Would y'all please give me your interpretation of

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crondanet5
Posts: 4324
Joined: Tue Aug 19, 2008 8:51 pm

Would y'all please give me your interpretation of

Post by crondanet5 »

Larry Swedroe's interview over on www.seekingalpha.com ? I'm trying to understand it in relation to someone remaining in a fund, say, the S Fund without making an IFT, as opposed to someone who uses all available monthly IFTs seeking higher returns. Any and all comments appreciated.

ralpharch
Posts: 47
Joined: Tue Dec 28, 2010 2:14 pm

Re: Would y'all please give me your interpretation of

Post by ralpharch »

Thanks - interesting read.

From a novice's viewpoint - I take the article to imply my current "active" TSP strategy is likely to be a loser versus an available "passive" strategy. In my case, being near retirement and fearful of a big drop in equities, I gravitate to the security of the G fund. However I am not satisfied with the current low returns in light of current performance of the I C S funds (I am equally learly of F funds and have historically lost value by bad timing entry exit into F funds). So my strategy is to jump into preferred equities (predominantly I but some S and C) after a drop and be ready to pick off winnings and quickly revert all to G. This has resulted in me outperforming G (would be kind of hard not to do it this year) but underperforming the equities. At the same time I have only been exposed to equity value loss one to three days of each month (both IFTs are used up in my "system - one to get in and one to get out when my return exceeds my target of +0.5% or I get scarred with a large drop in value and don't want to be exposed to continuation.

I really could do the same passively by investing in the Income L fund, or distribute my portfolio and get in re-balanced daily by the other TSP L funds.

Time will tell of course - but the article implies my approach is likely to be inferior to a passive one with the same mix. Of course there is no such passive mix available in the L choices (say 20/23 G; 2/23 I, .5/23 C and .5/23 S - assuming 23 active days in a month) so the only way to know for sure will be in hindsight.

Actually there is a way to gain insights as of today as well. I could just take my exposure time averaged mix as of today for the year and compare the returns of such a hypothetical passive allocation versus my real year to date return - (which should be already available in my Fantasy account?). If a population of us examined that question individually and posted results I would have expected 50% above and 50% below the passive approach based on an efficient market.

I believe the article strongly implies the results on average would be more favorable for the passive positions.

This would be an interesting test if a number of us were to post results this way. Of course then we would be getting a biased sample based on those that were proud of their results. A control could also be run on a random sample of TSP fantasy accounts that have active trading this year to get unbiased results

crondanet5
Posts: 4324
Joined: Tue Aug 19, 2008 8:51 pm

Re: Would y'all please give me your interpretation of

Post by crondanet5 »

Thanks for your input. The New York crowd of financial advisors are very keen on this passive investment program. Only I listen to 969wtkk.com on Sunday mornings at 0900 to listen to Susan Kaplan, CFA. She had a caller last Sunday with a million dollar portfolio seeking input to invest another million from the sale of a company. She had excellent ideas, not too passive (he was 65 and not planning to draw Social Security until age 66 to assist in funding his $75,000 annual living expenses). In fact, in the past she has spoken against passive investing. But I was curious what the community thought it would do in the TSP arena. Have you decided what you will do with your TSP account when you retire??

ralpharch
Posts: 47
Joined: Tue Dec 28, 2010 2:14 pm

Re: Would y'all please give me your interpretation of

Post by ralpharch »

I actually did up a spreadsheet to test out the hypothesis of passive versus active. In my case actual YTD return was 1.58%. A passive mix with the identical overall exposure but spread over the whole period was 1.28% so I feel great that my active strategy outperformed a passive one. Either way I was exposed to equity risk 15% of the time


Overall return YTD 0.79 0.15 6.16 7.88 5.85 3.83 5.28 4.71 3.97 1.99 1.58

passive weighted return YTD 0.46 0.04 0.00 0.00 0.57 0.16 0.00 0.05 0.00 0.00 0.00 1.276695652
Percent exposure 58% 27% 0% 0% 10% 4% 0% 1% 0% 0% 0%
G Fund F Fund C Fund S Fund I Fund L 2050 L 2040 L 2030 L 2020 L 2010 L Income
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Last edited by ralpharch on Mon Apr 11, 2011 9:21 pm, edited 1 time in total.

ralpharch
Posts: 47
Joined: Tue Dec 28, 2010 2:14 pm

Re: Would y'all please give me your interpretation of

Post by ralpharch »

crondanet5 wrote:
...... Have you decided what you will do with your TSP account when you retire??


I have been thinking a lot about what to do but remain undecided. Hopefully don't need the income in retirement as my wife and I don't travel much, don't spend a lot and have non expensive hobbies etc.

Have been giving some thought about taking some out before mandatory point and converting to after tax investments, such that my sons can inherit investments after growth with a stepped up basis if we don't use it.

Kind of clueless - but I have no intent of transferring to a managed IRA like was recommended by a financial advisor we met with.

crondanet5
Posts: 4324
Joined: Tue Aug 19, 2008 8:51 pm

Re: Would y'all please give me your interpretation of

Post by crondanet5 »

No matter what you decide your TSP account will be closed at age 70 1/2 and transferred to something else, such as an annuity. I don't like annuities. So I plan to roll the whole thing into a rollover 401k and continue investing to support next generation wealth accumulation. Beware "financial advisors". Most are insurance agents who dazzle you with inheritance issues and then try to sell you an annuity. I applaud the fact you do not need your TSP account to support your retirement lifestyle. These accounts were meant to support medical/late life financial issues and not for trips to Italy. This said, the need to continue to grow your account remains important. The April issue of The Atlantic had an article about a study program of those with 25 million or more in assets. It was very interesting (I think I underlined practically every sentence) because even at our level we face the same issues such as how do you discuss the transfer of your wealth to your children? How will it affect their lives? How do you convince them to keep it safe as opposed to spending it? Did you ever imagine you would face these issues when you began your federal career?

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flight23
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Re: Would y'all please give me your interpretation of

Post by flight23 »

crondanet5 wrote:No matter what you decide your TSP account will be closed at age 70 1/2 and transferred to something else, such as an annuity. I don't like annuities.



I dont think this is correct. You can continue to use the TSP as the investment at 70.5 years of age, you just have to begin taking minimum monthly withdrawals. You can choose to do a full withdrawal or choose to do an annuity, but you dont have to. At least that is how I understand it.
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jdeacon
Posts: 136
Joined: Fri Mar 05, 2010 4:38 pm

Re: Would y'all please give me your interpretation of

Post by jdeacon »

Flight23--You are correct--see below from TSP web site:

At some point, the Internal Revenue Service (IRS) is going to want its share of the money you've been allowed to accumulate tax deferred for all of these years in your TSP account. By law, you will be required to take required minimum distributions (RMDs) beginning the year you turn 70½. At that time, you'll have to pay tax at your ordinary income tax rate on any income you receive from your TSP account.

If you want to avoid paying taxes for as long as possible, be sure not to take any withdrawals from your TSP account until the IRS requires you to do so. In addition, avoid taking amounts in excess of your annual required minimum distributions. That way, you'll continue to enjoy the tax deferral and the compounding of any earnings in the balance of your account.

For more information about RMDs, visit Required Minimum Distributions.

For detailed information about all of your withdrawal options, visit Withdrawals After Leaving Federal Service.

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Fund Prices2022-08-05

FundPriceDayYTD
G $16.98 0.01% 1.45%
F $19.05 -1.07% -8.80%
C $63.14 -0.15% -12.24%
S $67.93 0.74% -18.59%
I $33.31 -0.76% -15.55%
L2065 $12.78 -0.24% -14.10%
L2060 $12.78 -0.24% -14.10%
L2055 $12.79 -0.24% -14.09%
L2050 $26.41 -0.27% -12.04%
L2045 $12.13 -0.27% -11.26%
L2040 $44.61 -0.25% -10.41%
L2035 $11.88 -0.24% -9.47%
L2030 $39.88 -0.21% -8.47%
L2025 $11.54 -0.16% -5.76%
Linc $22.85 -0.12% -2.72%

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