Settling the Contribution Allocation question.

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DSS

Settling the Contribution Allocation question.

Post by DSS »

This question is asked a lot. To switch contributions and IFT in sync or to set your contributions to the G and make IFTs as desired. Which is optimal?

I think that the "correct" answer is to invest your money in the fund you think will maximise your gains, whatever that may be, as soon as those funds are available. In almost all long term scenarios, it is always better to have your money invested as soon as possible rather than on the sidelines waiting for an opportune moment or to even use dollar cost averaging. The power of compounding interest needs time to work.

I'll refer you to this study by Vanguard: https://personal.vanguard.com/pdf/ISGDCA.pdf

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MakeMe$$$$
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Re: Settling the Contribution Allocation question.

Post by MakeMe$$$$ »

I think this is in the "it depends" category.

The problem with matching new investments into current holdings is timing. You might make some brilliant moves with active management of your holdings but you have no control when your agency gets your contributions into the TSP system.

Some folks are "buy and hold" or "dollar cost averaging". Putting new money into their current holdings makes total sense.

OTOH, active traders (especially daily strategy followers) might want contribute to the G fund first and then move new money when they IFT. Putting money into the G fund first would guarantee they won't take "losses" before they IFT.

While there is certainly power in longer term compounding interest, there is no guarantee that new money will add or subtract from that equation. It just depends.
Don
Rolled over to Fidelity 2/24/18.
Fantasy still playing with Daily Strategy 12767.

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robika
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Re: Settling the Contribution Allocation question.

Post by robika »

Hmm, a thought just came to mind. Most of these strategies are based on historic "bests" between all the funds. This doesn't necessarily mean that the strategy is having you buy at the lowest and selling as the highest. The strategy is having you buy into a certain fund when it is doing better than the rest during the time period that you are holding on to it. Because of the limited number of IFTs we have it is averaging over periods of time. During that period of time the fund may rise and fall, if your CA happens to buy in at a point where it is at a high you may actually lose money on that allocation when it is time for you to do your next IFT.
My thinking is now to always have your CA buy into the G fund because you will not lose money on it when the next IFT comes around.
2019: Ignore everything that Mr. Imperfect says. Just roll the dice, will probably do better.
2020: Did Mr. Imperfect hack my fantasy account?
2021: My fantasy account got COVID.

bad70nova
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Re: Settling the Contribution Allocation question.

Post by bad70nova »

Lots of moves today between funds, last trading day of the month is the reason I am guessing. Unless there are some dailys that have people moving today. Me holding tight in the S fund till the 7th,

searight
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Re: Settling the Contribution Allocation question.

Post by searight »

robika wrote:My thinking is now to always have your CA buy into the G fund because you will not lose money on it when the next IFT comes around.
The reason that half of the TSP accounts have funds in G because of the theory that it will not lose money. On the contrary I believe that the G fund guarantees a loss compared to the income averaging of any other fund. Since I am more than 3 years out from withdrawing the funds, I put them in 80% F and 20% C. This combination very rarely loses money and almost always outperforms G.

Carmen909
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Re: Settling the Contribution Allocation question.

Post by Carmen909 »

I haven't done any analysis on this. It's just my own personal observation. But I believe that the funds always seem to be higher on the days when all of our contributions go in at the same time on payday. So I just do 100% in G until I see the fund I want to be in go back down after that temporary rise. I'm sure someone here will show me I'm wrong. I'm not meaning that negatively. I'd welcome the input.

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robika
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Re: Settling the Contribution Allocation question.

Post by robika »

searight wrote:
robika wrote:My thinking is now to always have your CA buy into the G fund because you will not lose money on it when the next IFT comes around.
The reason that half of the TSP accounts have funds in G because of the theory that it will not lose money. On the contrary I believe that the G fund guarantees a loss compared to the income averaging of any other fund. Since I am more than 3 years out from withdrawing the funds, I put them in 80% F and 20% C. This combination very rarely loses money and almost always outperforms G.
I understand that G will lose in the long run of a buy and hold, but what I'm saying is that the payday contributions come in at random times during our strategy time periods and having the contribution buy in at whatever the price is for that fund could be detrimental: the price of that fund could very likely go down by the time your next IFT comes around. G will not go down.

Take tomorrow's contribution buy for example, if you use the daily calculator and all you do is put in F on the first trading day of December and go back to G on the 6th trading day (19456), your mean for the month of December is .21 but if you compare it to just having it in G for the same time period (68) the mean is .25. Which means that, historically being in F from the 1st trading day until the 6th trading day of December is actually going to lose you money. I picked the 6th trading day to come out of F because that's when most of us are going to go do our next IFT which is sell S, and for me, go to F.

Because the price of funds go up and down and paydays are at random times compared to the daily strategies, I think for the short period of time between most of the IFTs, it's best to put it in G unless you want to play with the calculator for every single payday. For me, I think the time-value-of-money invested in calculating it out each payday is not worth the gain I may get.
2019: Ignore everything that Mr. Imperfect says. Just roll the dice, will probably do better.
2020: Did Mr. Imperfect hack my fantasy account?
2021: My fantasy account got COVID.

mindofmush
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Re: Settling the Contribution Allocation question.

Post by mindofmush »

Any strategy that involves >24 IFTs per year will not allow any time for the "power of compounding interest" to work on any particular payroll contribution.

The greater the TSP balance, the smaller the effect of the contribution, especially for short periods of time until the IFT swallows the contribution into the TSP balance.

So Don is right: It just depends.

I matched contribution allocation to IFT when I did "buy & hold" in C fund.
I sent contributions to the G fund when I started #7980 to minimize my time on the TSP.gov site, but I now match contributions to IFTs because it only takes 4 more mouse clicks.

Do whichever is important to you because if it's important to you then it's right for you.
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mindofmush
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Re: Settling the Contribution Allocation question.

Post by mindofmush »

searight wrote:
robika wrote:My thinking is now to always have your CA buy into the G fund because you will not lose money on it when the next IFT comes around.
The reason that half of the TSP accounts have funds in G because of the theory that it will not lose money. On the contrary I believe that the G fund guarantees a loss compared to the income averaging of any other fund. Since I am more than 3 years out from withdrawing the funds, I put them in 80% F and 20% C. This combination very rarely loses money and almost always outperforms G.
The G fund does not lose MONEY though it does incur a lost opportunity cost when comparing it to long term B&H of other funds.

The F fund is not a safe haven because it DOES lose money just like a stock fund. The average return for the F fund on November is -.32% compared to G fund .23% (TSPcalc 2010-2017). For December, the F fund averaged -.10% to the G fund .25%. The F fund posted negative returns in 4 of those Novembers and 4 of those Decembers, as much as -2.35%.

80%F/20%G has already underperformed 100%G in the month of November 2017 and will do so in December too.

The F fund is useful in a seasonal strategy as an inverse fund that goes up when stocks go down, but with the extremely low bond yields (even lower yields as bond prices go up) the F fund isn't performing as it used to.

I have eliminated the F fund from consideration in my strategy until it shows better performance. (Maybe until 2019)
mo meng, mo ching (which loosely means: no money, no life)

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MakeMe$$$$
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Re: Settling the Contribution Allocation question.

Post by MakeMe$$$$ »

mindofmush wrote:...
I have eliminated the F fund from consideration in my strategy until it shows better performance. (Maybe until 2019)
I'm with you on being underwhelmed by the F fund. Still...

I'm thinking of straddling when my strategy calls for the F fund. I might go 50/50 F & G during those times.
Don
Rolled over to Fidelity 2/24/18.
Fantasy still playing with Daily Strategy 12767.

mindofmush
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Re: Settling the Contribution Allocation question.

Post by mindofmush »

50/50 F & G should be safe over the next 6 months at least, and feeling safe is what lets you sleep at night.
mo meng, mo ching (which loosely means: no money, no life)

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Fund Prices2024-03-28

FundPriceDayYTD
G $18.15 0.05% 1.05%
F $19.08 -0.06% -0.74%
C $82.21 0.11% 10.55%
S $82.43 0.30% 6.92%
I $42.57 -0.24% 5.95%
L2065 $16.38 0.02% 8.37%
L2060 $16.39 0.02% 8.38%
L2055 $16.39 0.02% 8.38%
L2050 $32.73 0.01% 6.95%
L2045 $14.91 0.02% 6.58%
L2040 $54.38 0.02% 6.22%
L2035 $14.34 0.02% 5.79%
L2030 $47.67 0.02% 5.38%
L2025 $13.15 0.03% 3.43%
Linc $25.61 0.03% 2.82%

Live Charts

Pending Allocations

Under development. For now, you may view Pending Allocations by going to "fantasy TSP" and selecting "Leaderboard sort" of "Pending Allocations".