A New TSP Asset Allocation Quilt Chart For 2024 | FedSmith.com (2024)
This colorful chart is a visual aid to help federal employees diversify their TSP investments for retirement.
By Francis Xavier (FX) BergmeisterCategories Federal Employee Pay NewsLeave a comment
This is an update of a FedSmith article I wrote last year, An Asset Allocation Quilt Chart for the TSP Funds. This article provides the annual returns of TSP funds since their inception, not just the last 10 years as in the 2023 article.
Based on a reader’s suggestion, I am also changing the colors of the TSP funds used in this year’s article to reflect the color choice used by the TSP website.
Financial quilt charts are not meant to be a tool for predicting where the best allocation may be for the current year. Using a quilt chart to source current or future asset allocations would be akin to using your rearview mirror or a map of where you have been to pilot your financial future.
There are two kinds of forecasters:those who don’t know, and those who don’t know they don’t know.
So do not look to this article for forecasting or how to rebalance your retirement portfolio. It would be best used to reflect on the concepts of diversification, volatility, dollar cost averaging, and long-term investing.
There are only five investment choices (not counting Life Cycle Funds) for TSP investors to choose from for their retirement accounts.
The G Fund has never gone negative and even finished in first place some years in the initial years of the TSP’s existence. A person investing solely in the G Fund since 1988 would be safe, but it may be too safe for your long-term goals if not combined with the more volatile funds because of inflation.
Think of the asset allocation quilt as a visual aid to encourage diversification for your retirement if you are years away from retirement and would benefit from the growth of your retirement portfolio.
This new version of last year’s chart shows historically how the TSP sought to enhance retirement account diversification to federal employees and members of the uniformed services by introducing the S fund and I fund in 2002, which both promptly went negative.
The following year, however, the S fund’s annual return went from -18.14% to 42.92% and the I fund’s annual return increased from -15.98 to 37.94! Therefore, both funds’ initial two years are great illustrations of volatility within a two-year range.
The C and S Funds continue to have annual lifetime returns of over 9%. But every year these funds also fluctuate daily. In 2023, the C Fund had daily price changes ranging from $58.43 to $74.31 while the S Fund’s prices could be anywhere between $61.14 thru $77.13.
Prices don’t only move one way throughout the year. But if you divide up your purchase and make multiple buys, you maximize your chances of paying a lower average price over time. In addition, dollar cost averaging helps you get your money to work consistently, which is a key factor for long-term investment growth. The daily fluctuations of fund prices can create problems for some TSP investors who monitor their investments.
Chris Barfield in his January 2024 Newsletter notes, “If you’re changing your TSP allocation because of what the fund did the best last year, you’ll always be a year behind.”
Behavioral scientists Shlomo Benartzi and Richard Thaler discovered that investors with long-term time horizons who followed the market more closely had lower returns, likely observing market volatility made them more scared of stocks.
Pinsker offers timely advice from Hal Hershfield, a professor at UCLA’s Anderson School of Management, in years such as 2023 when gains in your retirement portfolio may be very positive. The professor warns that people often overestimate how long a nest egg can last during those years. A great year is a good thing, but one danger in looking at that lump sum as it’s gotten bigger is the perception that it may afford more adequacy, satisfaction, and purchasing power in retirement than it actually will.
The C Fund has grown 7.49% in 2024, marking the best performance among the TSP's core funds. The small- and mid-size businesses of the S Fund posted the strongest numbers in February, gaining 6.03%. That's good enough to bring the fund 3.48% into the black in 2024.
TSP investors are enjoying a great start to 2024 with their TSP returns. The C Fund is up 9.77% so far this year and up 2.49% as of March 25. The S Fund is up 5.05% for the year, and the I Fund is up 5.56%. Here are the returns for all of the TSP Funds as of March 25, 2024.
Dave Ramsey's advice is to save 5% into the TSP to get the full match, then max out a Roth IRA, and then put more into the TSP if you are able to save more after that.
Your best bet is to stick with the C, S and I Funds. Here's the ratio we recommend for your portfolio: 80% in the C Fund, which is tied to the performance of the S&P 500. 10% in the S Fund, which includes stocks from small- to mid-sized companies that offer high risk and high return.
You may enroll in the TSP program or make contribution changes at any time; however, if you wish for your contribution deductions to begin the first pay date in 2024, you must make your TSP election effective for pay period 26 (December 17, 2023, through December 30, 2023), which has a pay date of January 8, 2024.
The primary difference between Roth and traditional TSPs is how they're taxed. Specifically, a traditional TSP is better if you want to leverage your account to decrease your current income taxes and pay for withdrawals during retirement.
The 2024 IRS annual limit for regular TSP contributions is $23,000, and the TSP Catch-up annual contributions limit is $7,500. The Catch-up contributions may be made in addition to regular TSP contributions, if you are age 50 or older (or will be turning age 50 in 2024).
After a strong finish in December 2023, Thrift Savings Plan started 2024 with negative returns in January. After a strong finish in December 2023, Thrift Savings Plan started 2024 with three funds posting negative returns in January. The remaining 12 funds posted positive returns.
Total TSP assets at the end of 2023 were $845 billion. 4,060,009 FERS TSP accounts with an average account balance of $175,692. To compare, the average 401(k) balance based on 4.9 million defined contribution retirement plans was $112,572 at the end of 2022, according to Vanguard's 2023 analysis.
By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary. By age 60, your retirement savings goal may be six to 11-times your salary. Ranges increase with age to account for a wide variety of incomes and situations.
The figure — representing about 2 percent of account holders — tops the previous high in the quarterly reporting of about 113,000 at year-end 2021; the year-end figure for 2022 had been about 77,000.
Here are some general guidelines for asset allocation based on age: 20s-30s: 70-80% stocks, 20-30% bonds. 40s-50s: 50-60% stocks, 40-50% bonds. 60s and beyond: 30-40% stocks, 60-70% bonds.
L 2065's target allocation includes more of the aggressive C, S, and I Funds and very little of the conservative G and F Funds. except L Income2 are automatically adjusted, gradually shifting them from higher risk and return to lower risk and return as they get closer to their target dates.
The G Fund is invested in U.S. Treasury securities specially issued to the TSP. Payment of principal and interest is guaranteed by the U.S. government. Thus, there is no “credit risk.”
Key points for successful investing in a TSP include taking full advantage of employer matching contributions to maximize returns, understanding the difference between traditional and Roth TSP options to optimize tax benefits and selecting an appropriate mix of the TSP's limited but diverse fund options (G, F, C, S, I ...
Fidelity recommends age-based milestones between ages 30 to 67. Based on these guidelines, you should aim to save 1x your income by age 30, 3x by age 40, 6x by 50, 8x by 60, and 10x by age 67. However, these milestones may vary depending on the age when you plan to retire and the desired lifestyle in retirement.
Introduction: My name is Aracelis Kilback, I am a nice, gentle, agreeable, joyous, attractive, combative, gifted person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
By Francis Xavier (FX) Bergmeister Categories Federal Employee Pay News Leave a comment 