignoring the past 27 month "correction" in bonds, virtually no investors in the markets today have experienced a protracted bond bear market in real terms.

rkhusky
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Re: TSP to Increase Stock Holdings in L Funds

Post by rkhusky » Fri Sep 21, 2018 9:20 am

MnD wrote:
Fri Sep 21, 2018 9:09 am
The real "recency bias" at work on this board is the impression that bonds are a safe alternative to stocks on account of a 35 year bull market in bonds 1982-July 2016. Ignoring the past 27 month "correction" in bonds, virtually no investors have experienced a bond bear market in real terms.
Why was 82-16 a bull market for bonds? Weren't interest rates dropping? I expect my fixed income to provide income and lower interest rates run counter to that.

azanon
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Re: TSP to Increase Stock Holdings in L Funds

Post by azanon » Fri Sep 21, 2018 11:12 am

MnD wrote:
Fri Sep 21, 2018 9:09 am
azanon wrote:
Thu Sep 20, 2018 7:54 pm

Yes, you and I agree that the Vanguard asset class recommendations are too stock heavy - and I would add that virtually every one of these calculators are everywhere else too. That's recency bias at work. I don't see that changing until we have a longer, more drawn out bear market, like from 68' to 82'. History teaches that once upon a time, stocks were very frowned upon.
You're aware that bonds were a dreadful investment 1968-1982? (postWWII-1982 actually).
Try increasing bonds in a historical portfolio survival tool like cfiresim.
The only thing adding more bonds does is help you go broke slightly sooner.

The real "recency bias" at work on this board is the impression that bonds are a safe alternative to stocks on account of a 35 year bull market in bonds 1982-July 2016. Ignoring the past 27 month "correction" in bonds, virtually no investors in the markets today have experienced a protracted bond bear market in real terms.
I didn't say anything about bond's performance from 68'-82', and the L fund uses mostly G fund for "bonds". G fund has outpaced inflation since inception, can't lose money, and is designed to at least keep up with inflation (not a guarantee, but it's about as close as you can get to one).

This thread is about the TSP and L fund, which is G fund dominated for "bonds". The G fund is quite safe, I assure you.

Straight-forward rule of thumb: If your primary concern is preservation of the value of your cash in real terms (and nothing else matters), your best bet is I-bonds, or TIPS, and if you're a FED, the G fund.

I do think you have a good point that could be brought up maybe in another thread. Statistically speaking though, the F fund really isn't used that much by feds, either held separately or in the L fund.

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jadd806
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Re: TSP to Increase Stock Holdings in L Funds

Post by jadd806 » Fri Sep 21, 2018 12:13 pm

rkhusky wrote:
Fri Sep 21, 2018 9:20 am
MnD wrote:
Fri Sep 21, 2018 9:09 am
The real "recency bias" at work on this board is the impression that bonds are a safe alternative to stocks on account of a 35 year bull market in bonds 1982-July 2016. Ignoring the past 27 month "correction" in bonds, virtually no investors have experienced a bond bear market in real terms.
Why was 82-16 a bull market for bonds? Weren't interest rates dropping? I expect my fixed income to provide income and lower interest rates run counter to that.
Interest rates fell from ~15% to ~2% during that period, so yes it was over a 3 decade bull market for bonds. Bond prices and yields are inversely correlated. Any bond purchased while rates are falling will see price appreciation on top of the interest payments. This period of performance will not be repeated over the next 3 decades (unless you think rates are going to negative double digits), but like MnD said it is all that most investors alive today have known.

If you're concerned with income yields in a vacuum means nothing, you need to be concerned with real yields.

MnD
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Re: TSP to Increase Stock Holdings in L Funds

Post by MnD » Sat Sep 22, 2018 8:57 am

Feds hired after 1983 have a 1% of salary times years pension, full eligibility for Social Security and the TSP.
A TSP glide path of 99% for a young employee to 60% equity by mid-late 50's, then a drop to 30% equity by only age 63 is not too aggressive and/or an incarnation of recency bias. In fact 30% equity in context of also having a pension plus SS, and given almost all of the other 70% is in a stable value fund (the TSP G fund) is as about as conservative a situation as one might imagine. Personally we're going into retirement 70/30 and sleep great at night given the above conditions.

One wildcard not mentioned, the TSP international index the I fund follows in 2019 is moving from only covering around 60% of the total international stock market (EAFE) to around 99% coverage (MSCI ACWI ex-US IMI). Boosting equities and the share in international in the TSP target date L funds is not surprising given that the I fund coverage of international is going up quite substantially. Total market indexing feds, myself included, have held small cap international and emerging markets outside of the TSP for decades. Going forward that won't be necessary for those using the I fund as part of their own designed AA or for L fund users.

AnonJohn
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Re: TSP to Increase Stock Holdings in L Funds

Post by AnonJohn » Tue Oct 02, 2018 4:11 pm

azanon wrote:
Thu Sep 20, 2018 1:50 pm

I would potentially argue your collective asset allocation didn't change, if you add enough bonds, or an appropriate amount of bonds, to mathematically compensate for the mortgage. (the only caution I would have with that view though, is that to remember that you can't rebalance with a mortgage.)

I agree with your view, but find that this view is actually rare; The view that if you have both a mortgage and investments at the same time, you're essentially using leverage to invest. Said another way, I always find it a little odd that many people would say they wouldn't dare have a margin investment account, only to later found out that they have both a mortgage and taxable investments in stocks. The only difference I see there is that the house is the collateral for the investments, instead of the investments themselves at a brokerage (because that would be no different than getting a HELOC from a paid-off house, for the purpose of sending the money to a brokerage for buying stocks). Interestingly enough, the cost of margin investments at, say, interactive brokers is about the same rate as a 15-yr mortgage.
I'd agree with your argument, though I'd probably also say that while my intended asset allocation didn't change, my actual one did. As I learned more and thought more, and came to appreciate all the points you raise. Thanks Bogleheads! :sharebeer

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