TSP and Vanguard Retirement Investment Advice

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Topic Author
k9n
Posts: 9
Joined: Mon May 19, 2014 6:51 pm

TSP and Vanguard Retirement Investment Advice

Post by k9n »

Hello all,

I just finished reading The Bogleheads’ Guide to Investing in order to get my retirement investments in order. My first boss recommended I invest in the TSP at least up to the agency matching 5% (essentially free money). I was unsure of which funds to put this money in, so he recommended allocations of 40% in both the C and S funds and 20% in the I fund. I also began making Roth IRA contributions but held these as money market shares since I was using this as my emergency funds. Now that I have enough cash reserves for an emergency fund, I converted my Roth IRA funds to a Vanguard Target Retirement Fund 2055. After this conversion, my asset allocation has gotten more confusing and is far from my target asset allocation. Before I re-allocate my existing funds to meet my target asset allocation, I wanted to get some advice. Below is the requested information in the desired format.

Emergency funds: I have 3 months of living expenses saved up and have a very stable job (government worker hence TSP).
Debt: None.
Tax Filing Status: Single.
Tax Rate: 28% Federal, 8.5% State
State of Residence: Washington, D.C.
Age: 26

Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% of stocks

My current portfolio size is ~$60k. I am currently investing 14% per paycheck into my TSP account and $5,500 a year into my Roth IRA with Vanguard.

Current retirement assets:
401k (TSP)
Government Thrift Savings Plan (TSP) w/ 5% agency match.
-28.08% C Fund: (Stocks of large and medium-sized U.S. companies which tries to match the performance
of the S&P 500 Index.) (2013 Net Administrative Expenses = 0.029%)
-29.72% S Fund (Stocks of small to medium-sized U.S. companies (not included in the C fund) which tries to match the performance of the Dow Jones U.S. completion TSM Index.) (2013 Net Administrative Expenses = 0.026%)
-13.03% I Fund (International stocks of 21 developed countries which tries to match the performance of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index.) (2013 Net Administrative Expenses = 0.029%)

Roth IRA at Vanguard
-29.17% Target Retirement 2055 (VFFVX) (0.17%)

(Total accounts = 100%)

Current Contributions:
New annual Contributions
-$17k into TSP (includes 5% employer match, so 19% total salary)
-$5,500 into a Roth IRA with Vanguard
-$0 taxable (for retirement, not short term goals)

Questions:
My biggest problem is that I have been treating my Roth IRA as a separate entity than my TSP and have some questions/looking for advice on how to reallocate my portfolio to encompass a whole picture situation.

1. Should I hold my bond funds (20%) in TSP as G funds (or F funds?) or a bond fund in my Roth IRA account?
2. Do you recommend investing a Lifecycle fund in TSP (L 2050) and a target retirement fund in my
Roth IRA at Vanguard? I like the simplicity of the lifecycle/target retirement funds, but I don’t have an issue re-allocating to hit my target asset allocation if that is what is recommended.
3. My contributions to TSP are much greater than what is allowed to my Roth IRA ($17k vs $5.5K), so picking the right funds so as not to upset my target asset allocation every time money is deposited into my TSP (bi-weekly) seems important . My annual Roth IRA contribution is roughly 25% of my total annual contributions. Does changing my desired asset allocation to 75% stocks, 25% bonds make anything easier (then would hold bonds in Roth IRA)?
4. I am considering increasing my contribution to reach $17,500 employee contribution limit, which would be about 19% of my salary + 5% employer match. I know you can never invest "too much", but is there any reason why I shouldn't do this?

Thank you all for your help in advance and I welcome all comments/suggestions!
HurdyGurdy
Posts: 1177
Joined: Wed May 09, 2012 10:21 pm

Re: TSP and Vanguard Retirement Investment Advice

Post by HurdyGurdy »

Hi k9n,
welcome,

first of all, your boss gave you a pretty good suggestion on allocation -- in fact, lucky stars, it paid off handsomely last year!

Now you realize that you want a bit more in bonds -- that is a good idea. You know by now that Vanguard TR 2055 is not quite 80/20, but 90/10. How to rearrange your bricks? there are many ways, all pretty equivalent and good. FOr instance, you could keep the Roth IRA as it is, with its 90/10 proportion, and then find the needed proportion in the TSP side. However, since the size of the TSP would grow faster than the size of the Roth IRA bucket, an easier way going forward would be to keep a TR fund in the Roth IRA with your desired 80/20 (or close enough), and keep the TSP 80/20.

The good TR fund for the Roth IRA may be between Vanguard Target Retirement 2030 Fund (VTHRX), that right now is 77/23, or Vanguard Target Retirement 2035 Fund (VTTHX) that is 84/16. They both will get more bond-heavy as they age. (You can also choose Vanguard' s LifeStrategy Growth Fund, that is exactly 80/20, but that will keep that balance for ever).

On the TSP side then you would set up a 80/20 proportion.
* I' d choose 20% in the G fund (for simplicity, I' d not use the F fund -- the bond portion of a Vanguard Retirement is already an F-like fund).
* 16% in the I fund (since 16% = 20% of 80%), what you said you wanted in International.
* The rest, divided between C and S. The profile of the actual market would call for a 4:1 C:S proportion, or 51.2% in C, 12.8% in S. By having half and half, as now, you are giving more weigh to small caps, and it is a strategy that some people like.

Or you could just use a Lifecycle fund, the L2040 or L2050.
Last edited by HurdyGurdy on Mon May 19, 2014 8:42 pm, edited 1 time in total.
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hoppy08520
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Joined: Sat Feb 18, 2012 11:36 am

Re: TSP and Vanguard Retirement Investment Advice

Post by hoppy08520 »

Hello and welcome to Bogleheads. You have a good boss. My first job was on Capitol Hill and I didn't know anything, but my boss gave me the same advice about the TSP (although back then the S and I Funds didn't exist yet) and I'm so glad I did at a young age.
k9n wrote:1. Should I hold my bond funds (20%) in TSP as G funds (or F funds?) or a bond fund in my Roth IRA account?
There are many threads on that topic here. If you read enough Boglehead threads, you'll see that many love the G Fund because it provides an outsized reward relative to the risk you take. For my own portfolio, I look to the TSP Board's allocations in the Lifecycle funds to guide me. If you look at the L2050 fund, you'll see that it has G:F at a 3:1 ratio. I don't know what else to think, so that ratio sounds as good as any. For you, with a desired 80/20 AA, would mean having roughly 15% in G Fund and 5% in F Fund across your entire portfolio.
k9n wrote:2. Do you recommend investing a Lifecycle fund in TSP (L 2050) and a target retirement fund in my Roth IRA at Vanguard? I like the simplicity of the lifecycle/target retirement funds, but I don’t have an issue re-allocating to hit my target asset allocation if that is what is recommended.
For most investors, they are probably better off holding the Lifecyle and target date funds, and that gets recommended often here.

I'm wary of recommending anyone to deviate from that default unless they have a strong reason to do so. In your situation, even with a good-sized balance so far, the most important thing is to keep saving. Minor tweaks to asset allocation will be less important at this stage than keeping up your excellent savings rate.

That being said, the arguments in favor of breaking out of the target date funds are:
  • Do you like the G Fund enough to the point that you'd rather favor the G Fund by not holding bonds in the Vanguard target date funds.
  • Many here aren't thrilled with the I Fund compared to Vanguard's total international stock market index fund. Many prefer the Vanguard fund because it's more diverse, containing emerging markets, small-cap stocks, and Canadian stocks, which the I Fund does not.
If either of these two points are important to you, then you might want to break out of the target date funds so you can hold more G Fund and hold no I Fund.

But, I would not say these are compelling, emergency reasons to not hold the Lifecycle and target date funds.
k9n wrote:3. My contributions to TSP are much greater than what is allowed to my Roth IRA ($17k vs $5.5K), so picking the right funds so as not to upset my target asset allocation every time money is deposited into my TSP (bi-weekly) seems important . My annual Roth IRA contribution is roughly 25% of my total annual contributions. Does changing my desired asset allocation to 75% stocks, 25% bonds make anything easier (then would hold bonds in Roth IRA)?
For investors who are in the early stages of accumulation, new contributions can throw your AA around a bit, but probably not that dramatically and not enough that you should worry about it too much. Actually, if you go with Vanguard's TISM (Total International Stock Market Index fund) in your IRA, then the numbers work out pretty well. In the TSP, hold your G Fund and F Fund and a mix of C and S (at roughly a 4:1 ratio). In the IRA, hold Vanguard TISM and TSM (Total US Stock Market index fund). This is the equivalent of holding target date funds in each account, only you're holding enough G Fund to span both accounts, and you're holding your international allocation in the IRA at Vanguard.
k9n wrote:4. I am considering increasing my contribution to reach $17,500 employee contribution limit, which would be about 19% of my salary + 5% employer match. I know you can never invest "too much", but is there any reason why I shouldn't do this?
I can't think of any good reason except if you need short/near-term spending money (e.g. for a house down payment) at the expense of saving for long-term retirement. You're off to a great start and you're really doing yourself a great service to have this money compound for that much longer.
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Taylor Larimore
Advisory Board
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Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Suggested portfolio.

Post by Taylor Larimore »

k9n:

Welcome to the Bogleheads Forum!

I like your choice of broad market index funds with their low-cost, broad diversification.

Your problem is the Target Fund in your Roth. Fund of funds in multiple accounts make it very difficult to maintain an asset allocation and also to know what you've got.

The solution is simple. Exchange your Target fund for one or two broad market index funds in your Roth (30% of your total portfolio). This is a suggested portfolio:

TSP (70%):
30% C Fund (large caps)
20% S Fund (medium and small caps)
20% I Fund (international stocks)

Roth (30%):
20% Total Bond Market Index Fund
10% S&P 500 Index Fund (same as C Fund)

This portfolio contains essentially the same index funds you now own (which are excellent). The portfolio is easy to understand, easy to adjust to your desired allocations, and is easily rebalanced.

You are on the right course for investment success.

Congratulations and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
noobie
Posts: 109
Joined: Mon Jan 31, 2011 2:07 pm

Re: TSP and Vanguard Retirement Investment Advice

Post by noobie »

I agree with Taylor, except I would go simpler

TSP(70%)
30% C Fund
20% I Fund
20% G Fund

Roth IRA(30%)
30% Total Stock market(essentially 3:1 Large cap:small/medium Cap)

Reasonings:
1. One less fund in your portfolio.
2. G fund is one of the only free lunches you get in investing, due to it never losing value.
MnD
Posts: 4648
Joined: Mon Jan 14, 2008 12:41 pm

Re: TSP and Vanguard Retirement Investment Advice

Post by MnD »

Simple:
TSP(70%)
TSP L 2050

Roth IRA(30%)
Vanguard Target 2055

The TSP does not have emerging markets or small cap international stocks or any way to tilt to US small cap value
So if you want to get fancy and index the world in somewhat the proper proportion and throw in a small cap value tilt.....
TSP(70%)
TSP L 2050

Roth IRA(30%)
Vanguard emerging market stock Index (10%)
Vanguard small cap international stock index (10%)
Vanguard small cap value index (10%)
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
thegoodlife
Posts: 37
Joined: Tue Mar 19, 2013 11:52 am

Re: TSP and Vanguard Retirement Investment Advice

Post by thegoodlife »

This response is more of a question to others on the board.
Assuming this is a traditional as opposed to the Roth TSP, wouldn’t it be recommended to hold your riskier, and therefor potentially higher gaining funds, in the Roth IRA due to taxes at withdraw? In other words, wouldn’t you rather have most of your growth occurring in your Roth?

If that is true than what about;

Roth IRA: Small and International (i.e. VSMAX, VFWAX), maybe even EM.
TSP: 20% (total portfolio) G and/or F, the rest split up as needed to reach the desired 80%.

If I am wrong about my assumption, somebody please let me know.
User avatar
hoppy08520
Posts: 2168
Joined: Sat Feb 18, 2012 11:36 am

Re: TSP and Vanguard Retirement Investment Advice

Post by hoppy08520 »

How about Option 5:

80/20 stocks/bonds
Within stocks, 20% international

Overall:

65% US
15% International
20% Fixed Income

Further breakdown:
50% - S&P 500 (C Fund)
15% - Extended Market (S Fund)
15% - International
15% - G Fund
5% - F Fund

To implement this allocation:

TSP (70%)
15% - G Fund
5% - F Fund
40% - C Fund
10% - S Fund

Roth (30%)
15% - Vanguard Total International Stock Market Index Fund
15% - Vanguard Total Stock Market Index Fund

Highlights and Summary
  • Plays to the strengths of both Vanguard, in its international fund, and the TSP (the G Fund)
  • Works around the weaknesses of the TSP (the I Fund)
  • The split between G Fund and F Fund reflects the ratio in the Lifecycle funds
  • If you wish to simplify some, then eliminate the small slice of the F Fund and put all 20% of your fixed income in the G Fund
  • Fairly easy to rebalance
Topic Author
k9n
Posts: 9
Joined: Mon May 19, 2014 6:51 pm

Re: TSP and Vanguard Retirement Investment Advice

Post by k9n »

Wow! I am really grateful for all the replies. I have read through them all and am thinking about each one of your recommendations. I will reply to each poster's reply in due time with my thoughts and additional questions- it's been a busy week!
-k9n

PS- Mr. Larimore: I'm truly grateful for your reply, your honesty, and your dedication to the cause for your contributions in this thread and in your book!
Topic Author
k9n
Posts: 9
Joined: Mon May 19, 2014 6:51 pm

Re: TSP and Vanguard Retirement Investment Advice

Post by k9n »

HurdyGurdy wrote:welcome,

first of all, your boss gave you a pretty good suggestion on allocation -- in fact, lucky stars, it paid off handsomely last year!
Yes, he is no longer my boss, but it definitely was a good allocation to have last year!
HurdyGurdy wrote:The good TR fund for the Roth IRA may be between Vanguard Target Retirement 2030 Fund (VTHRX), that right now is 77/23, or Vanguard Target Retirement 2035 Fund (VTTHX) that is 84/16. They both will get more bond-heavy as they age. (You can also choose Vanguard' s LifeStrategy Growth Fund, that is exactly 80/20, but that will keep that balance for ever).
Thanks for the ticker names- I will look into these. As I stated before, I love the idea of choosing a fund and not messing with it!
HurdyGurdy wrote: On the TSP side then you would set up a 80/20 proportion.
* I' d choose 20% in the G fund (for simplicity, I' d not use the F fund -- the bond portion of a Vanguard Retirement is already an F-like fund).
* 16% in the I fund (since 16% = 20% of 80%), what you said you wanted in International.
* The rest, divided between C and S. The profile of the actual market would call for a 4:1 C:S proportion, or 51.2% in C, 12.8% in S. By having half and half, as now, you are giving more weigh to small caps, and it is a strategy that some people like.
When you say the above in bold, how do you know that? Or more importantly, how would I have known this from looking at the F fund and Vanguard Retirement bond portions? Thanks for all your help and doing the math for the percentages! :D
ABQ4804
Posts: 415
Joined: Sun Jul 24, 2011 4:08 pm

Re: TSP and Vanguard Retirement Investment Advice

Post by ABQ4804 »

thegoodlife wrote:Assuming this is a traditional as opposed to the Roth TSP, wouldn’t it be recommended to hold your riskier, and therefor potentially higher gaining funds, in the Roth IRA due to taxes at withdraw? In other words, wouldn’t you rather have most of your growth occurring in your Roth?
Currently the TSP requires whatever Asset Allocation/% of each TSP fund you choose, applies to BOTH your Traditional TSP and Roth TSP, so this is not possible, in the TSP. One of the current weaknesses of the TSP.
Topic Author
k9n
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Joined: Mon May 19, 2014 6:51 pm

Re: TSP and Vanguard Retirement Investment Advice

Post by k9n »

hoppy08520 wrote: That being said, the arguments in favor of breaking out of the target date funds are:
  • Do you like the G Fund enough to the point that you'd rather favor the G Fund by not holding bonds in the Vanguard target date funds.
  • Many here aren't thrilled with the I Fund compared to Vanguard's total international stock market index fund. Many prefer the Vanguard fund because it's more diverse, containing emerging markets, small-cap stocks, and Canadian stocks, which the I Fund does not.
If either of these two points are important to you, then you might want to break out of the target date funds so you can hold more G Fund and hold no I Fund.

But, I would not say these are compelling, emergency reasons to not hold the Lifecycle and target date funds.
I've read that regarding the I fund, but didn't know how much weight to place on it's importance. Thanks for your opinion that this in itself isn't a compelling reason to not hold I funds.
hoppy08520 wrote: For investors who are in the early stages of accumulation, new contributions can throw your AA around a bit, but probably not that dramatically and not enough that you should worry about it too much. Actually, if you go with Vanguard's TISM (Total International Stock Market Index fund) in your IRA, then the numbers work out pretty well. In the TSP, hold your G Fund and F Fund and a mix of C and S (at roughly a 4:1 ratio). In the IRA, hold Vanguard TISM and TSM (Total US Stock Market index fund). This is the equivalent of holding target date funds in each account, only you're holding enough G Fund to span both accounts, and you're holding your international allocation in the IRA at Vanguard.
Nifty...I believe you recommended 15% G and 5% F fund (3:1 ratio), so this would be a 4:1 ratio of C to S, correct?

Thanks for all your help!
Topic Author
k9n
Posts: 9
Joined: Mon May 19, 2014 6:51 pm

Re: Suggested portfolio.

Post by k9n »

Taylor Larimore wrote:
TSP (70%):
30% C Fund (large caps)
20% S Fund (medium and small caps)
20% I Fund (international stocks)

Roth (30%):
20% Total Bond Market Index Fund
10% S&P 500 Index Fund (same as C Fund)

This portfolio contains essentially the same index funds you now own (which are excellent). The portfolio is easy to understand, easy to adjust to your desired allocations, and is easily rebalanced.
I really like this for the simplicity, thanks!
Topic Author
k9n
Posts: 9
Joined: Mon May 19, 2014 6:51 pm

Re: TSP and Vanguard Retirement Investment Advice

Post by k9n »

noobie wrote:I agree with Taylor, except I would go simpler

TSP(70%)
30% C Fund
20% I Fund
20% G Fund

Roth IRA(30%)
30% Total Stock market(essentially 3:1 Large cap:small/medium Cap)

Reasonings:
1. One less fund in your portfolio.
2. G fund is one of the only free lunches you get in investing, due to it never losing value.
Thanks for striving for simplification! The G fund gets a lot of praise, so it does seems like I may want to take advantage of this!
Topic Author
k9n
Posts: 9
Joined: Mon May 19, 2014 6:51 pm

Re: TSP and Vanguard Retirement Investment Advice

Post by k9n »

MnD wrote: The TSP does not have emerging markets or small cap international stocks or any way to tilt to US small cap value
So if you want to get fancy and index the world in somewhat the proper proportion and throw in a small cap value tilt.....
TSP(70%)
TSP L 2050

Roth IRA(30%)
Vanguard emerging market stock Index (10%)
Vanguard small cap international stock index (10%)
Vanguard small cap value index (10%)
Thanks! But when I view the TSP L2050, it includes 25.5% I funds. This would throw off my AA if I also had international stocks in my Roth IRA as you suggest, correct?
Topic Author
k9n
Posts: 9
Joined: Mon May 19, 2014 6:51 pm

Re: TSP and Vanguard Retirement Investment Advice

Post by k9n »

hoppy08520 wrote:How about Option 5:

80/20 stocks/bonds
Within stocks, 20% international

Overall:

65% US
15% International
20% Fixed Income

Further breakdown:
50% - S&P 500 (C Fund)
15% - Extended Market (S Fund)
15% - International
15% - G Fund
5% - F Fund

To implement this allocation:

TSP (70%)
15% - G Fund
5% - F Fund
40% - C Fund
10% - S Fund

Roth (30%)
15% - Vanguard Total International Stock Market Index Fund
15% - Vanguard Total Stock Market Index Fund

Highlights and Summary
  • Plays to the strengths of both Vanguard, in its international fund, and the TSP (the G Fund)
  • Works around the weaknesses of the TSP (the I Fund)
  • The split between G Fund and F Fund reflects the ratio in the Lifecycle funds
  • If you wish to simplify some, then eliminate the small slice of the F Fund and put all 20% of your fixed income in the G Fund
  • Fairly easy to rebalance
I really like Option 5 as you call it and think this is what I'll go with. Your first bullets regarding the highlights of this strategy are appealing to me. I'm having a hard time envisioning how much easier/more difficult it is to re-balance when compared to other strategies (as long as I don't have multiple funds of funds), but I plan on re-balancing annually for simplicity. Also, if one of the posters above is correct, having my International funds in a Roth may also be a Highlight of your strategy.
User avatar
hoppy08520
Posts: 2168
Joined: Sat Feb 18, 2012 11:36 am

Re: TSP and Vanguard Retirement Investment Advice

Post by hoppy08520 »

k9n wrote:
hoppy08520 wrote: That being said, the arguments in favor of breaking out of the target date funds are:
  • Do you like the G Fund enough to the point that you'd rather favor the G Fund by not holding bonds in the Vanguard target date funds.
  • Many here aren't thrilled with the I Fund compared to Vanguard's total international stock market index fund. Many prefer the Vanguard fund because it's more diverse, containing emerging markets, small-cap stocks, and Canadian stocks, which the I Fund does not.
If either of these two points are important to you, then you might want to break out of the target date funds so you can hold more G Fund and hold no I Fund.

But, I would not say these are compelling, emergency reasons to not hold the Lifecycle and target date funds.
I've read that regarding the I fund, but didn't know how much weight to place on it's importance. Thanks for your opinion that this in itself isn't a compelling reason to not hold I funds.
The way I look at it is, I would not advise a "casual" investor to deviate from Lifecycle/target-date funds in TSP + IRA simply because of the I Fund. But, if you are going to break out of Lifecycle/target-date funds anyway, and you have the interest/willingness/aptitude to do some simple portfolio management, then by all means prefer to hold Vanguard TISM in lieu of the I Fund.
k9n wrote:
hoppy08520 wrote: For investors who are in the early stages of accumulation, new contributions can throw your AA around a bit, but probably not that dramatically and not enough that you should worry about it too much. Actually, if you go with Vanguard's TISM (Total International Stock Market Index fund) in your IRA, then the numbers work out pretty well. In the TSP, hold your G Fund and F Fund and a mix of C and S (at roughly a 4:1 ratio). In the IRA, hold Vanguard TISM and TSM (Total US Stock Market index fund). This is the equivalent of holding target date funds in each account, only you're holding enough G Fund to span both accounts, and you're holding your international allocation in the IRA at Vanguard.
Nifty...I believe you recommended 15% G and 5% F fund (3:1 ratio), so this would be a 4:1 ratio of C to S, correct?

Thanks for all your help!
Assuming that you want to approximate the total US stock market, then 4:1 ratio of C to S would be what you want. So if you had $10,000 to allocate to US stocks, it would be $8,000 C Fund and $2,000 S Fund. See http://www.bogleheads.org/wiki/Approxim ... ock_Market.

Regarding the 3:1 G:F, it's not necessarily my own personal opinion based on my own diligent research -- I'm getting that from the TSP Board's composition of the Lifecycle funds. I just looked up the numbers, and the L2040 is 18.78% G Fund and 4.97% F Fund. That's actually a 4:1 ratio, not 3:1 -- I was off by a bit. The L2050 is 78/22. L2030 is 85/15. So I actually understated the ratio. Not that shifting your bond ratio from 15/5 G/F to 16/4 G/F is going to move any mountains.
k9n wrote:
hoppy08520 wrote:How about Option 5:

80/20 stocks/bonds
Within stocks, 20% international

Overall:

65% US
15% International
20% Fixed Income

Further breakdown:
50% - S&P 500 (C Fund)
15% - Extended Market (S Fund)
15% - International
15% - G Fund
5% - F Fund

To implement this allocation:

TSP (70%)
15% - G Fund
5% - F Fund
40% - C Fund
10% - S Fund

Roth (30%)
15% - Vanguard Total International Stock Market Index Fund
15% - Vanguard Total Stock Market Index Fund

Highlights and Summary
  • Plays to the strengths of both Vanguard, in its international fund, and the TSP (the G Fund)
  • Works around the weaknesses of the TSP (the I Fund)
  • The split between G Fund and F Fund reflects the ratio in the Lifecycle funds
  • If you wish to simplify some, then eliminate the small slice of the F Fund and put all 20% of your fixed income in the G Fund
  • Fairly easy to rebalance
I really like Option 5 as you call it and think this is what I'll go with. Your first bullets regarding the highlights of this strategy are appealing to me. I'm having a hard time envisioning how much easier/more difficult it is to re-balance when compared to other strategies (as long as I don't have multiple funds of funds), but I plan on re-balancing annually for simplicity. Also, if one of the posters above is correct, having my International funds in a Roth may also be a Highlight of your strategy.
What I like about this portfolio is that it should be easy to keep your AA intact with ongoing contributions.

Contributions:
$17,000 TSP
$5,500 IRA
$22,500 Total

IRA Contributions:
$3,600 to TISM (80% of portfolio in stocks * 20% of stocks in Intl * $22,500 = $3,600)
$1,900 to TSM (the balance of your IRA contribution)
$5,500 total

TSP Contributions:
$3,375 to G Fund (20% of portfolio to bonds * 75% of bonds to G Fund = 15% * $22,500)
$1,125 to F Fund (20% of portfolio to bonds * 25% of bonds to F Fund = 5% * $22,500)
$10,000 to C Fund (80% of everything else)
$2,500 to S Fund (20% of everything else)
$17,000 total

Within your TSP, in terms of percentages, that works out to be the following that you would want to configure for ongoing contributions:

19.9% G Fund
6.6% F Fund
58.8% C Fund
14.7% S Fund
100% Total

When the market goes up or down, you can rebalance easily. You could either tweak the contribution percentages above to rebalance gradually with ongoing contributions, or just rebalance all at once by exchanging funds within your accounts. The general advice here is to rebalance on a particular interval (often annually) and/or when your overall stock/bond AA drifts by more than 5% "bands" (if you get to 75/25 or 85/15), or if your US/Intl drifts significantly (i.e. veers beyond 85/15 or 75/25).

If the market goes up, then in the TSP sell C & S and buy G & F to get back to 80/20 stocks/bonds. After doing this, you'll likely have "too much" international since you have just liquidated US stocks in your TSP. So, in the IRA, exchange some TISM to TSM to get your AA right.

If the market goes down, then you'll have "too much" bonds. So sell some G & F in TSP and buy C & S. After doing this, you'll likely have "too much" US stock since you just bought more US stock. So, in the IRA, exchange some TSM for TISM to get your AA right. (This is the opposite of the paragraph above).

Should your G/F allocation drift, exchange between them.

Should your US/International allocation drift, exchange to/from TSM and TISM in the Roth IRA.
thegoodlife
Posts: 37
Joined: Tue Mar 19, 2013 11:52 am

Re: TSP and Vanguard Retirement Investment Advice

Post by thegoodlife »

alisa4804 wrote:
thegoodlife wrote:Assuming this is a traditional as opposed to the Roth TSP, wouldn’t it be recommended to hold your riskier, and therefor potentially higher gaining funds, in the Roth IRA due to taxes at withdraw? In other words, wouldn’t you rather have most of your growth occurring in your Roth?
Currently the TSP requires whatever Asset Allocation/% of each TSP fund you choose, applies to BOTH your Traditional TSP and Roth TSP, so this is not possible, in the TSP. One of the current weaknesses of the TSP.
I was referring to his separate Roth IRA with Vanguard.

I will take this opportunity to re-ask my question:


This response is more of a question to others on the board.
Assuming this is a traditional as opposed to the Roth TSP, wouldn’t it be recommended to hold your riskier, and therefore potentially higher gaining funds, in the (Vanguard)Roth IRA due to taxes at withdraw? In other words, wouldn’t you rather have most of your growth occurring in your Roth?

If that is true than what about;

Roth IRA (Vanguard): Small and International (i.e. VSMAX, VFWAX), maybe even EM.
TSP: 20% (total portfolio) G and/or F, the rest split up as needed to reach the desired 80%.

If I am wrong about my assumption, somebody please let me know.
retiredjg
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Re: TSP and Vanguard Retirement Investment Advice

Post by retiredjg »

thegoodlife wrote:Assuming this is a traditional as opposed to the Roth TSP, wouldn’t it be recommended to hold your riskier, and therefore potentially higher gaining funds, in the (Vanguard)Roth IRA due to taxes at withdraw? In other words, wouldn’t you rather have most of your growth occurring in your Roth?

If I am wrong about my assumption, somebody please let me know.
This gets discussed and argued endlessly. In fact there were a couple of threads on it last week. Lots of people have opinions, but it is hard to say if anybody really knows the answer. I know I don't.

If there is an answer, I doubt that it is particularly important in the long run. How much you save, picking an appropriate stock to bond ratio, keeping costs low, using all your tax-advantaged space - those things make a difference. This other thing....I not convinced it matters much. But that is just another opinion. :D
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htdrag11
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Re: TSP and Vanguard Retirement Investment Advice

Post by htdrag11 »

I'm managing our child's (29) portfolio who also lives in DC and has a TSP, but is way more aggressive with only 10% in G among TSP, 401k and Roth IRA. The savings rate is lower, about 15% overall of the paycheck in case of buying a condo.
TSR
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Re: TSP and Vanguard Retirement Investment Advice

Post by TSR »

I appreciate your willingness to set and adjust your asset allocation, but I prefer to let the TSP folks do it for me. In your case I would recommend going 100% L2040 (just because it has slightly more bonds than L2050 and might bring you closer to your goal of 20% across your whole portfolio). You might dial it back to L2050 as it gets bond-heavy. I do this myself, though I'm a bit older than you.

This is just SO easy, and it frees you up to worry about other, more important things.
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hoppy08520
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Re: TSP and Vanguard Retirement Investment Advice

Post by hoppy08520 »

TSR wrote:I appreciate your willingness to set and adjust your asset allocation, but I prefer to let the TSP folks do it for me. In your case I would recommend going 100% L2040 (just because it has slightly more bonds than L2050 and might bring you closer to your goal of 20% across your whole portfolio). You might dial it back to L2050 as it gets bond-heavy. I do this myself, though I'm a bit older than you.

This is just SO easy, and it frees you up to worry about other, more important things.
I think that for most folks, your advice above makes a lot of sense. I said about as much in my earlier reply in this thread:
hoppy08520 wrote:For most investors, they are probably better off holding the Lifecyle and target date funds, and that gets recommended often here.

I'm wary of recommending anyone to deviate from that default unless they have a strong reason to do so...
That being said, there are some good reasons to break out of the target date funds, and if an investor understands the reasons why and has the willingness and ability to manage a slightly more complex portfolio, and won't get hurt by behavioral flaws that can be brought on by administering one's own portfolio more actively, then there can be a case for it.

In the OP's scenario, with only the TSP and this IRA, I think the case for splitting funds out is not that strong. If the only reason to do so is to get more G Fund and less I Fund, and less international overall, then those aren't incredibly compelling reasons, but if you're a motivated investor, then go for it.

If you add a taxable account into the mix, or if you also have a spouse with a 401(k) account where the only good fund is a S&P 500 Index fund, then at that point the case for target-date funds breaks down.

This OP will have to decide for him or herself if it's worth a marginal improvement (at best) to his/her portfolio in exchange for some slight administrative complexity.
thegoodlife
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Re: TSP and Vanguard Retirement Investment Advice

Post by thegoodlife »

retiredjg wrote:
thegoodlife wrote:Assuming this is a traditional as opposed to the Roth TSP, wouldn’t it be recommended to hold your riskier, and therefore potentially higher gaining funds, in the (Vanguard)Roth IRA due to taxes at withdraw? In other words, wouldn’t you rather have most of your growth occurring in your Roth?

If I am wrong about my assumption, somebody please let me know.
This gets discussed and argued endlessly. In fact there were a couple of threads on it last week. Lots of people have opinions, but it is hard to say if anybody really knows the answer. I know I don't.

If there is an answer, I doubt that it is particularly important in the long run. How much you save, picking an appropriate stock to bond ratio, keeping costs low, using all your tax-advantaged space - those things make a difference. This other thing....I not convinced it matters much. But that is just another opinion. :D
Thanks for the response, I take it as good news for me. The way I see it, I am either right or I am wrong but in good company. :D
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k9n
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Re: TSP and Vanguard Retirement Investment Advice

Post by k9n »

TSR wrote:I appreciate your willingness to set and adjust your asset allocation, but I prefer to let the TSP folks do it for me. In your case I would recommend going 100% L2040 (just because it has slightly more bonds than L2050 and might bring you closer to your goal of 20% across your whole portfolio). You might dial it back to L2050 as it gets bond-heavy. I do this myself, though I'm a bit older than you.

This is just SO easy, and it frees you up to worry about other, more important things.
Thanks for your opinion! Are you recommending not investing in a Roth IRA? Or are you saying choose a lifecycle fund for both TSP and Roth?
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