This is going to be your standard discount brokerage margin rate. That means you are paying 12% annually on every borrowed dollar. It will take appreciation (price+dividend reinvestment) of 12%+ to offset that. That's a really bad bet for a long-term hold.
Keep in mind, most dividends are taxed as income so they act as a drag on returns compared to stocks that don't pay a dividend. Dividends are also irrelevant as a stock price falls by exactly the dividend it pays out.
You don't deduct 100% of the interest. You deduct the interest against your gains, reducing your taxable income. You're still paying the interest and gains taxes.
@winter_rose Why would you deduct any less than 100% of your margin interest accumulated from 1 or more tax years(against your gains, preferably short term gains)?
@winter_rose When interest rates are low, bonds are a poor investment. Not only do they pay less interest, but when interest rates rise the value of your currently held bonds goes down. We have been in a low interest economy for well over a decade now, and though they have gone down slightly, I would still not put a penny in the G or F funds in the near foreseeable future.
@naomi Not necessarily, bonds create predictable cash flow and help to mitigate downturns which help you in markets where equities underperform. Even with low yields, they offer a diversification benefit and a rebalancing bonus in addition to negative correlation to equities creating a more efficient portfolio. Since the F fund is an intermediate term bond index, it doesn't carry the same interest rate risk as long-term treasury bonds or the low yields of the G fund which is effectively a substitute for cash. It's worth holding IMHO.
Rising bond yields are also very good for the long term and not necessarily a bad thing in the near term as slow and steady rate hikes don't typically crash the bond market.
In my own portfolio I run 6x leveraged intermediate bonds and 90% equities to effectively get a 150% leveraged 60/40 portfolio. But that is well beyond the scope of what the TSP has to offer.
@winter_rose Bonds are not wholly irrelevant. I may have spoken to generally due to the limited TSP options. There are strategies outside of the TSP that may justify some use of bonds. There are also many fixed income alternatives (annuities, permanent life insurance, etc.) that can arguably be a better fit in many porfolios than bonds.
However, there are very limited options within the TSP to only those five funds (not including the L funds which are simply a mix of the five anyways). Unless the investor has plans to use all of or a very significant portion of the principal, there is unlikely to be a real place for the G or F funds for them. The decreased short-term volatility will likely ultimately result in decreased long-term growth.
@john812mom Don't mix regular funds and L funds. That's a weird combination. I'm 26 and personally do 80/20 C/S because I want to be aggressive. Don't want anything in the G fund right now.
@holywalk L2055 has 0.5% in the G fund right now, which I know isn't nothing, but it's close. Also G fund is up 1.15% this year vs. -20-28% for the C/S fund. I'm not saying it's a good plan in the long term, but diversification has it's benefits.
@peter_aka_00avenger00 This is a rather definitive statement. With my split it works out to $50/year I'm putting into the G fund. That's $50 into G (1.2% avg 10 year return) vs C/S (12% avg return). Works out to a difference in around $35k after 40 years if I put that 0.5% in C/S instead. While that's nothing to scoff at, I think saying things like "never diversify" isn't the most sound advice since it's the only think in my TSP right now making money.
