Thrift Savings Plan (TSP) Q&A

[Guest baileyf16]

I recently filled out the TSP form and decided to put all 10% of my pay in the C-fund. My reasoning for doing this is that I was shown how the different funds did in the past 10 years. The C-fund led at just about 12%. Is this a good idea to put all my eggs in one basket so to speak, or should I diversify my pay into all the funds? (I am a brand new 2nd Lt, planning to be in for 12 years.)

Thanks

[Beaver]

Are you fully investing in a Roth IRA? If not, do that first. Then do TSP.

And stay away from First Command.

[C17Driver]

I would diversify at least a little bit. Instead of putting 100% into the C fund, you should consider putting at least a little bit into the other funds.

"Past performance does not guaruntee future results"

[C17Driver]

Over 12 years, 10% of your pay is going to be more than just a little bit. (After a couple years, probably around 3, you will actually be putting more into your TSP than you can in your ROTH - which is $4000, NOT $3000) per year.

[FourFans]

Go for the ROTH first. Then TSP.

And I DO have experience with First Command...and stay as far away as you can get!

[Vetter]

Why would you go with a Roth before the TSP? Just curious.

[Guest spar91]

Originally posted by Vetter:

Why would you go with a Roth before the TSP? Just curious.

i'm no finance major like c17driver but iirc you pay taxes on your roth ira now, and you pay taxes on your tsp later. so the way i see it, the tsp account is going to be worth less than the roth in 20 years, if you put the same amount of money into them.

and i would strongly consider c17driver's advice, just because he majored in finance.

[Beaver]

If you can only afford X amount of dollars, put all of X in a Roth IRA, up to the $4000 limit. Put the remainder in TSP. Like Spar said, the Roth IRA is a better deal, tax-wise.

[Guest TheBobGoat]

when can we draw from the tsp again?

put as much as you want into both these things, but remember to keep some money somewhere for emergencies or quick access.

if you dont, you will be living the thug life

[Guest spar91]

if we're giving financial advice here, here's my $0.02, in priority order:

#1 - have an "emergency fund" - as a military officer i'm not worried about losing my job/livelihood, so i think $5k is a safe enough amount. use this to pay for an emergency plane ticket somewhere, to pay a deductible if you have an accident, etc.

#2 - max out the Roth IRA every year. this year (05) you can contribute $4k, and it goes up $1K every year until (when, i forget). again, you pay taxes on the roth ira now, so when you want to take your money out when you're 62 or whatever, you take what you want - you won't pay taxes when you take money out. that's why the Roth IRA is so appealing - pay taxes on it now, while you have a full time job and you're able - not when you're 62/70/whatever and you're living on your retirement...

#3 - pay off your credit cards/loans. start with the one with the highest interst first. pay as much as you can each month until it's paid off (while paying the min on the rest). repeat until your debt is paid off. when you pay off the credit card(s), close the account, consolodate - you don't need a credit card for each of your favorite stores. one MC/VISA/Discovery/AMEX is all you need...

#4 - diversify your portfolio - invest in TSP if you want. it's very easy to set up, it is all automatic - no checks or whatever.

the reason why you want to do #2 before #3, even though you're using $4k of available cash for #3 is because you want to invest in your future first!

some folks have a hard time investing before paying off credit/loans. however, remember that the money you invest will gain interest and even single digit interest, compounded over 40 years turns out to be a lot of dough!!

and here's a plug for donating! it's my opinion that whatever someone donates they will receive back ten-fold...

good luck! i hope to see you all in fiji when i retire...

[Guest TheBobGoat]

i like your post spar, but i would go with paying off the debt first unless it is something like a student loan at a low interest rate.

at least that is what suze says

[Smokin]

Ditto on the IRA first thing. I'm just using the TSP as an investment that I can forget about and go towards a house when I retire. However, about the C fund thing, the C fund (S&P 500) is already as diversified as most people are looking for. Just look at the major index groups to see for yourself: http://www.tsp.gov/rates/fundsheet-cfund.pdf

[Guest Afsocwes@aol.com]

The Air Force does match on the Civilain side of the house. But not on my Reserve side.

As far as the Priority list goes. The first thing to do. Would be to open a USAA account. Not only for the banking and investments. But for the Auto and Home insurance.

[C17Driver]

Good recommendations Spar!

Stud@, while I agree that the C fund is diversified, it's still not good to put your eggs in one basket. All those people that had all their money in an S&P 500 index fund in 2000 time frame are out almost half their investment still from the highs if they happened to buy in late. It's always good to hedge your risk a little.

[ 01. June 2005, 18:59: Message edited by: C17Driver ]

[Beaver]

Yeah, but it's not like small caps or medium caps did any better during the same time frame. But you only lose money if you sell.

The benefit that a lot of us on this board (sorry Rain, M2, etc) is that we are young and can handle the volatility. Now is a great time to start investing. Buy low, sell high, right?

Of course, what do I know? I've got all my money tied up in limited edition Elvis Plates from Franklin Mint. And a few genuine reproduction gold plated silver coins that are legal tender in Liberia.

[Guest crobey]

FYI, the contribution amounts are as follows

2002 3,000

2003 3,000

2004 3,000

2005 4,000

2006 4,000

2007 4,000

2008 5,000

It will stay at 5,000 after 2008 unless some more legislation is passed. There is a provision if you are over a certain age that allows you to contribute more, but this covers most people.

[F16Deuce]

Like C17 Driver, I was a finance major myself, so I'll give my $.02. Like it has already been stated, max out your Roth IRA due to the tax bennefits that come along with Roth IRA's. As Spar stated, an emergency fund is a great thing to have. As far as savings go, CD's are a good way to go as they offer higher interest rates than ordinary savings accounts with terms as low as 91 days with a rate of 2.4% through USAA. CD's bennefits include a locked in rate of return which is risk free. On the flipside, you face penalties for early withdrawals.

For those that don't know what an ETF (exchange traded fund), these make for a convenient way to diversify risk from your portfolio. An ETF, or index fund, is much like a mutual fund that is traded in the form of a stock which has bennefits of stocks and mutual funds combined, more or less. Examples include SPDRs (tracks the S&P 500, ticker: SPY) and QQQQ (Nasdaq 100). ETF's have a beta of around 1 meaning that they are about as risky as the market as a whole and theoretically produce market returns. Financial analysts last week predicted that the S&P 500 will be on the rise. From last week, the value of SPDRs went from 119.05 to 120.5 at close today.

Bottom line is that if you plan to invest in more than just money market funds, bonds, etc, you will be taking on risk. A young lad like myself can take on more risk than someone that plans to retire next month simply because I have alot more time to make it back. I personally am kicking myself in the butt for not buying Google when it opened at around 95 or so when its now at like 288. Those kinds of returns are very risky especially given the industry.

Investments to flat out avoid: Futures: to include oil futures and other commodity futures, interest rate futures, and the like. These are extremely risky and a good way to lose money.

[Guest Remy1492]

Great thread.

I do pay off credit cards down to 0 or around a couple hundred bucks a month. Leaves them from sucking interest off of me.

Max out the Roth IRA on VANGUARD, great guys but they cant do simple math, tell them to divide your investments by 12 when asking to space out your IRA payments. duh.

I also heard First Command was bad, they take a huge portion of your investment and spend it on taking you out to dinner, something's fishy with that!

And agreed, spend money on yourself too gotta live life while you still have good knees and back bones.

[Guest billpritjr]

dudes

S-Fund is top performer now. Why would you be in C-Fund if it is lagging. 1% of Govt workers were in S-Fund in 2003, when it returned 40%. Or, 99% were NOT in S-fund.

Sucks to be them.

Always be in top performer, period. 25% G-fund to soften the turbulence, and 75% whatever fund is top performer. When the market tanks, go 100% G-fund.

If you want to put your money in a laggard fund, fine, but I want my money with the fund that is at the top of its class. Its only my retirement.

As far as "you don't loose money till you sell", just pretend you bought Enron at $80 and NEVER SOLD IT, EVER. It later went to 5 cents. Take a look at your account statements. Did you lose money? Of course.

ALWAYS maintain a positive return on your TSP.

BAIL OUT into G-fund when the skies get stormy. A 25% loss on your balance requires a 33% GAIN just to return to the original balance starting point. If you loose 30% on your balance, you need a 43% GAIN just to return to starting point. Once "returning to starting point", you need additional gains just to make that TSP grow for that magical retirement.

YOU CANNOT TAKE NEGATIVE HITS TO YOUR BALANCE.

later

[ 05. June 2005, 00:30: Message edited by: billpritjr ]

[Guest AirGuardian]

TSP will also(or already has) come with three categories or more of investment areas depending upon what timeline your on. You can choose one of the three as you go. Young'ns can choose the 75% higher risk 25% conservative deal, 50% high risk 50% conservative deal and of course those of us heading towards the retirment age need to keep the risk lower than the 25% and maintain at least 75% conservativly. These aren't the actual numbers, but you get my drift on what they're trying to do. This dealio automatically does the BASIC idea for you. Granted I'm guessing most of you are quite keen on this already and keep a watchful on eye on your investments. I'm digging the Tech job in the ANG, TSP with 5% matching can't be a bad thing - basically free money from the Big Cheese. I highly recommend this if you get a chance to land this type of job... Boost the IRA's(Roth) and watch the TSP grow...

[Guest America, F*ck Yeah]

Concerning the TSP, if you put your money into the program while you are recieving tax free, then the money goes in tax free and the earnings that you generate can be withdrawn tax free? Is that correct? If so, basically this program is a Roth IRA with a limit of 15k a year. It seems like this info would be very important and was left out with the talking about investing your money.

[C17Driver]

Not correct. The money that goes in tax free can be withdrawn tax free, but the any growth (earnings) from that tax free money will be taxed as ordinary income.

[Guest Sebastian]

Interesting. So this would make it a 'SUPER IRA!'

Money wouldn't be taxed before depositing (Roth), but it also won't be taxed when it's withdrawn (traditional) - Best of both worlds.

If you are in this situation where you are receiving tax-free income there doesn't seem to be any negatives to investing. Unless I'm missing something here?

[C17Driver]

As I said, you aren't making tax free earnings. Some argue you shouldn't put tax free money in the TSP because the earnings from those contributions are taxed. So you get taxed on the earnings when you make the withdraw. Best case would be to deposit tax free money into a Roth IRA.

[Guest GIMMIE9]

Can you still contribute to it once you get out?