TSP Question: Why would AA change on L-Income?

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brucebuck1010
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TSP Question: Why would AA change on L-Income?

Post by brucebuck1010 » Wed Feb 27, 2019 1:36 pm

This is not a debate about the actual Asset Allocation for the TSP Lifecycle Income Fund (I find it a bit too conservative for my tastes, even after retirement next year). But my question is this: If you go to to look at the AA for this fund, it varies over time. And in fact, it gets LESS conservative as time marches on. I am curious why the AA would even change? While the fund is targeted towards older, retired people, anyone can jump in at any time. Everyone's AA is the same, and it gets less conservative as you get older. Can anyone explain this strategy?

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hoppy08520
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Re: TSP Question: Why would AA change on L-Income?

Post by hoppy08520 » Wed Feb 27, 2019 1:46 pm

brucebuck1010 wrote:
Wed Feb 27, 2019 1:36 pm
This is not a debate about the actual Asset Allocation for the TSP Lifecycle Income Fund (I find it a bit too conservative for my tastes, even after retirement next year). But my question is this: If you go to to look at the AA for this fund, it varies over time. And in fact, it gets LESS conservative as time marches on. I am curious why the AA would even change? While the fund is targeted towards older, retired people, anyone can jump in at any time. Everyone's AA is the same, and it gets less conservative as you get older. Can anyone explain this strategy?
Yes, that looks like a weird progression, but I believe this is a result of the TSP recently deciding to make the Lifecycle asset allocations more aggressive. They are phasing this in over time, not immediately.

TSP to Increase Stock Holdings Across Lifecycle Funds

Theoretically, once the Lifecycle Income fund arrives at the TSP's desired 30/70 stock/bond allocation in 8-10 years or so, it should stay there...unless they tweak the allocation again.

Straight from the mouth of the TSP:
Plan News and Announcements | TSP wrote:Changes coming to the Lifecycle (L) Funds — (November 29, 2018) We are planning adjustments to the L Funds in an effort to improve your investment outcomes. Effective in January 2019, we will increase exposure to international stocks (the I Fund) from 30% to 35% of the overall stock allocation 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 L 2030, L 2040, and L 2050 overall stock allocations will hold steady for a period of years before resuming their transitions from stocks to bonds. In addition to improving investment outcomes, this pause will align the L 2030, L 2040, and L 2050 Funds with the L 2060 Fund, which will be introduced in 2020 with an initial stock allocation of 99%. Visit Lifecycle Funds to learn more.
Last edited by hoppy08520 on Wed Feb 27, 2019 1:53 pm, edited 1 time in total.

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brucebuck1010
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Re: TSP Question: Why would AA change on L-Income?

Post by brucebuck1010 » Wed Feb 27, 2019 1:51 pm

hoppy08520 wrote:
Wed Feb 27, 2019 1:46 pm

Yes, that looks like a weird progression, but I believe this is a result of the TSP recently deciding to make the Lifecycle asset allocations more aggressive. They are phasing this in over time, not immediately.
Ah yes, I do remember they are slowly making the Lifecycle funds more aggressive. I bet that is the answer. Thanks!

azanon
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Re: TSP Question: Why would AA change on L-Income?

Post by azanon » Wed Feb 27, 2019 4:49 pm

Though your original question is already answered, I will say it's so unfortunate that it's darn near impossible to buy/own any sort of balanced fund these days, and to expect the institution holding the fund to "stay the course". And when there's a major asset allocation change (which by that, I mean changing the stock/bond ratio), the asset class that's being increased almost always follows a protracted bull market for that asset class in the past. In other words, institutions also have a habit of buying high and selling low.

I guess I'm saying, in short, the only way you can really ensure that you'll have asset allocation that you want or that's outlined in your IPS for decades to come, is to hold the individual asset classes themselves. Because institutions can rarely stay the course. They'll find some excuse to monkey with the allocation, over and over, and usually they want to increase whatever's recently been doing well.

The TSP might have characterized going from 20% to 30% equities as a tweak to become more in-line with everyone else. Me being more of a math guy, see's a 50% increase in stock holdings. A 50% increase isn't just a tweak.

rkhusky
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Re: TSP Question: Why would AA change on L-Income?

Post by rkhusky » Wed Feb 27, 2019 9:28 pm

Knowing how slowly the TSP changes, they were probably talking about this change years ago. It’s just coincidence that it is happening 10 years into a bull market. And the fact that it will take 10 years to accomplish makes it unlikely to be market timing.

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brucebuck1010
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Re: TSP Question: Why would AA change on L-Income?

Post by brucebuck1010 » Thu Feb 28, 2019 4:09 pm

azanon wrote:
Wed Feb 27, 2019 4:49 pm

I guess I'm saying, in short, the only way you can really ensure that you'll have asset allocation that you want or that's outlined in your IPS for decades to come, is to hold the individual asset classes themselves. Because institutions can rarely stay the course. They'll find some excuse to monkey with the allocation, over and over, and usually they want to increase whatever's recently been doing well.

The TSP might have characterized going from 20% to 30% equities as a tweak to become more in-line with everyone else. Me being more of a math guy, see's a 50% increase in stock holdings. A 50% increase isn't just a tweak.
I agree with you 100%! I'm probably a year out from retirement. After that, I am most likely to roll everything over to Vanguard IRAs (though I might keep some "bond" allocation in the G fund). In the meantime, I do NOT use the Lifecycle funds, I just look at them from time to time to see what "the pros" are thinking. In addition to what you said, I'm also not a fan of daily re-balancing, as the Lifcycle funds do. Thanks for your comments.

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