TSP Allocation Question

[siesaw23]

Currently an E4 in the BRS system with 3.5 years in active duty & will be active until at least 2029. 10% Roth TSP contribution since I joined & I’m wondering what everyone’s favorite TSP allocation is. I’ll be 25 this year and have almost 9K in my account, admittedly I’ve been hands off on my TSP thus far & am currently sitting in the L2050 fund that hasn’t returned much & am looking to move over to more of a C/S allocation to get some more gains while I’m young. Hit me with any tips y’all got!

 

[patto]

@siesaw23 Minority opinion here. I think you should have a decent amount in international stocks. The performance of the U.S. stock market over the last 13 years has been extraordinary. However, it is not sustainable forever. Expected returns are lower going forward. There have been times in the past when internationals did better than the U.S. and there will likely be more of those times in the future. No one knows when it will happen so it is good to always be positioned to take advantage of it.

Right now the U.S. makes up about 60% of the global stock market and the S&P 500 makes up about 80% of the U.S. stock market. That means the global stock market can be approximated with a mix of 48% C, 12% S, and 40% I. Unless you have a specific reason to do otherwise, I think that is a good mix.

 

[cbc8171]

@patto It's only the minority opinion on Reddit. It's the majority opinion among people who know what they're talking about or actually work in or study finance and investment management.

So you're in good company.

 

[patto]

@cbc8171 I have not studied personal finance or investing in any official way, but I have a passion for those topics and I am trying to learn as much as I can while I am still in. After I retire I hope to get into financial counseling, financial education, or something like that.

 

[winter_rose]

@cbc8171 It's only a minority opinion on /r/militaryfinance. If you pop over to bogleheads they discuss this all the time.

 

[mudhen]

@patto The L2065 fund follows your allocations pretty close and is what I use for the sake of simplicity

 

[gentlesheepman]

@patto Note though, that I fund excludes some countries that may put out good stocks. May make it not as worth. Not saying have none of I fund, but just something to note.

 

[patto]

@gentlesheepman I agree the I Find is not the best option for international exposure but it is what we have available in the TSP. The FRTIB was going to change the index it tracks to one that gives much broader international coverage but it was halted for political reasons. Some people in the government feel like it is their place to tell us how to (or not to) invest our money.

 

[winter_rose]

@gentlesheepman The I fund tracks developed markets which will have similar historical returns to the S&P 500. If you run a regression to the 1920s, this holds true despite the crazy outperformance over the last decade of the S&P.

You are referring to emerging markets exposure, which include China, India, and formerly Russia in it's holdings. You may find people do not want to take those kinds of risks with their portfolios, which is why we don't have an emerging markets fund in the TSP.

 

[gentlesheepman]

@winter_rose Interesting stuff! So you think even without China, it will have an ROI of almost equal to sp500?

 

[winter_rose]

@gentlesheepman It never included China. And yes, the recent out performance of the US market is so statistically (and fundamentally) unlikely it's practically impossible. With a regression to the mean, the S&P will return far less while international will pick up.

 

[kennethe62]

@siesaw23 General answer is somewhere around 60/40 C/S

 

[siesaw23]

@kennethe62 That’s what I’ve been seeing around the sub as well. Would it be beneficial moving previous contributions into the new allocation or only future contributions?

 

[cbc8171]

@siesaw23 Reddit loves to recommend the following:

• 100% C fund
• 50/50 C/S funds
• 60/20/20 C/S/I funds

There are reasons why they recommend these funds, but none of the reasons are good ones. Ranging from home country bias, to hive mind group think, to recency bias and performance chasing. I've loved this sub for a long time and it's been a pleasure to moderate. We're pretty hands off with how we mod and we like diversity in thought, but this subject comes up so frequently and it's always generating such silliness and bad advice that it more than anything makes me want to go into r/askhistorians mode and nuke 95% of the comments.

There's really only one good default answer today to give a young internet stranger and it's the one you'll get from anyone who actually studies or works in finance or investment management, and that's the L fund.

Source: grad degrees in personal financial planning and investment and portfolio management. I've also posted a lot in the past but gave up because it was like fighting a hydra on here. Feel free to go digging for them.

 

[winter_rose]

@cbc8171 Can you please just make a sticky explaining this? I'm getting tired of trying to explain why 100% C fund is not the right answer. Further, we have a lot of young soldiers here getting bad advice from well-intentioned users so spelling it out for everyone would be a good idea.

 

[lazarusty]

@siesaw23 Youre 25? Should probably be more like 100% C. Im in my 30s, and im 75% C, 25% S

 

[makubexx]

@siesaw23 Switch it all at once to your desired allocation.

 

[cbc8171]

@kennethe62 This is the silliest answer, as it serves no point at all. There's really no diversification benefit, and if you really want to go all in on domestic equity, just put it all in the S fund. There's a robust small cap premium you'll likely collect over time.

 

[davidolonge]

@siesaw23 I'm 80/20 right now, I'll probably stay that way for a solid 10-20 years before switching to something a little safer. You'll generally find recommendations anywhere from 100% C to 60/40 C/S on this and/or the /r/ThriftSavingsPlan sub. Depends heavily on your appetite for risk.

The new lifecycle funds are better than the old ones too, 2050 has something like 15-20% bonds whereas 2055, 2060, and 2065 are less than 1%. If you want a hands-off approach, go L2055/60/65 and just ride it. It does have a fair amount of international exposure, which is generally better for lowering risk, but tends to have lower returns too.

 

[siesaw23]

@davidolonge Thanks for the reply, I think I’m gonna go 75/25 and let it ride. I’d rather leave the bonds for later down the line when it’s more practical & try and have some solid gains the next 10-20 years.