How to supplement/diversify I Fund outside TSP?

[hoppy08520]

Hello, I have a TSP from when I worked on Capitol Hill a while ago. Now I'm in the private sector but I still have my TSP account (I'm glad I never rolled it over).

For some background:
I'm 42, married to a 41-year-old.
His (my) TSP - 16% of our total retirement assets
His 401k - 50% of assets.
His Roth IRA - 10%
Her IRA - 10%
Her Roth IRA - 13%

Hoping to retire at age 65
Current allocation goal around 62/26/12 : Stocks/International/Bond

Philosophy: prefer diversified index funds with low expense ratio. We have our IRA accounts in a Vanguard brokerage and in Vanguard index mutual funds.

Goal: trying to craft the right asset allocation across all of our accounts to get the right funds at the lowest expense ratios.

Currently in the TSP I have my funds in the L-2040, but to make a long story short, I'm trying to switch around my overall allocations in such a way that I might want to use most/all of my TSP for the I-Fund because the TSP has such lower fees relative to my options in the other accounts (put another way my International options in the other accounts have higher fees than the Total Stock and Bond funds). But since the I-Fund doesn't cover the full international market, I feel like I'd need to supplement it with other accounts.

Has anyone put together a mix-and-match set of mutual funds and ratios that includes the I Fund plus other international funds to create a Total International Stock fund that is more diversified than the I Fund?

Thanks for any tips.

[crondanet5]

Sunday mornings I listen to 969bostontalks.com with one of the top 100 financial advisors in the country. This is the diversified portfolio she put together: Baron Growth, Baron Small Cap, Fidelity Balanced, Fidelity Contra, Fidelity Emerging, Fidelity Mid-Cap, Fidelity Puritan, T.Rowe Value Small Cap, T. Rowe Growth, T. Rowe Blue Chip, T. Rowe Mid-Cap, T. Rowe Capital Appreciation, T. Rowe ier, Royce Microcap, Royce Low Price Stocks, Royce Value, Royce Value Plus, Royce Opportunity, Gallilleo Growth, Third Avenue Value, Artisan Mid Cap, Meridien Mid Cap, Meridian International, Meridien Opportunity Global (or else it's Oppenheimer Global), Fidelity International Discovery, T. Rowe International, Matthews Asia Developing International, Oppenheimer Developing. Not responsible for spelling or mistakes in fund title. I am not a fan of diversification and at this point cannot tell you why I wrote them down, but those are the funds she recommended. I suggest you listen in to the show (0900-1130) and get her ideas. You need patience as they take other types of calls and not every caller is investing a million dollars. Do you have long term health care insurance?

[scorchf22]

Since the I Fund includes stocks from developed countries only, I've diversified my international potfoilio by including an emerging markets index fund. Roughly 20% of my present INTERNATIONAL stock portfolio (I Fund and VEIEX) is invested in emerging markets.

[Webby]

I'm currious why you are thankful that you didn't roll your TSP over to a 401K. I left federal service a year ago and haven't either but I'm now convinced that it's the smart thing to do. Having more investment options, unlimited fast trades and the ability to set stop limts are my primary reasons. TSP is very low cost but timing is so much more difficult. Perhaps there are sound reasons not to that I haven't considered?

[hoppy08520]

I'm currious why you are thankful that you didn't roll your TSP over to a 401K. I left federal service a year ago and haven't either but I'm now convinced that it's the smart thing to do. Having more investment options, unlimited fast trades and the ability to set stop limts are my primary reasons. TSP is very low cost but timing is so much more difficult. Perhaps there are sound reasons not to that I haven't considered?

Webby, I'd urge you to hold on to your TSP.

A lot of people say the TSP is the best retirement plan there is:

http://www.cbsnews.com/8301-505123_162- ... 01k-plans/

http://www.federalnewsradio.com/?nid=20&sid=2520461

The expense fees are rock-bottom: typically $0.25 per $1,000 invested. Even the better Vanguard plans are $2 or more per $1,000, and most 401K funds are more like $75 per $1000. That may not seem like much but when you compound these fees, and the resulting loss in opportunity cost, the TSP looks better and better.

If you want to want to do some more exotic investing, then by all means open an IRA or a brokerage account and choose different stocks and funds, but you can still keep your TSP and use those funds to make up your allocations in the Total Stock Market (see http://www.bogleheads.org/wiki/TSP#Repl ... ock_Market) which should be a core part of any portfolio.

A lot of people really like the TSP's G Fund. Even if you are younger and don't want to park money there now, you might want to when you near retirement age.

[hoppy08520]

Since the I Fund includes stocks from developed countries only, I've diversified my international potfoilio by including an emerging markets index fund. Roughly 20% of my present INTERNATIONAL stock portfolio (I Fund and VEIEX) is invested in emerging markets.

Thanks for the reply. You mention that your overall portfolio is 20% International. I'm curious, what is your ratio between I Fund and VEIEX? Are they equal, or do you have more of I Fund or more of VEIEX?

[scorchf22]

Since the I Fund includes stocks from developed countries only, I've diversified my international potfoilio by including an emerging markets index fund. Roughly 20% of my present INTERNATIONAL stock portfolio (I Fund and VEIEX) is invested in emerging markets.

Thanks for the reply. You mention that your overall portfolio is 20% International. I'm curious, what is your ratio between I Fund and VEIEX? Are they equal, or do you have more of I Fund or more of VEIEX?[/quote

I did not state 20% of my overall portfolio is International. My international portfolio is 80% I Fund/20% VEIEX.

[hoppy08520]

I did not state 20% of my overall portfolio is International. My international portfolio is 80% I Fund/20% VEIEX.

Thanks scorchf22, I guess after staring at my spreadsheets for so long, I can hardly read anymore Thanks for straightening me out.

[Webby]

hoppy08520,

Thanks for the feedback regarding the 401K roll over option. I'll take a look at the links you provided and do some more research.

[crondanet5]

hoppy I don't understand your logic. You seem enamored with the TSP while the majority of us are frustrated by the 2 trade per month rule. We struggle to make our account get ahead in spite of that rule, but it just isn't happening EXCEPT for the biweekly payroll contribution. This site has a Fantasy Game in which every participant starts with a $100,000 and you join the melee. The top leader is sitting in the G Fund and the second place player is $24,000 behind him, give or take $2,000. The rest of us are floundering. So I cannot understand why you like the TSP so much when a rollover brokerage account could give you a far better return. You could leave it in a seperate account rather than combining it with other 401k accounts so you could track the TSP accumulation, but you could make many more transactions per month and increase your account value. TSPking's old shop put together a fascinating investment program for the TSP that produced a 20% annual return with minimum IFTs. I don't believe the I Fund will give you that kind of return by leaving your account dedicated to the I Fund all year. I also do not understand your need for diversification when portions of that diversification will lose money. It's like the emperor's new clothes. Delusion. As you can probably tell, I am not diversified, and I like nothing better than to be 100% cash at 4 P.M. EST. I sleep like a baby. Fidelity and Merrill sort of hurled insults at my being a daytrader until I reminded them of the commissions I was paying, which I don't mind doing because what remains is mine. I know this is a different investment philosophy than what you read and hear, but I can assure you it works. The part about your international diversification I find puzzling is the fact the financial people on CNBC are convinced U.S. companies will have a much better return the next 18 months while the rest of the world sort out their various woes. Just a thought, a point of view. Might be worth thinking about. Good luck.

[scorchf22]

hoppy--thought you should know that while I'm not a a "buy and holder", I do beleive it is wise for me to diversify my holdings. About 55% of my portfolio is invested in fixed income securites, 10% cash (includes G Fund) and rest in equities. Anyway, about 9% of my overall portfoilio is invested international stocks but this will soon be reduced. I sleep well knowing that I didn't miss out on this year's remarkable equity gains but know better than to assume this ascent will continue. You sound like you've been doing your homework and understand the limitations of market timing.

[hoppy08520]

hoppy I don't understand your logic. You seem enamored with the TSP while the majority of us are frustrated by the 2 trade per month rule....Just a thought, a point of view. Might be worth thinking about. Good luck.

Thanks, we're all here (on earth, and in this forum) to learn.

Don't take my word for it, I'm just some guy on the internet. I've read many articles from financial planners who say the TSP is one of the rest retirement plans out there.

Note I wrote "retirement plans" and not "brokerage accounts". Anyone who wants to make 2+ trades per month needs something beyond the TSP. The vast majority of ordinary investors are not trading like this. (As for my own biases, I'm admittedly a fan of low-fee, diversified index funds and simple investing strategies, so it's no wonder I like the TSP.)

Maybe the TSP is not ideal if that's your only investment vehicle. But as I wrote earlier, having a portion of your overall portfolio in the TSP can make for a solid low-fee cornerstone of a good portfolio. Hopefully you have other accounts besides the TSP where you can diversify more if that's your liking.

Take, for example, the Vanguard Total US Stock Market Index (VTSMX). It's one of the biggest mutual finds and people have invested $176B in that fund. You can replicate that same fund in TSP with a 4:1 in C Fund and S Fund and pay 6.8 times less in expenses than Vanguard (0.025% for TSP vs. 0.17% for Vanguard, although you can get that down to 0.07% if you have more than $10,000 in the fund), which is already one of the most economical mutual fund companies. That's a great deal! Most investors should have part of their portfolio in this segment, and you can't do better than the TSP.

Even if you feel you want more exotic investments today, when you've closer to retirement age, it might not be such a bad idea to roll a good chuck of your portfolio over to the G Fund where you can get decent returns for no risk. Again, search around and you'll find all kinds of financial professionals praising the G Fund and talking about how there's no better deal and no equivalent fund for non-government investors.

So, even if Webby wants to transfer a lot of his TSP money out into other accounts and fund, I'd still keep the TSP around even if you just have a few thousand dollars in it in case he ever re-considers. You can always roll IRAs back into the TSP later. Just keep your options open.

I left Capitol Hill in 1997 and I held onto my TSP. Every so often I thought of rolling it over, but I'm very glad I never did.

My work 401K has a Target Retirement Plan with a 1.0% ER. That's FORTY TIMES more expensive than TSP. I wish I could put that money in my TSP right now. Thank goodness I never rolled my TSP over to my 401K. My idiot advisor at work said I should do that to simplify and have everything in one account. I wasn't as knowledgeable then as I am now and I almost did it. Thanks goodness I didn't listen to him.

By the way, back to my original question that started this thread, after much thought, I've decided to put my TSP funds (16% of my total portfolio) into G Fund and F Fund at a 55/45 ratio (I chose that ratio to replicate what's in the L-2040). My overall portfolio is 80/20 stocks/bonds. I'll use my other accounts (401K, Roths, tIRA) to make up the balance of equities (Intl and US) and also a different bond fund to get my bonds up to 20%.

My reasoning is that I can replicate all of the other TSP options in other mutual funds, but from what I've read there's no other mutual fund out there that can do quite what the G Fund does, so I might as well take advantage of that option in my TSP.

[crondanet5]

First, I suggest you open a Fantasy Game account. It's free and intriguing. Actually you already have a "fantasy" account, your TSP account, because you have not been able to add to it since 1997. And it may be that since you've kept it in a fairly secure Fund in that time, and some of your other retirement investments may not have grown as you would have liked, the TSP may look better to you at this point than it should. Another aspect of your investing affecting your overall account balance is your risk factor-- what you are willing to risk losing in your account in order to gain more. I look at the 100% I Funder as a risk taker, the 100% G Funder a low risk investor. Notice I did not not use the word saver in place of investor. Too often people look at retirement accounts as retirement savings accounts and treat them like passbook savings accounts. The goal is a secure financial retirement, and achieving that level of wealth as soon as possible (besides doing the things financial advisors like you to do to set your house in order, such as a will, perhaps a living trust, long term health care {one advisor recommends applying for it at age 18} power of attorney, etc.) so that retirement is possible and a viable option should the workplace become detrimental to your well being. Have you noticed how few "old" (age 67+) workers are around you? Participating in the Fantasy Game will give you a window to learning how successful Gamers play this Fantasy, and how you might take a bit more risk to significantly improve your account standing to free up other money in your retirement portfolio to get you closer to your desired retirement financial amount.

[Webby]

hoppy08520,

Thanks again for the links to information; they were good reads. A quick spreadsheet reminded me of the benefits of the low TSP fees especially when compounded; again thanks.

Interestingly, you and I are somewhat similar. I have IRA's and a brokerage account with Vanguard. Unlike you however, my TSP is closer to 40% of my retirement savings so I'm sensitive to its performance. To date, I've had more of a buy/hold mentality which has not served me and many others well the past 10+ years. My limited attempts at timing haven't been too successful in the past either.

So I’m now committed to do better. 10-15% TSP returns will work just fine for me IF I can get there - I need growth. So maybe I can do this utilizing this website as a resource. I suppose I could also pay for ”premium” TSP advice as well. Or, like crondanet5, I wonder if I have a better chance at success outside of TSP (even after all of the larger fees). Your suggestion to keep a portion in TSP to keep the door open in the future is very smart; I would certainly do that.

I suppose the smart thing might be to give myself some time to more activily manage my TSP before I pull the trigger.....