By Mike Miles
February 20th, 2014 | Uncategorized
Q. I work for the Defense Department. I have $75 biweekly going into the G Fund. I am in my early 30s and want to build my money. I don’t see it moving much in the G Fund, and I have been investing for four years. I can afford to invest $100 biweekly but don’t know what fund to put my money in for it to grow. My annual income is $38,780.
A. Given your circumstances, I suggest that you invest all of your Thrift Savings Plan money in the L 2050 Fund for the foreseeable future.
February 12th, 2014 | Uncategorized
Q. I saw you use the term risk efficiency in a recent response, and it made me curious. I have a nice little amount in the Thrift Savings Plan now. I don’t think I will be needing it in the future, except to hand down to future heirs, and so have tried to maintain a 70 percent stocks (35 percent C, 15 percent S and 20 percent I), 15 percent F, 15 percent G ratio. I read in a financial magazine (sometime around 2009) that a 70/30 ratio of stocks to bonds and/or cash reduced the risk considerably over a 100 percent stock portfolio, and didn’t reduce returns significantly. Do you agree, or do you have some other thoughts on what is risk-efficient for long-term growth?
A. Risk efficiency is a measure of how close an investment portfolio lies to the “Efficient Frontier” — the set of portfolios that mix assets together in ways that produce the maximum expected rate of return for the level of risk they produce. I can’t tell you how risk-efficient your asset allocation model is, but I’d guess it’s pretty risk efficient. Note that this doesn’t mean that it’s risk-appropriate. The correct asset allocation will be both.
February 6th, 2014 | Uncategorized
Q. I am 47, have been investing for seven years, have reached maximum contributions at a total of $115,328.22 and will eventually retire at 63.
Recently, there is talk in the stock market of a global sell-off. I have had all of my investments in the S Fund and doing quite well. As of Jan. 23, I’ve shifted my contribution of 100 percent from S to G. Was this a financially dumb move?
A. Not if you’ve guessed right. Only time will tell. For what it’s worth, if we’re talking about your entire portfolio here, you should be invested in all five funds, all the time.
January 29th, 2014 | Uncategorized
Q. It seems everywhere a person reads, the “expert” advice is to get out of bonds. It’s likely that interest rates will climb soon (they certainly will not go lower), the world is awash in debt etc. Your advice is to substitute a portion of other funds in place of F.
Given the predicted bond climate, why not reduce F Fund allocation to near zero? Is there some reason I’m missing for maintaining an allocation in F above low single digit percentages or perhaps no F fund allocation at all? In other words, if the F Fund is about to incur losses, why not move it all out for the short term?
A. As I have said, and you confirm, I have no objection to substituting G Fund for F Fund in the current interest rate environment. The reason to keep some allocation to bonds is for their ability to hedge stock risk. If the stock market loses 50 percent of its value again (for the third time since 2000), that F Fund exposure will look pretty smart.
January 27th, 2014 | Uncategorized
Q. I am a federal employee, almost 30 years old and contribute to my Thrift Savings Plan, as well as a Roth IRA toward retirement. I contribute the maximum to my Roth IRA at $5,500 a year and contribute 15 percent of my $82,500 salary (approximately $12,500 a year). I have a comfortable emergency account, life insurance, $500 per month to a 529 plan for my 1-year-old, on top of the basic necessities.
How much should I be contributing if I can’t max both my TSP and Roth IRA? Should I continue with this allocation, or should I be maxing my TSP at $17,500, only putting $500 into my Roth IRA. After reviewing some items, I do not know the pros and cons to each as far as this allocation of funds.
A. I suggest that you maximize your TSP contributions before contributing to any other retirement account. The TSP is the best retirement savings and investment vehicle you’ll find. Its low cost and access to the G Fund make it so. What makes you think that your Roth IRA is a better choice?
January 27th, 2014 | Uncategorized
Q. In your recent column “4 keys to TSP success,” you mentioned, regarding asset allocation, to “diversify your holdings among cash, stocks and bonds to hedge the risk lower.” I agree with this approach wholeheartedly, but ask where in the TSP to keep “cash”? There is no money market option, just the L funds (which I don’t use, preferring to personally allocate my investments), and the G, F, C, S and I funds.
By the way, I took everything out of the G Fund and ceased all future allocations to it when there was a proposal by our leaders last year for the federal government to be able to borrow against it. Do you have any update or comment on this proposal?
A. The G Fund is a cash equivalent with an above-market rate of return. It’s as safe as anything you’ll find.
January 22nd, 2014 | Uncategorized
Q. I recently decided to shift the corporate bond portion of my overall portfolio into my retirement accounts (i.e., shift my retirement account holdings largely into corporate bonds, and shift my taxable account holdings away from them) since the income from bonds is taxed at a higher rate than income from equities.
Since the Thrift Savings Plan is about one-third of my retirement account money, I took a closer look at the F Fund and I was shocked to see that the majority of the Barclays Capital U.S. Aggregate Bond Index that the F Fund tracks is treasuries.
I think of the purpose of the nonlifestyle funds being to allow TSP participants access to some diversification options to tailor their own portfolio. Why then would F be constructed in a way that it consists of essentially more than half G? If I wanted a portion of my bond holdings to be treasuries, I can always add more G. But if I only want to hold non-Treasury bonds, there’s no way to do it. I can’t go long F and short G.
This makes so little sense that I would bet dollars to donuts that most F Fund investors are unaware of the overlap. I generally hold the TSP design in high regard. Am I missing something?
A. The two assumptions that have inspired your concern are incorrect. First, the G Fund is not a bond fund, it is a cash equivalent, and there is no overlap between it and the F Fund. Second, as of Jan. 17, 2014, the F Fund’s index consisted of about one-third U.S. Treasury debt, and this has been historically typical.
January 22nd, 2014 | Uncategorized
Q. I am a civilian FERS employee who will retire this summer at age 59 with 35 years of civil service. After retiring, I intend to start monthly withdrawals from my Thrift Savings Plan account ($2,000 per month). Even though I will have begun making monthly withdrawals from my TSP account, can the remainder of my money in the TSP continue to be invested in the various funds (G, C, F, S, I) and continue to grow via earnings within these funds?
January 6th, 2014 | Uncategorized
Q. I’m a federal employee, I contribute 6 percent to my Thrift Savings Plan account I’m planning on putting more into my account this year. When the market went sour and I lost money, I put everything in the G Fund. If that fund doesn’t do anything, is there any advice you can give me?
A. Sounds like you’ve done exactly the opposite of what you should have done. Managing your resources to support your financial goals with a minimum of risk is complex exercise. It requires strong analytic skills, diligence and a cool head. If you’re not up to the task, I suggest that you find someone to help you. There is no one-size-fits-all investment strategy.
December 30th, 2013 | Uncategorized
Q. I will be retiring in January. I have approximately $180,000 the G Fund. Should I consider the one-time withdrawal to a money market account that is FDIC-insured so I can have some liquidity in my cash flow? Could you recommend such a fund? Could you recommend any restructuring of my Thrift Savings Plan to accommodate current federal reductions in the stimulus program?
A. Yes, should consider taking a withdrawal from your TSP account to provide needed liquidity, but only if no other resources are available to do the job. The best place for liquid cash reserves in this economy is FDIC-insured bank savings.
To mitigate bond risk in today’s low-interest rate environment, I suggest that you substitute some G Fund for some of the F Fund in your asset allocation scheme.