First you have to understand I’m not a certified financial advisor and never claimed to be. The primary and original purpose of my blog is to force myself to stay on top of my retirement account and keep a diary of my moves so could critic myself. Most serious stock market books and serious traders suggest this in order to help discipline yourself. Second reason was to help my two sons with the stock market in general and even though only one is taking 100% serious today, the other is starting to pay attention as he ages. I see that as normal.
Personalities and tolerance. This is something each individual has to understand that makes it really hard to even suggests what to do with your funds. Like I posted inside my Old Dix TSP Update section on Facebook, “Example: I have no problem throwing $700,000 all in the market and someone else would cringe at the thought of risking 7,000.”
This entire post is directed at one person at work, but others could use this advice also, so I figured I would just post it without names. I’m going to write this with 3 points of view and you will have to make your own decision.
1. I’m currently invested and have 75% or more invested in stocks.
2. I’m currently invested and have 75% of more invested in bonds and t-bills, (G and F)
3. I’m currently invested 100% in Bonds or t-bills because that is the default setting, and or I’m a new to investing.
Last ingredient, this is written as of what I see right now today in the market. First a picture:
Today is 4/8/13 and looking back the last 3 years we are potentially entering a very risky time of year. Nothing says for certain that we will repeat this again this year and you should start trading based on that information, it will burn you. What is important is that you know the information and compare it to what is happening now. Looking at the chart above from the first week of April to the first week of May we have had significant pullbacks. Then you also have the information that I post on my TSP Blog last week and know that we have been grinding sideways for about 3 weeks. The Small Cap is under certain stress and the S&P 500 looks solid at the moment, but is making no progress. Bonds on the other hand seem to be reversing their downtrend and actually fired a buy signal recently. So here we go on my thoughts on those 3 groups.
1. If your in this group, we are in a holding pattern waiting to see which way the market breaks. If your gut tells you to bail to safety, you should follow it. If you want to wait until signals are actually firing to sell, then I would wait. No one knows which way this thing is going to break.
2. If your invested in this group, stay put. You’re in a nice safe place and the only place that has made money the last week. Even if stocks takeoff to the moon, bonds will not fall enough to really hurt you because they move fairly slow in comparison to stocks. The G fund will never hurt you. If stocks do takeoff and go higher, do not whine about money you lost because it is money you never had. Plus you’re safe here.
3. Like group two, you should stay here for the moment. But once stocks start back uphill you need to be in a high risk investment vehicle while you are young. You have time to recover from major crashes plus you account is small in comparison to someone that has been investing for 20 plus years in their retirement account. At a minimum you should be invested in the L-2050. If you’re going to be babysitting the indexes individually like I believe everyone should do, then like myself this entire year, 50% C-fund and 50% S-fund. It doesn’t get much more risky than that unless you go 100% C or 100% S or 100% I in just one fund.
This last little bit is directly pointed at my friend who wants me to tell them exactly what to do with their funds. I know just a little bit about their distribution and I will try to explain this my way and maybe it will relate.
If you have 100% of your money divided into 3 different L-funds, I see that as silly if your looking for safety and risk and this is why.
If you have 33% of your funds divided amongst the L-income, L-2030, L-2050, which are posted above, you could argue that you are diversified. But why the 3 L-funds? They are already diversified just a little risky the further the year is away from our current date today. They all invest in the same vehicles, G, C, S, I,and F. It is just the percentage inside if fund that differs. So if that is your setup above, today your distribution actually looks like this.
G = 34.25% (Safe always)
F = 7.57% (Safe today, and just a bit more risky than the G)
C = 29.93% (High risk, stocks)
S = 11.45% (higher risk, small cap stocks)
I = 16.78 (highest risk to some, because international stocks)
Looking at that distribution, why not just be 100% L-2020 or L-2030? Both of these funds almost perfectly match your current setup spreading over over 3 funds. Lastly based on everything you know now after reading this post, you could just setup that exact setup inside your TSP account and leave it there forever, then the TSP folks will not adjust is month to month.
One last statement, if you absolutely want a move from me today because you are going to make one no matter what. Also you’re going to be investing my personally money for me, I would request this.
F – 75% G- 25% and my second choice would be L-Income
I hope this gives you some guidance, clarity, and help for the future. If you need more, find me at work and I will help you.
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