By Mike Miles
May 13th, 2013 | Uncategorized
Q. As precaution for what I thought was going to be a market decline, in December, I moved $350,000 out of my Thrift Savings Plan accounts from the C, S, and I fund (60 percent, 20 percent, 20 percent) to the G Fund. The end of the year came and went with no crash. The government had several “doomsday” dates that kept me guessing on market reactions. All have come and gone and the market is still going strong.
I didn’t change my paycheck allocations, so I’ve continued to put money into the above funds in the percentages shown, so at least those funds are dollar cost averaging.
I don’t want to “buy high,” so what do I do? Keep the bulk of my funds in G until the market dips enough for me to get back in? Or take my spanking (I’ve “lost” $50,000 during this time) and get back in now?
A. You’ve just provided a textbook example of the problem with timing the market. If you’d studied the pros and cons of what you were doing before you did it, you would have known better. On one hand, the market could keep right on going without you, and the odds are that it will be higher tomorrow than it is today. On the other hand, if you didn’t like the price of the market in December, I can’t imagine why you would like it any better today. Selling low and buying high certainly isn’t a winning formula.
May 13th, 2013 | Uncategorized
Q. I’m 25 years old, series 1811 and have been contributing 5 percent into the Thrift Savings Plan (FERS) for three years. Until last week, I was contributing 100 percent into the L2040 fund, but now I’m doing 65 percent into the S Fund and 35 percent into the I Fund. Since I still have about 32 years until mandatory retirement, do you think I am making the right TSP choices now, and do you have any recommendations?
A. Your allocation is risk-inefficient. You could reconfigure it to deliver similar expected growth with much less volatility. If you don’t know how to do that, then I suggest that you go back to using the L funds.
April 29th, 2013 | Uncategorized
Q. I am a 48-year-old GS-14/7 with about $240,000 in my Thrift Savings Plan (I have a little more in a prior 401(k), and my wife makes more than I do but does not have a 401(k) plan…I am willing to take reasonable risks).
I have contributed the maximum at 43 percent C, 22 percent S, 25 percent I and 10 percent F for several years and rebalanced each year. Indeed, I stubbornly left it like that during the crash but have recovered nicely.
I recently borrowed $30,000 (yes, I know, that is not the best course), at the G rate of 1.5 percent. It seems to me that that is akin to putting more than 10 percent of my savings in the very safe G Fund. So, while I left my existing F Fund balance alone, this “new” G money (interest on my loan repayments) plus the “bond bubble” threat convinced me to stop putting new money into either bond fund. I now contribute 48 percent C, 25 percent S and 27 percent I. (Yes, I tweaked the ratio a little due to lackluster I Fund performance and good S Fund performance).
Is it correct/smart to treat the interest I am paying myself as a sort of surrogate G Fund investment? Secondarily, are these ratios out of whack for a (moderately) aggressive portfolio?
A. Your loan balance and the G Fund differ in a big way: The G Fund guarantees the principal and the interest on your investment with them; you do not provide the same guarantee. Your asset allocation is “out of whack” in that it is risk-inefficient. For the same risk you are taking, you could achieve a higher expected rate of return by adding allocations to the remaining TSP funds.
April 3rd, 2013 | Uncategorized
Q. I am being considered for disability retirement in the coming months. My application is pending consideration from the Office of Personnel Management. I am a GS-14 FERS employee, 54 years old, with about 32 years of service. I have approximately $250,000 in the Thrift Savings Plan, and my allocations are as follows: 15 percent C, 15 percent S and 70 percent I. I realize that is somewhat aggressive, but it has been like that for about seven years or so, and I have been hopeful of the international home run. Regrettably, this hasn’t necessarily come to fruition. I will likely shelter some of my remaining funds in G or F when I find out if my retirement is approved.
If I should retire, I plan to withdraw approximately $150,000 to pay off my mortgage. Therefore, should something happen to me or if the market fails, at least my home is paid for. I will have a reasonable annuity, and my wife draws $1,800 monthly as a service-connected disabled veteran. Combined, I feel we will have adequate income, especially when our mortgage of $1,000 per month is satisfied. Not rich, but with no real debt ($15,000 vehicle loan) consistent income and no mortgage. Sounds OK to me. Or am I off-base?
A. I think that what’s off-base is that, like too many investors, you are willing to gamble — without knowing the odds — with your life savings. If you’re not willing or able to prudently manage the money, then it’s probably your safest bet to use it to pay off your mortgage. At least you won’t lose it overnight. This might mean that later on, however, if you need the money to pay your bills, it won’t be available. There is no easy answer. That’s why I’m in business. If you’d like to discuss your options, you can contact me through www.variplan.com.
March 26th, 2013 | Uncategorized
Q. I been following the news about Cyprus’ banks. I want to find out if our Thrift Savings Plan I Fund money is invested in Cyprus’ banks. If yes, is it good to move money back to another fund?
March 14th, 2013 | Uncategorized
Q. In 2008, when the market crashed, I put a lot of my G and C funds into the S and I. The balance was around $107,000 at the time. It’s now 2013 and my balance today is $270,000 as the share prices for the S and I have more than doubled. The S Fund went from $11 a share to $26 a share. The I Fund went from $12 a share to $25 a share. When is a good time to move all of the S and I back into the G or C funds so that I do not lose what I have gained over the past five years? My thoughts are to bail out now, place it in either the G or C, but to continue to make biweekly contributions into the C/S/I funds as the years continue. I have 14 years in FERS and have another 15 to go before I retire.
A. First, the C, S and I funds are highly correlated. That is, they move in the same direction at the same time and have similar short-term volatility, so I’m not sure that I see the logic of jumping from S and I to C. Second, if you abandon stocks, when will you buy them back? What if there’s no big market crash in the next few years to give you an obvious opportunity. Don’t make the classic gambler’s mistake of thinking that luck is anything more than that. You can’t expect lightning to keep striking in the same place.
I do agree, however, that as stocks have run up, you should have, and continue to take stock risk out of your portfolio. A smarter way to do this is to pick a moderate to aggressive asset allocation, using all five of the Thrift Savings Plan’s basic funds, and regularly rebalance to that allocation. This will hedge the risk you’re worried about, and the ones you’re not.
February 4th, 2013 | Uncategorized
Q. I want to know what percentage I am paying in management fees and how they are being paid for my Thrift Savings Plan. I am invested in the C, S, and I funds. I am worried about fees eating into my profits.
A. The TSP’s expenses have been the lowest you’ll find, anywhere. In fact, they’ve been so low in recent years that they’re almost zero. In 2012, the TSP’s expense ratio was 0.027 percent (or, a multiplier of 0.00027). So, for every $1,000 you had invested during 2012, you lost 27 cents to expenses for the year. These expenses are applied against the TSP funds’ returns, day by day. A report covering the TSP’s expense ration is available at https://www.tsp.gov/investmentfunds/fundsoverview/expenseRatio.shtml.
January 25th, 2013 | Uncategorized
Q. With a 300 percent increase in the money supply since 2008, I believe inflation will have a devastating effect in the years to come. Is there any recommended Thrift Savings Plan strategy to prepare for it if it occurs? From the risk information on the TSP website, it appears inflation will have a negative risk on all of the TSP funds.
A. The C, S, I and G funds should be the most resistant to inflation pressure.
January 9th, 2013 | Uncategorized
Q. I am 25 years old, and recently joined the government. It is difficult to fathom retirement at my age, but I understand that I can get ahead by taking time to address my financial planning needs now.
I don’t really have solid retirement goals. Let’s imagine I will retire around 2050. My investments need to provide support beyond any retirement date. I understand the risks associated with investing in stocks vs. mutual funds. I also understand that I can take more risk at a younger age. And I am comfortable taking on risk. After all, we’re only talking about Thrift Savings Plan contributions. I’m also putting money into a Roth IRA and considering a Roth 401(k).
My TSP contributions are allocated according to the default: 100 percent in the G Fund. LifeCycle funds seem to be recommended and preferred by a variety of folks. What do you think about this growth allocation:
25 percent — LifeCycle 2050
25 percent — C Fund
20 percent — S Fund
15 percent — I Fund
10 percent — F Fund
5 percent — G Fund?
A. I suggest that you consider maxing out your tax-deferred TSP contributions before saving anywhere else for retirement, and then fixing your allocation using the beginning allocation for the L 2050 Fund: 44 percent C Fund, 27 percent I Fund, 19 percent S Fund, 7 percent F Fund and 3 percent G Fund. Rebalance your account to this allocation at least once per year but no more than four times per year. I see no reason to mix the L Funds into the allocation.
December 31st, 2012 | Uncategorized
Q. I’m a 52-year-old federal employee serving in military status. I have the following in my Thrift Savings Plan account: C Fund — $145,000; G Fund — $30,000; F Fund — $10,000; and I Fund — $7,000 for a total of $192,000. I have other IRA investments of $70,000. I plan to buy back about eight years of military service for my federal retirement. My risk level is somewhat moderate, and I wanted to know if I should move a percentage of my C Fund into G? The fiscal cliff concerns me. I’m not sure if I’m balanced in my approach. I do not expect to retire as a civilian until 65. Thoughts?
A. I can’t tell you what to do since I don’t know nearly enough about your circumstances except your current TSP allocation of 75 percent C Fund, 16 percent G Fund, 5 percent F Fund and 4 percent I Fund — basically 80 percent stocks, 5 percent bonds and 15 percent cash — would be considered aggressive by most objective standards, not really moderate.