Advice on TSP

[marezee61]

Hello Everyone! Looking for some constructive criticism on my TSP. I just completed 7 years TIS, E-5, separating and going reserves upon my DOS on 16 December and this is what my TSP looks like:

• $23,038 balance - contributing 20% Roth / 5% Traditional
• Current shares: 51% L, 18% G, 10% C, 10% S, 11% I

My bio: 26 year old female, no car or other debts, ~ 10K in 4.05% APY w/ 3.97% interest rate savings account, ~ 5K stocks/crypto, ~ 6K in 60 month CD with 1.85% interest - which I just pulled out of to put into a 12 month CD @ 5.40 APY & 5.260% interest once i realized how low the APY on my CD was.

I’ll take any sage advice I can get - my main concern is if my money is in the right places, investment wise to set myself up for the future & whether going active to reserves will affect my TSP/whether me going reserves means I should switch my Roth or traditional into one or the other, OR if reserves will affect my contributions at all. Any and all advice would be super awesome & greatly appreciated!

 

[holywalk]

@marezee61 You should have 0% G fund. You're 26.

 

[marezee61]

@holywalk Could you elaborate?? Is that because it’s the “safe investment” where would you recommend I put the funds going into my G fund ??

 

[holywalk]

@marezee61 The G fund is US Treasuries. Very save, little reward. You have 39 years before you retire (assuming 65, but roughly). You can afford, and should, to be more aggressive. I'm 27 and all in C/S funds, 75/25. I'm not saying you have to do that, but 18% into the G fund is wayyyy too high.

 

[resjudicata]

@marezee61 I like to point out that using the term “safe” to describe the G fund is a bit inaccurate. Instead it’s better described as “less volatile”, meaning it doesn’t go up and down as much as say the C fund.

If you ask me, the G fund is the riskiest fund in the sense that it averages around 2-3% while inflation is that or more. So in actual buying power, you’re losing money parking money in the G fund.

Studies have shown that majority of TSP millionaires have most of their money in the C fund.

 

[nothinges]

@holywalk There's nothing wrong with 10-20% G at any age. Before we had a 15 year bull market, the typical advice was age = % in bond funds.

 

[holywalk]

@nothinges I highly disagree. Yes, the bull market has been great, but anyone this young can recover from a bear market prior to retirement (and likely will 2-3 times).

 

[nothinges]

@holywalk Interest rates are 5%, about to be hiked to 5.25-5.5%. You're acting like it's 2015 and rates are 1.5%.

If the Fed ever hikes rates back to over 6-6.5%, the market's going to crash hard.

 

[holywalk]

@nothinges That doesn't change my methodology. If it does yours, then go for it.

 

[nothinges]

@holywalk Getting 5x the guaranteed ROI and only a couple % points below the long term stock average doesn't change your calculus?

Cool, but then don't give investment advice.

 

[holywalk]

@nothinges You've returned 1.91% in the G fund YTD. I've returned 16.88% in the C fund YTD.

Do past performances indicate future? Nope, they sure don't. Can I ride a bear market down, continue investing, and ride it back up? I absolutely can. Hope you enjoy your 1.9% return in the meantime!

Edit: Not sure where you're seeing 5% for short-term treasury bonds (G Fund). Everything is around 3% right now.

 

[leoooyu]

@holywalk Well said. I don't think most people should have any money in the G Fund if they are more than 10 years from retirement.

I don't even think I'll have any money in bonds once I'm retired, UNLESS, I'm sitting on a fortune (at least $10M) and don't need to try to build any more wealth. This is just me though, based on my risk tolerance.

 

[nothinges]

@holywalk

You've returned 1.91% in the G fund YTD. I've returned 16.88% in the C fund YTD.

That's the growth in the NAV.

Bond / treasury funds also pay dividends equal to the average coupon rate of the assets held, and this isn't factored into the ROI you see when looking at returns. The current coupon rate of G is 4%. The S&P index dividend yield is 1.5%.

What you said is the equivalent of "My HYSA has a 0% ROI" because the principal isn't invested into an asset that grows in value.

But since you're giving investment advice, you knew all this.

Do past performances indicate future? Nope, they sure don't.

Yet your investment strategy into a single asset class indicates you're making that assumption.

You're probably too young to remember investing from 2000-2012. If you did, you'd understand why 20% bonds are good, even for a young investor.

You haven't experienced a bear market, you've only experienced random noise.

Could OP accept a little more risk and go F? Sure. But the G fund has no NAV risk. It didn't lose value in 2022 with fed interest rate hikes because Uncle Sam covers the difference (unfortunately, this was one aspect of the debt ceiling crisis).

But you don't have to just take my word on it, wealthy and successful investors have written on this topic in length. Vanguard's 2065 TDF has 10% bond index funds.

 

[davidolonge]

@nothinges

Before we had a 15 year bull market, the typical advice was age = % in bond funds.

That advice was because bonds used to have a higher average return. Now that the bond rates are much lower, the rule of 110 or even 120 is more commonly used.

 

[nothinges]

@davidolonge

That advice was because bonds used to have a higher average return.

Yes, and now the federal reserve has raised interest rates to the highest they've been in 22 years. This will make bond funds return higher rates.

 

[l86]

@marezee61 Your TSP allocation is very conservative and kinda all over the place. 18% in G fund in 20s.is a lot not earning anything after inflation. Then you also have L fund (no mention of which year) which also has F/G allocation inside. I'd just pick an L fund and go.all in thats the purpose of L fund auto rebalancing. Otherwise, just.split between C/S which is what I do at 46 still dont need safety of G fund especially w a pension.

 

[godexists]

@l86 There is the L fund - no year. That’s super conservative and like 3/4 G fund.

 

[cab1]

@marezee61 Either move it all the L fund year of choice or do a break down of C/S only.

Open a Roth IRA at your bank and start contributing to that as well. Your future self will thank you.

 

[peter_aka_00avenger00]

@cab1 All C

 

[meredithhww]

@cab1 Why not I?