Ask The Experts: Money Matters

By Mike Miles

TSP allocation

Bookmark and Share

Q. I’ve been putting money into the C Fund and S Fund but keep 50 percent in the G Fund. I’m not doing too well. I move it when the stock market dips and put it back when it rises. Can I put all of my money into an L Fund and get better results? If so, which one? I plan to retire in 15 years.

A. Really, selling after the market drops and buying after it rises isn’t working out too well? Go figure. Identifying and applying the asset allocation scheme that meets your needs with a minimum of risk would be a smarter approach. That allocation scheme, and how it is maintained, should depend entirely upon your personal circumstances and goals. There is no one-size-fits-all solution. Since you’re responsible for the management of your account and the results you’ll achieve, you’ll have to pick the allocation. The Thrift Savings Plan gives you guidance for selecting an L Fund, but, of course, they won’t stand accountable if their recommendation doesn’t meet your needs. The trick is to put the necessary expertise, affordability and accountability together. It sounds like you meet the affordability and accountability requirements, but are lacking in the necessary expertise.

If it were me, and I had no idea what to do, I’d put my money in the L Fund that most closely corresponds to my life expectancy and then get serious about figuring out what I should really be doing.

Tags: , , , , ,

S and I funds

Bookmark and Share

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.

Tags: , , , , , , ,

Transfer from G Fund

Bookmark and Share

Q. I am retiring under FERS soon. I am now age 69. I have about $175,000: 74 percent in G Fund; 24 percent in C Fund. I would like to move some or all out of the G Fund to get a better return. Your advice would be appreciated.

A. This is not nearly enough information to determine the proper asset allocation for you. I will note, however, that the additional return you seek will come with much greater risk of loss than that posed by the G Fund, so be careful.

Tags: , , , , ,

TSP allocation

Bookmark and Share

Q. I am separating from the military in January 2014. From there, I will be pursuing my education. I will be 60 in 2042. My Thrift Savings Plan is 100 percent G Fund. I stopped my TSP contribution and started the Roth TSP because I like the idea of not paying tax when retirement comes. I am aware that the account needs to be in place for five years and can only be withdrawn at age 59½, and that the money is deducted from taxed income. Is this a wise decision?

Since my traditional TSP can’t be transferred to TSP Roth, I decided to just leave it there. Would it be better to leave it entirely to G fund or allocate certain percentages to other funds? And which would be a good one to put them into?

A. It is not generally better to contribute to the TSP or the Roth TSP. Which is better entirely depends upon your tax circumstances now, and what happens in the future. Knowing what we know today, it is likely to be far more important that you save the money than it is where you save the money.

If you have no idea what to do, I suggest that you put your TSP holding into the L Fund that most closely corresponds to your life expectancy and cross your fingers.

Tags: , , , , , , , ,

Making changes to TSP

Bookmark and Share

Q: I’m a Federal Employees Retirement System employee and will retire at age 64. I will opt for monthly payments from my Thrift Savings Plan. I know I can change the amount yearly, but can I also change the plan in which the funds are invested?

A: You may change your investment allocation in the TSP as you see fit, within the usual limits, for as long as you maintain the account.

Tags: , ,

TSP fund allocation

Bookmark and Share

Q: I am an employee under the Federal Employees Retirement System. I will retire in five years at age 56 with 37 years of federal service. I plan to continue working in the private sector and not make any Thrift Savings Plan withdrawals until I turn 62. I currently contribute 20 percent of my TSP money to each of the five funds. What is your opinion on this investment allocation? If it’s not favorable, could you provide an allocation that you feel would be in my best interest? Also, if I decide to delay my federal retirement until age 62, would you recommend the same mix or a more aggressive one?

A: The information you’ve provided isn’t adequate to support the kind of analysis required to determine the right asset allocation. The allocation is a means to an end and should be chosen to support your specific goals, including the amount and timing of all future cash flows expected to affect the account, among other personal factors.

Tags: , , ,