>2055 TSP Lifecycle + 10% in G fund

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
justglassin
Posts: 40
Joined: Mon Nov 11, 2013 3:46 pm

>2055 TSP Lifecycle + 10% in G fund

Post by justglassin » Fri Jul 31, 2020 9:11 am

Thoughts on holding one of the new TSP Lifecycle funds (which have almost no G or F fund, ~1%) and then some percentage of the account in G fund?

I don't believe there is any benefit in being in F funds given where interest rates are now -- not that there is much return in G, but it's as risk free as anything, unless we go negative(?).

Right now I hold a 3-fund allocation in my TSP - C/S/I @ 60%/15%/25% and rest in G. But watching markets and allocation is driving me nuts, so I'd rather let some automatic re-balancing, especially if we see some rotation from large cap to international and small cap, do it's work. In addition to one of these new ~99% equities Lifecycle funds, I'd keep 10% in a reserve of G fund for any really bad day.

42, senior civil servant. Fully funded emergency fund in Betterment, maxed out Roth in 3-fund, and I make bi-weekly taxable investments in VTI, VXUS and occasionally a few stocks I follow here and there.

Thanks!

User avatar
vineviz
Posts: 7248
Joined: Tue May 15, 2018 1:55 pm

Re: >2055 TSP Lifecycle + 10% in G fund

Post by vineviz » Fri Jul 31, 2020 9:38 am

justglassin wrote:
Fri Jul 31, 2020 9:11 am
Thoughts on holding one of the new TSP Lifecycle funds (which have almost no G or F fund, ~1%) and then some percentage of the account in G fund?

I don't believe there is any benefit in being in F funds given where interest rates are now -- not that there is much return in G, but it's as risk free as anything, unless we go negative(?).
The allocations in the TSP lifecycle funds are definitely not too aggressive, so I'd probably recommend putting 100% in the L fund that roughly corresponds with your expected retirement date.

Is that 2055 for you? If your age is 42, I'd guess you probably want the 2040 fund instead.

If the TSP L funds have a flaw it's that they tend to allocate too much to the G Fund relative to the F Fund. If you wanted to improve on the 2040 L fund, you'd probably do 90% 2050 or 2055 plus 10% F fund.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

pkcrafter
Posts: 14178
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: >2055 TSP Lifecycle + 10% in G fund

Post by pkcrafter » Fri Jul 31, 2020 9:50 am

F fund is up 6% YTD. Don't choose an L fund by date, choose it by desired asset allocation.
But watching markets and allocation is driving me nuts, so I'd rather let some automatic re-balancing, especially if we see some rotation from large cap to international and small cap, do it's work.
Then consider L 2050, 2045, or L2040.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Blue456
Posts: 831
Joined: Tue Jun 04, 2019 5:46 am

Re: >2055 TSP Lifecycle + 10% in G fund

Post by Blue456 » Fri Jul 31, 2020 10:13 am

vineviz wrote:
Fri Jul 31, 2020 9:38 am
justglassin wrote:
Fri Jul 31, 2020 9:11 am
Thoughts on holding one of the new TSP Lifecycle funds (which have almost no G or F fund, ~1%) and then some percentage of the account in G fund?

I don't believe there is any benefit in being in F funds given where interest rates are now -- not that there is much return in G, but it's as risk free as anything, unless we go negative(?).
The allocations in the TSP lifecycle funds are definitely not too aggressive, so I'd probably recommend putting 100% in the L fund that roughly corresponds with your expected retirement date.

Is that 2055 for you? If your age is 42, I'd guess you probably want the 2040 fund instead.

If the TSP L funds have a flaw it's that they tend to allocate too much to the G Fund relative to the F Fund. If you wanted to improve on the 2040 L fund, you'd probably do 90% 2050 or 2055 plus 10% F fund.
Unless of course you don’t believe in holding corporate debt.
As for OP question. I would agree just hold one L fund and don’t worry too much about the small allocation into F.

morbo
Posts: 6
Joined: Mon Apr 08, 2019 9:01 am

Re: >2055 TSP Lifecycle + 10% in G fund

Post by morbo » Fri Jul 31, 2020 10:15 am

The thing about the L funds is that they jump from being aggressive to being extremely conservative. The 2055 fund has a combined 1% in the F and G funds. The 2050 fund has over 18% in those funds combined, and the 2045 has over 23% in the F and G.

I'm 40 this year, and for me having a quarter of my retirement savings in the F and G is ridiculously conservative. As it would happen, I ended up with an AA similar to what the OP has in mind; although, with the F mixed in. My plan has always been to have at most 10% in bonds until I'm 40, and then increase from that about 2% every year.

User avatar
vineviz
Posts: 7248
Joined: Tue May 15, 2018 1:55 pm

Re: >2055 TSP Lifecycle + 10% in G fund

Post by vineviz » Fri Jul 31, 2020 10:18 am

Blue456 wrote:
Fri Jul 31, 2020 10:13 am
Unless of course you don’t believe in holding corporate debt.
It seems like a weird thing to hold a superstition about, but okay.

Nonetheless, the F fund is the only bond fund in the TSP so ....
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Topic Author
justglassin
Posts: 40
Joined: Mon Nov 11, 2013 3:46 pm

Re: >2055 TSP Lifecycle + 10% in G fund

Post by justglassin » Fri Jul 31, 2020 10:23 am

morbo wrote:
Fri Jul 31, 2020 10:15 am
The thing about the L funds is that they jump from being aggressive to being extremely conservative. The 2055 fund has a combined 1% in the F and G funds. The 2050 fund has over 18% in those funds combined, and the 2045 has over 23% in the F and G.
I noticed the same thing regarding the overly conservative allocation, which is why I suppose I never settled on an L fund previously. Did you end up going with the 2050 then or are you allocating to individual funds? Curious as to why we would hold F right now given how low interest rates are...when they go up (in a few...years(?), doesn't that mean we'll see their value fall?

User avatar
vineviz
Posts: 7248
Joined: Tue May 15, 2018 1:55 pm

Re: >2055 TSP Lifecycle + 10% in G fund

Post by vineviz » Fri Jul 31, 2020 10:29 am

morbo wrote:
Fri Jul 31, 2020 10:15 am
The thing about the L funds is that they jump from being aggressive to being extremely conservative. The 2055 fund has a combined 1% in the F and G funds. The 2050 fund has over 18% in those funds combined, and the 2045 has over 23% in the F and G.

I'm 40 this year, and for me having a quarter of my retirement savings in the F and G is ridiculously conservative. As it would happen, I ended up with an AA similar to what the OP has in mind; although, with the F mixed in. My plan has always been to have at most 10% in bonds until I'm 40, and then increase from that about 2% every year.
That sharp glide path is definitely a design feature, and a smart one IMHO.

Setting aside my criticism of the over-allocation to the F fund, the L fund glide paths are optimizing for a subtly more sophisticated goal than most TDFs.

The TSP is aiming to minimize the risk of post-retirement income shortfall for the average TSP participant. That’s a much smarter objective than most private firms have. Plus the TSP is able to use everything they know about the typical participant (which is much more than a firm like Vanguard can know) to achieve that goal: income levels, additional pensions, longevity, etc.

I’d advise most TSP participants that the L fund allocation for their retirement year is probably a better choice than a much more conservative or more aggressive allocation.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

delamer
Posts: 10240
Joined: Tue Feb 08, 2011 6:13 pm

Re: >2055 TSP Lifecycle + 10% in G fund

Post by delamer » Fri Jul 31, 2020 10:33 am

vineviz wrote:
Fri Jul 31, 2020 10:18 am
Blue456 wrote:
Fri Jul 31, 2020 10:13 am
Unless of course you don’t believe in holding corporate debt.
It seems like a weird thing to hold a superstition about, but okay.

Nonetheless, the F fund is the only bond fund in the TSP so ....
It’s not a superstition. It’s the belief that you should take your risk in equities and stick to government bonds for fixed income.

User avatar
vineviz
Posts: 7248
Joined: Tue May 15, 2018 1:55 pm

Re: >2055 TSP Lifecycle + 10% in G fund

Post by vineviz » Fri Jul 31, 2020 10:39 am

delamer wrote:
Fri Jul 31, 2020 10:33 am
vineviz wrote:
Fri Jul 31, 2020 10:18 am
Blue456 wrote:
Fri Jul 31, 2020 10:13 am
Unless of course you don’t believe in holding corporate debt.
It seems like a weird thing to hold a superstition about, but okay.

Nonetheless, the F fund is the only bond fund in the TSP so ....
It’s not a superstition. It’s the belief that you should take your risk in equities and stick to government bonds for fixed income.
That IS a superstition, at least formulated in that way.

More importantly, the F fund contains government bonds and is the only fund available in the TSP that does so.
Last edited by vineviz on Fri Jul 31, 2020 10:46 am, edited 1 time in total.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Topic Author
justglassin
Posts: 40
Joined: Mon Nov 11, 2013 3:46 pm

Re: >2055 TSP Lifecycle + 10% in G fund

Post by justglassin » Fri Jul 31, 2020 10:42 am

delamer wrote:
Fri Jul 31, 2020 10:33 am
vineviz wrote:
Fri Jul 31, 2020 10:18 am
Blue456 wrote:
Fri Jul 31, 2020 10:13 am
Unless of course you don’t believe in holding corporate debt.
It seems like a weird thing to hold a superstition about, but okay.

Nonetheless, the F fund is the only bond fund in the TSP so ....
It’s not a superstition. It’s the belief that you should take your risk in equities and stick to government bonds for fixed income.
This is my take as well on bonds vs G at this point in time.

bryaninDC
Posts: 45
Joined: Wed Nov 11, 2015 2:27 pm

Re: >2055 TSP Lifecycle + 10% in G fund

Post by bryaninDC » Fri Jul 31, 2020 2:34 pm

Pick the asset allocation you want and then choose the Lifecycle target date and that most closely matches your desired AA.

User avatar
grabiner
Advisory Board
Posts: 27457
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: >2055 TSP Lifecycle + 10% in G fund

Post by grabiner » Sat Aug 01, 2020 11:54 am

morbo wrote:
Fri Jul 31, 2020 10:15 am
The thing about the L funds is that they jump from being aggressive to being extremely conservative. The 2055 fund has a combined 1% in the F and G funds. The 2050 fund has over 18% in those funds combined, and the 2045 has over 23% in the F and G.
This is a temporary issue. The TSP changed the glidepaths, but only the 2055 and further out funds are on the new glidepath. The 2055 fund is 99% stock and will stay at 99% until 2027 (28 years out). The 2050 fund would have increased its stock allocation to 99% if it was put onto the new glidepath, which most current investors in the fund don't want. Instead, it will stay at the current 82% until the glidepath catches up with it in 2033. Similarly, the 2045 fund would be 95% stock on the new glidepath, but investors expect a 2045 fund to be between the 2040 and 2050 funds in risk level, so it starts at 77% and will stay there until the glidepath catches up with it in 20-30.

The very aggressive allocation makes mathematical sense for career government employees, because they will retire with a pension as well as their TSP. If their TSP investment loses 20%, their retirement income won't drop by 20% because the pension benefits do not change.

However, mathematics isn't everything; investors have an emotional risk tolerance as well. This may be the reason for 99% rather than 100% stock; when the stock market crashes, investors will have some holdings in the G fund which didn't lose anything. But even 99% is too much risk for many investors to handle. I don't know what investors in the L 2055 fund will do if they started their government jobs just before the 2024 market crash.
Wiki David Grabiner

Fishing50
Posts: 415
Joined: Tue Sep 27, 2016 1:18 am

Re: >2055 TSP Lifecycle + 10% in G fund

Post by Fishing50 » Sat Aug 01, 2020 3:13 pm

justglassin wrote:
Fri Jul 31, 2020 9:11 am
Thoughts on holding one of the new TSP Lifecycle funds (which have almost no G or F fund,

Right now I hold a 3-fund allocation in my TSP - C/S/I @ 60%/15%/25% and rest in G. But watching markets and allocation is driving me nuts, so I'd rather let some automatic re-balancing, especially if we see some rotation from large cap to international and small cap, do it's work. I'd keep 10% in a reserve of G fund for any really bad day.

42, senior civil servant. Fully funded emergency fund in Betterment, maxed out Roth in 3-fund, and I make bi-weekly taxable investments in VTI, VXUS and occasionally a few stocks I follow here and there.

Thanks!
We’re 8 yrs ahead of you...2yrs from retirement with a military pension that will provide enough income. We take taxable dividends in cash. In retirement we’ll spend them, right now they serve as emergency fund or reinvented with other taxable investments. In March we were 70\30 across all accounts with G fund as our only bonds except DW target date funds. In April I moved to 75% equites (78% today) and all future contributions are C fund in Roth TSP and S&P 500 in taxable aiming at 80%. We’re holding remnants of my stock picking days in taxable which will be the first capital gains harvested if we choose to spend some money. If the market hits new lows I might buy more C Fund, if not we’ll just let the current allocation grow with minimal rebalancing between C & S to maintain market allocation. I’m a fan of rising equity glide path in retirement to ensure we don’t regret departing the workforce in peak earning yrs.

I think TSP lifecycle funds are too conservative at retirement with a govt pension. I recommend choosing an aggressive allocation with 10 or 20% G fund for reserve overall allowing rebalancing during market lows. Tune out the noise, and rebalance annually. Super easy. Study up on tax loss harvesting which might provide enough activity to avoid stock picking urges. Reassess your risk tolerance and target allocation as you near retirement. :beer
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

Post Reply