New L2070

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mjedlin66
Posts: 1627
Joined: Wed Oct 02, 2013 7:51 pm

New L2070

Post by mjedlin66 »

The TSP added the L2070 today. The addition of that fund caused my two websites to fail their update, which has been resolved quickly. It looks like it caused various other 3rd party TSP related sites to have pricing errors.

Heres to the new 2070 fund. Man I feel old now.
Owner/creator of TSPcalc.com - "Know your numbers"

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misfit
Posts: 262
Joined: Fri Apr 13, 2018 9:21 am

Re: New L2070

Post by misfit »

Can anyone explain why the 2070 is $10.11 per share and the 2065 is $17.07 per share and they are the same allocations into each fund? Is it a wise move to buy 2070 instead of 2065?

Thanks

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Aitrus
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Re: New L2070

Post by Aitrus »

It's because whenever the TSP adds a new Fund, it always starts out at $10.00 per share. 2065 came out a few years ago, so it's had time to grow.

Without knowing it, you asked a pretty deep question. Yes, it matters - but there's several things at play.

From a pure number-of-shares perspective, $100 will buy more shares of 2070 than 2065. At the prices you quoted, $100 will buy 9.8912 shares of 2070, and 5.8582 shares of 2065.

But will the higher number of shares matter? Let's run 10 years of calculations where each year sees a 10% increase. The final value will be off by a few cents due to rounding being annoying, but you'll get the gist.

L2065 first:
Year 0: 5.8582 shares at $17.07 per share = $100 value
Year 1: 5.8582 at $18.7770 per share = $110.02 value
Year 2: 5.8582 at $20.6547 per share = $121.00 value
Year 3: 5.8582 at $22.7202 per share = $133.10 value
Year 4: 5.8582 at $24.9922 per share = $146.41 value
Year 5: 5.8582 at $27.4914 per share = $161.05 value
Year 6: 5.8582 at $30.2405 per share = $177.15 value
Year 7: 5.8582 at $33.2646 per share = $194.87 value
Year 8: 5.8582 at $36.5911 per share = $214.36 value
Year 9: 5.8582 at $40.2502 per share = $235.79 value
Year 10: 5.8582 shares at $44.2752 per share = $259.37 value

Now L2070:
Year 0: 9.8912 shares at $10.11 per share = $100 value
Year 1: 9.8912 at $11.121 per share = $110.00 value
Year 2: 9.8912 at $12.2331 per share = $121.00 value
Year 3: 9.8912 at $13.4564 per share = $133.10 value
Year 4: 9.8912 at $14.8020 per share = $146.41 value
Year 5: 9.8912 at $16.2822 per share = $161.05 value
Year 6: 9.8912 at $17.9104 per share = $177.16 value
Year 7: 9.8912 at $19.7014 per share = $194.87 value
Year 8: 9.8912 at $21.6715 per share = $214.36 value
Year 9: 9.8912 at $23.8387 per share = $235.79 value
Year 10: 9.8912 shares at $26.2226 per share = $259.37 value

As you can see, exactly the same because 1) no new shares were purchased; 2) 10% is 10%, no matter how big the per share number is; and 3) I've treated the Fund allocations in each as exactly the same and static.

Let's run the numbers again, but this time let's buy $100 worth of shares at the end of each year.

L2065 first:
Start: buy 5.8582 shares at $17.07 per share = $100 value
End of Year 1: 5.8582 shares at $18.7770 per share = $110.02 value. Use $100 to buy 5.3257 shares.
End of year 2: 11.1839 shares at $20.6547 per share = $231.00 value. $100 buys 4.8415 shares.
End of year 3: 16.0254 shares at $22.7202 per share = $364.10 value. $100 buys 4.4014 shares.
End of year 4: 20.4268 shares at $24.9922 per share = $510.51 value. $100 buys 4.0012 shares.
End of year 5: 24.428 shares at $27.4914 per share = $671.56 value. $100 buys 3.6375 shares.
End of year 6: 28.0655 shares at $30.2405 per share = $848.71 value. $100 buys 3.3068 shares.
End of year 7: 31.3723 shares at $33.2646 per share = $1,043.59 value. $100 buys 3.0062 shares.
End of year 8: 34.3785 shares at $36.5911 per share = $1,257.95 value. $100 buys 2.7329 shares.
End of year 9: 37.1114 shares at $40.2502 per share = $1,493.74 value. $100 buys 2.4845 shares.
End of year 10: 39.5959 shares at $44.2752 per share = $1,753.12 value.
$1,000 spent buying 39.5959 shares. Average price per share: $25.26

Now L2070:
Start: buy 9.8912 shares at $10.11 per share = $100 value
End of year 1: 9.8912shares at $11.121 per share = $110.00 value. Use $100 to buy 8.9920 shares.
End of year 2: 18.8832 shares at $12.2331 per share = $231.00 value. Use $100 to buy 8.1745 shares.
End of year 3: 27.0577 shares at $13.4564 per share = $364.10 value. Use $100 to buy 7.4314 shares.
End of year 4: 34.4891 shares at $14.8020 per share = $510.51 value. Use $100 to buy 6.7558 shares.
End of year 5: 41.2449 shares at $16.2822 per share = $671.56 value. $100 buys 6.1417 shares.
End of year 6: 47.3866 shares at $17.9104 per share = $848.71 value. $100 buys 5.5833 shares.
End of year 7: 52.9699 shares at $19.7014 per share = $1,043.58 value. $100 buys 5.0758 shares.
End of year 8: 58.0457 shares at $21.6715 per share = $1,257.94 value. $100 buys 4.6144 shares.
End of year 9: 62.6601 shares at $23.8387 per share = $1,493.74 value. $100 buys 4.1949 shares.
End of year 10: 66.855 shares at $26.2226 per share = $1,753.11 value.
$1,000 spent buying 66.855 shares. Average price per share: $14.96

As you can see, simply dumping more money into buying more shares doesn't do anything - all else being equal.

However, not all else will be equal. The two Funds are currently allocated as follows:

Makeup of L2065: G 0.40% / F 0.60% / C 51.01% / S 13.34% / I 34.65%.
Makeup of L2070: G 0.36% / F 0.64% / C 51.48% / S 12.87% / I 34.65%.

But 10 years down the road in July 2034:
L2065: G 0.54% / F 0.46% / C 51.48% / S 12.87% / I 34.65%
L2070: G 0.48% / F 0.52% / C 51.48% / S 12.87% / I 34.65%

And 20 years down the road in 2044:
L2065: G 8.53% / F 4.34% / C 45.53% / S 11.38% / I 30.65%
L2070: G 2.64% / F 1.76% / C 49.71% / S 12.43% / I 33.46%

And 30 years down the road in 2054:
L2065: G 23.59% / F 6.34% / C 36.49% / S 9.12% / I 24.56%
L2070: G 15.48% / F 5.87% / C 40.90% / S 10.22% / I 27.53%

See the differences? For the first 10 years, there's not much difference. However, when we get to the 20 year point, the numbers start to shift. By the time somebody is 30 years down the road, the differences are pretty big. Think back to how many more shares were purchased during the first 10 years in the example above. It was quite a lot more than L2065 in just a 10 year period considering we were using just $100 a year, and those share prices are pretty small compared to where L2040 is (in the $56 range as we speak).

Now, later in the working lifetime, having more shares in L2070 would return bigger gains because 1) there are more shares owned, and 2) it's more heavily weighted towards stocks. At 20 years the differences would begin making themselves very apparent.

Also keep in mind who the target audience is for these Funds: the buy-and-hold-until-retirement crowd. For them, buying early and often is more important because of how the number of shares has a big impact on a portfolio's performance in the last decade or so of work. For the faithful buy-and-holder, their portfolio performance will resemble a hockey stick: relatively flat with a slight upslope for most of it, then they start racking up big gains towards the end. But those big upswings are due to huge numbers of shares, and a market downturn hurts just as bad as a big upturn feels good. So the buy-and-holder starts gradually moving towards safety. The more shares he has, the more he'll be able to keep in the market while still hedging his risk.

That's one of the main reasons why new Funds always start out cheap: those who are likely purchasing them are doing so with small paycheck contributions, so he needs to get the most bang for his buck. That's the essence of dollar cost averaging. The Fund will grow in value over time on its own, so if TSP starts the Fund out too pricy, and the new worker can't afford it.
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misfit
Posts: 262
Joined: Fri Apr 13, 2018 9:21 am

Re: New L2070

Post by misfit »

Thanks Aitrus. I understand - I appreciate the time you took to explain.

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Fund Prices2025-02-18

FundPriceDayYTD
G $18.87 0.05% 0.62%
F $19.62 -0.36% 0.74%
C $97.00 0.26% 4.38%
S $95.15 0.44% 5.54%
I $44.75 0.62% 6.80%
L2070 $10.97 0.40% 5.34%
L2065 $18.52 0.40% 5.34%
L2060 $18.52 0.40% 5.34%
L2055 $18.52 0.40% 5.34%
L2050 $36.47 0.31% 4.52%
L2045 $16.55 0.29% 4.28%
L2040 $60.12 0.28% 4.04%
L2035 $15.78 0.26% 3.77%
L2030 $52.21 0.24% 3.49%
L2025 $14.04 0.13% 2.02%
Linc $27.25 0.12% 1.89%

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