Tsp investing advice 2022 ford

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This section is designed to open your eyes to some factors that should inform allocation decisions. They are typically not covered in most marketing materials or considered in ready-made plans such as Lifecycle funds and Robo-advisors. You will understand in a few minutes. The basics You have six real choices today - the five basic funds and the Life Cycle fund. They are all diversified, low-fee choices but some are better than others. The Life Cycle Funds simply allocate to the five basic funds for you, but as you will see this has not been beneficial to your risk-adjusted returns.

Your most important decision is deciding how much to risk in equities versus playing it safe This is where my opinion differs. I do not think "risk" is static over time and you need to adjust to market risk and not just your years-to-retirement or some robo-determined formula. I need to contrast the definition of "risk" here. By risk, I am talking about the risk of you sustaining large losses in the near future It does reduce the amplitude of losses as well as gains, but over the full market cycle it has little impact on total returns.

This next chart shows the relative performance of all the TSP funds during a bear market and the follow-on bull market. I like to use the TSP G fund as a risk-free baseline since it is supposed to cover inflation and is stable. From a volatility point of view, these "safe" funds did not plunge and rally and so were less volatile and considered less risky in mainstream thinking.

How diversification really works The Lifecycle funds yellow to brown provide a perfect picture of how diversification works. Most of these funds hold high level of equity funds with some of the two safe funds. The more safe funds the less the Lifecycle fund plunged with the least being the Lifecycle Income fund for retirees that is prodomently in the TSP G fund.

With the Income fund it was the equity funds that took it down a bit in Once the bear market was over and the riskiest funds had finished plunging, they started what is called a bull rising market but it was not until around that all the equity funds broke-even with the TSP G fund. All the funds heaviest in equities and lighter in the safe funds outperformed on the way up. The level of diversification mainly determined amplitude on the way up and down. And thus they all broke even about the same time.

But we are getting ahead of ourselves here. So here is my take-away about diversification When you hear about diversification the academic definition includes buying several diversified funds in equities and bonds. So these two funds are basically the total US stock market. Note: To diversify into the total US market balance, you have to allocate 3 parts C fund to 1 part S fund, otherwise you are over-weighting small caps.

This is how the Lifecycle funds does it. The Lifecycle funds today are allocating LESS in the stable funds than they did during the bear market seen in the chart above. This means most Lifecycle funds will more closely track the losses of the TSP C fund during the next bear market. They are also capturing more of the gains during the bull market phase. Again, you lose less in a bear market, but you gain less in a bull market when you diversify and hold long term.

Meaning price wildly outran revenue growth. It will have to revert in the next bear market. Why does this risk matter Because in the long run, the 1 determinate to the performance of your retirement fund is avoiding those heavy losses, period, dot. Every long term stock chart is misleading. So avoiding part of the last two bear markets could easily have doubled your returns even while holding less risk in your portfolio during the bull markets.

They all came back, but after many years. The real point is the market DOES cycle. The SP revenue growth is pretty steady over time, but you would not know it looking at the charts of the SP index price. So guess what And we know that in the long, long run the two have to move together therefore we have bear markets declining markets to re-connect them. Spoiler alert: We have never had a flat stock market waiting for revenue and earnings to catch up.

You will understand in a few minutes. The basics You have six real choices today - the five basic funds and the Life Cycle fund. They are all diversified, low-fee choices but some are better than others. The Life Cycle Funds simply allocate to the five basic funds for you, but as you will see this has not been beneficial to your risk-adjusted returns. Your most important decision is deciding how much to risk in equities versus playing it safe This is where my opinion differs.

I do not think "risk" is static over time and you need to adjust to market risk and not just your years-to-retirement or some robo-determined formula. I need to contrast the definition of "risk" here. By risk, I am talking about the risk of you sustaining large losses in the near future It does reduce the amplitude of losses as well as gains, but over the full market cycle it has little impact on total returns. This next chart shows the relative performance of all the TSP funds during a bear market and the follow-on bull market.

I like to use the TSP G fund as a risk-free baseline since it is supposed to cover inflation and is stable. From a volatility point of view, these "safe" funds did not plunge and rally and so were less volatile and considered less risky in mainstream thinking. How diversification really works The Lifecycle funds yellow to brown provide a perfect picture of how diversification works.

Most of these funds hold high level of equity funds with some of the two safe funds. The more safe funds the less the Lifecycle fund plunged with the least being the Lifecycle Income fund for retirees that is prodomently in the TSP G fund. With the Income fund it was the equity funds that took it down a bit in Once the bear market was over and the riskiest funds had finished plunging, they started what is called a bull rising market but it was not until around that all the equity funds broke-even with the TSP G fund.

All the funds heaviest in equities and lighter in the safe funds outperformed on the way up. The level of diversification mainly determined amplitude on the way up and down. And thus they all broke even about the same time. But we are getting ahead of ourselves here. So here is my take-away about diversification When you hear about diversification the academic definition includes buying several diversified funds in equities and bonds.

So these two funds are basically the total US stock market. Note: To diversify into the total US market balance, you have to allocate 3 parts C fund to 1 part S fund, otherwise you are over-weighting small caps. This is how the Lifecycle funds does it. The Lifecycle funds today are allocating LESS in the stable funds than they did during the bear market seen in the chart above.

This means most Lifecycle funds will more closely track the losses of the TSP C fund during the next bear market. They are also capturing more of the gains during the bull market phase. Again, you lose less in a bear market, but you gain less in a bull market when you diversify and hold long term.

Meaning price wildly outran revenue growth. It will have to revert in the next bear market. Why does this risk matter Because in the long run, the 1 determinate to the performance of your retirement fund is avoiding those heavy losses, period, dot. Every long term stock chart is misleading. So avoiding part of the last two bear markets could easily have doubled your returns even while holding less risk in your portfolio during the bull markets.

They all came back, but after many years. The real point is the market DOES cycle. The SP revenue growth is pretty steady over time, but you would not know it looking at the charts of the SP index price. So guess what And we know that in the long, long run the two have to move together therefore we have bear markets declining markets to re-connect them. Spoiler alert: We have never had a flat stock market waiting for revenue and earnings to catch up. We have had a series of cyclical bull and bear markets reconnecting the two and this is called a secular bear market.

We are due for a secular bear market.