Thrift Savings Plan (TSP) U.S. Equity Allocations

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Topic Author
bgyt
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Joined: Sat Jun 16, 2018 8:20 am

Thrift Savings Plan (TSP) U.S. Equity Allocations

Post by bgyt » Thu Jan 10, 2019 3:11 pm

Government employees attempting to execute 3-fund portfolio within your TSP, what is the correct allocation across C and S funds for U.S. equity exposure? To date I have blindly been splitting my U.S. equity allocation 50/50 between:

C Fund: Common Stock Index Investment Fund
S Fund: Small Cap Stock Index Investment Fund

I guess I never thought to ask if this is the correct allocation to represent the equivalent Vanguard Total Stock Market fund...until I ran across this BH post while searching:
While investors can easily marry the S&P 500 C fund with the small-cap S fund to gain exposure to the total U.S. market (a 4 to 1 ratio replicates a total U.S. market index fund), the I fund doesn't include exposure to emerging markets or foreign small caps
Wow, if this is correct, that is quite a ratio (80% C to 20% S) to emulate VTSMX. And hard to believe. Can anyone confirm or enlighten? And again, I'm just focusing this question on the split for U.S. equities.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Thrift Savings Plan (TSP) U.S. Equity Allocations

Post by delamer » Thu Jan 10, 2019 3:24 pm

I am not clear on why you find the 80/20 ratio hard to believe.

Here is the relevant information from the wiki: https://www.bogleheads.org/wiki/Approxi ... ock_market

So 50/50 makes you significantly overweighted in small caps.

cdc
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Re: Thrift Savings Plan (TSP) U.S. Equity Allocations

Post by cdc » Thu Jan 10, 2019 4:28 pm

I’m in the TSP, and I’m allocated 50% C, 10% S, 35% F, and 5% G. This portfolio feels right to me. I don’t invest in I because it ignores emerging markets.

retiredjg
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Re: Thrift Savings Plan (TSP) U.S. Equity Allocations

Post by retiredjg » Thu Jan 10, 2019 5:05 pm

Last I looked, the TSP indicated a 75/25 ratio was appropriate for people who want the total stock market. Most references around here indicate something like 82/18 or 80/20. Anywhere in that neighborhood is correct enough. It is not critical to be very accurate.

https://www.bogleheads.org/wiki/Approxi ... ock_market

02nz
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Re: Thrift Savings Plan (TSP) U.S. Equity Allocations

Post by 02nz » Thu Jan 10, 2019 5:12 pm

cdc wrote:
Thu Jan 10, 2019 4:28 pm
I don’t invest in I because it ignores emerging markets.
This is changing by the end of this year. The I fund has a significantly lower expense ratio than Vanguard Total International Index Admiral (VTIAX), so after the change many will want to use it for their entire int'l stock allocation (as many already use the G Fund for their entire bond allocation).

02nz
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Re: Thrift Savings Plan (TSP) U.S. Equity Allocations

Post by 02nz » Thu Jan 10, 2019 5:16 pm

cdc wrote:
Thu Jan 10, 2019 4:28 pm
I’m in the TSP, and I’m allocated 50% C, 10% S, 35% F, and 5% G. This portfolio feels right to me.
A bit off-topic, but worth considering shifting from F to G. The G Fund is unique in that it gives you the returns of intermediate-term treasuries, but without the duration risk. The F Fund is just a normal bond fund, with the usual duration and payment risks. Some people look at past returns and think F is better because it has offered higher returns over the past decade or so, forgetting that this was in a declining interest rate environment (which benefits F but not G). Take a look at the 2018 returns to see what happens when interest rates start to creep back up.

telsaar
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Re: Thrift Savings Plan (TSP) U.S. Equity Allocations

Post by telsaar » Thu Jan 10, 2019 5:40 pm

The idea ratio may be best identified on how long you have to retirement. Small Caps will generate better returns but be significantly more volatile. So expect the roller coaster rides. C fund (S&P 500) will be less volatile. If you have 25-30 years to retirement maybe you should be slightly heavier in small caps. As you get close to retirement, you should have dialed back the small cap exposure to the C fund and stabilized you funds some. At some point you should be adding F funds to reduce overall volatility. F funds may not be need till you are within 7 - 10 years of withdrawing whats in your TSP portfolio. What goes in F funds ideally would represent what you would withdraw 3 to 10 years from now. What you should put into G fund is what you will withdraw 0 - 2+ years from now. [The years vary based upon your risk tolerances] You can see the bucket approach modeled above. I think the thought process with the answers to the question: If I need my money __ years from now, where would I invest it. In the answer you look at expected returns, volatility and pick the investment(s) that have the returns and minimizes your risk of your money not being available when you actually need it.

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hoppy08520
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Re: Thrift Savings Plan (TSP) U.S. Equity Allocations

Post by hoppy08520 » Thu Jan 10, 2019 5:47 pm

02nz wrote:
Thu Jan 10, 2019 5:12 pm
cdc wrote:
Thu Jan 10, 2019 4:28 pm
I don’t invest in I because it ignores emerging markets.
This is changing by the end of this year. The I fund has a significantly lower expense ratio than Vanguard Total International Index Admiral (VTIAX), so after the change many will want to use it for their entire int'l stock allocation (as many already use the G Fund for their entire bond allocation).
I will probably do that too. Ironically, for years I held no International in my TSP because of the incompleteness of the I Fund. But after the index change, I will shift my allocations around between accounts to move as much international into the TSP as I can because of the lower expenses in the TSP. I figure on a $100,000 international allocation, I'll save around $70 annually in fees compared to Vanguard (0.11% ER in Vanguard compared to around 0.03 in TSP).

Topic Author
bgyt
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Joined: Sat Jun 16, 2018 8:20 am

Re: Thrift Savings Plan (TSP) U.S. Equity Allocations

Post by bgyt » Thu Jan 10, 2019 7:18 pm

retiredjg wrote:
Thu Jan 10, 2019 5:05 pm
Last I looked, the TSP indicated a 75/25 ratio was appropriate for people who want the total stock market. Most references around here indicate something like 82/18 or 80/20. Anywhere in that neighborhood is correct enough. It is not critical to be very accurate.

https://www.bogleheads.org/wiki/Approxi ... ock_market
excellent. thank you.

cdc
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Joined: Fri Jun 02, 2017 1:05 pm

Re: Thrift Savings Plan (TSP) U.S. Equity Allocations

Post by cdc » Thu Jan 10, 2019 9:06 pm

02nz wrote:
Thu Jan 10, 2019 5:16 pm
cdc wrote:
Thu Jan 10, 2019 4:28 pm
I’m in the TSP, and I’m allocated 50% C, 10% S, 35% F, and 5% G. This portfolio feels right to me.
A bit off-topic, but worth considering shifting from F to G. The G Fund is unique in that it gives you the returns of intermediate-term treasuries, but without the duration risk. The F Fund is just a normal bond fund, with the usual duration and payment risks. Some people look at past returns and think F is better because it has offered higher returns over the past decade or so, forgetting that this was in a declining interest rate environment (which benefits F but not G). Take a look at the 2018 returns to see what happens when interest rates start to creep back up.
Thank you. Good points.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Thrift Savings Plan (TSP) U.S. Equity Allocations

Post by delamer » Thu Jan 10, 2019 9:22 pm

telsaar wrote:
Thu Jan 10, 2019 5:40 pm
The idea ratio may be best identified on how long you have to retirement. Small Caps will generate better returns but be significantly more volatile. So expect the roller coaster rides. C fund (S&P 500) will be less volatile. If you have 25-30 years to retirement maybe you should be slightly heavier in small caps. As you get close to retirement, you should have dialed back the small cap exposure to the C fund and stabilized you funds some. At some point you should be adding F funds to reduce overall volatility. F funds may not be need till you are within 7 - 10 years of withdrawing whats in your TSP portfolio. What goes in F funds ideally would represent what you would withdraw 3 to 10 years from now. What you should put into G fund is what you will withdraw 0 - 2+ years from now. [The years vary based upon your risk tolerances] You can see the bucket approach modeled above. I think the thought process with the answers to the question: If I need my money __ years from now, where would I invest it. In the answer you look at expected returns, volatility and pick the investment(s) that have the returns and minimizes your risk of your money not being available when you actually need it.
The OP was asking about duplicating the Vanguard Total Stock Market Index fund with the TSP.

Whether s/he should be overweight in small caps is a different, although legitimate, question. And as you indicated, the answer depends in part on how far s/he is from beginning withdrawals.

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