Author: Joel Schofer, MD, MBA, CPE
Are the Thrift Savings Plan Lifecycle Funds Too Conservative?
We’ve talked a lot about the Thrift Savings Plan and all of its investment options. The easy button is to just use a Lifecycle Fund or L Fund. Pick the approximate year you intend to retire, and use the L Fund with the year in its name that is closest to your retirement year.
For example, if you want to retire in 2038, you’d pick the L 2040 Fund because that is the one closest to 2038. Pretty simple.
Funds like the L Funds are called target date funds. Investopedia defines a target date fund as:
A target-date fund is a fund offered by an investment company that seeks to grow assets over a specified period of time for a targeted goal. Target-date funds are usually named by the year in which the investor plans to begin utilizing the assets. The funds are structured to address a capital need at some date in the future, such as retirement. The asset allocation of a target-date fund is therefore a function of the specified timeframe available to meet the targeted investment objective. A target-date fund’s risk tolerance become more conservative as it approaches its objective target date.
Target date funds have become super popular, but how do the TSP L Funds compare to other target date funds? In particular, how risky or conservative are they when it comes to their asset allocation? Let’s take a look and find out.
More Stocks = More Risk
The TSP L Funds only invest in two broad asset classes, stocks and bonds. The higher percentage of your portfolio you have allocated to stocks, the more risk you are taking.
How does the TSP L Fund stock allocation compare to similar funds at other investment companies? Here are the stock and bond allocation percentages for a few 2040 target date funds (rounded to the nearest whole percentage):
- TSP L 2040 = 72% stocks, 28% bonds
- Fidelity Freedom Fund 2040 (FFFFX) = 93% stocks, 7% bonds
- Schwab Target 2040 Index Fund (SWYGX) = 82% stocks, 18% bonds
- Vanguard Target Retirement 2040 (VFORX) – 83% stocks, 17% bonds
As you can see, the TSP L 2040 is by far the most conservative fund with only 72% stocks. The next closest is the Schwab fund at 82% stocks with Vanguard close behind at 83%. Fidelity wins the aggressiveness award for the 2040 target date.
Just Pick a Different Target Date?
If the conservative nature of the TSP L Funds bothers you, you can always dial up the risk by adjusting the target date you select. Just because you want to retire around the year 2040 doesn’t mean you can’t use the L 2050 fund. By picking it, you’d have a more aggressive asset allocation than the L 2040 but still get the benefits of a target date fund like automatic rebalancing and a gradually more conservative allocation as you age.
But if you look at the L 2050 fund, you’ll find its asset allocation to be 82% stocks and 18% bonds. In other words, the L 2050 is more conservative than two of the three 2040 funds listed above and the same as the one from Schwab. And since it is the most aggressive L Fund available in the TSP, it limits how aggressive you can get while using a Lifecycle Fund.
Why are L Funds so Conservative? Is it Appropriate?
The answer to the first question is because they are based on “based on professionally determined asset allocations.”
The answer to the second question, in my opinion, is probably not. While a conservative investor would have no issues with the L Fund asset allocations, a moderate or aggressive investor would, especially if they are staying in the military long enough to leave with a government guaranteed, inflation adjusted pension.
As we all know around here, that pension is extremely valuable. In addition, when viewed in the context of your entire portfolio, its safety could allow you to take more risk with the rest of your investments.
How Does This Affect You?
If you don’t use a L Fund, it doesn’t.
If you do use them, though, you should use them realizing that:
- Among target date funds, they are conservative.
- Even by picking the L Fund 2050, the most aggressive you can get your asset allocation will be 82% stocks and 18% bonds.
- Despite all of this, they are still the easiest way to invest for retirement in the TSP.
Acting SECNAV Modly Orders $100M Shifted Toward Navy Education Effort
Here’s a link to this article that perhaps will increase the opportunity to receive education like Joint Professional Military Education and the Naval Postgraduate School Executive MBA:
Acting SECNAV Modly Orders $100M Shifted Toward Navy Education Effort
2020 BAH/BAS/Basic Pay Rates and Finance Friday Articles
The DoD released the 2020 pay info:
Here are my favorite articles this week:
9 Practical Tips to Find Contentment
Overweighting REITs: Why Don’t More Experts Recommend It?
Riding Out Private Real Estate Deals
Here are the rest of this week’s articles:
10 Guiding Principles for Physician Debt Management
Durn Furriners – A Discussion of Foreign Stock Allocation
Owning Oddities – Factor Investing
Spend Money On Experiences… And Some Things, Too
Supersavers and the Roth vs Tax-deferred 401(k) Dilemma
WCI vs PoF: A Pro/Con on Donor Advised Funds
What’s the Best Age to Take Social Security?
While On International Travel, Always Transact In Local Currency
Summary of Changes to New Navy Fitrep Instruction
The Navy recently updated its fitrep instruction. Here it is:
BUPERSINST 1610.10E – NAVY PERFORMANCE EVALUATION SYSTEM
The changes are not very relevant to this audience unless you are a reporting senior, but for those that are here is the summary:
The updated instruction is attached. Below is the NAVADMIN but here is a summary of changes:
This revision incorporates policy guidance contained in NAVADMINs 141/17 (Physical Readiness Program Policy Changes), 304/17 (Physical Readiness Program Policy Change), and 193/19 (Active Component LDO and CWO Fitness Report Officer Summary Groups). In addition, the following new guidance applies with the updated instruction:
- Incorporating reference (a) guidance when a member willfully does not meet deployability standards and authorizing the submission of a Special Report when a member willfully does not meet deployability standards.
- Requiring reports for Navy reservists who perform active-duty periods that are greater than 90 days and prohibiting reports for Navy reservists who perform active-duty periods that are less than 90 days.
- Assigning September 30 as the periodic report date for Chief Warrant Officer-1.
- Prohibiting delegation of reports on members in the grades of E5 through E9, including members frocked to E5, below the grade of lieutenant designated department heads.
- Prohibiting reporting seniors, raters and senior raters from evaluating members who have filed an accusation of sexual misconduct against the reporting senior, rater or senior rater while an investigation is pending to reflect the requirements of reference (b).
- Incorporating changes to flag officer reporting requirements, including changes to blocks 14-15 (Period of Report Table 19-1), requiring submission 15 days sooner and changing the verbiage for blocks 10-13 (Occasion of Report) to read, Special Reports will be selected for Concurrent or Operational Commander report.
- Adding billet specific language to the instruction requiring reporting seniors evaluating Navy Installation Commanding Officers (CO) to document in block 41 (comments on performance) their performance in managing family and unaccompanied housing programs. Additionally, reporting seniors evaluating Naval Facilities Engineering Command COs are required to document in block 41 (comments on performance) their performance in facility management of family and unaccompanied housing and enforcement of Public Private Venture business agreements.
Throwback Thursday Classic Post – Deployment Gear Lists
The gear you need for a deployment will obviously depend on the type of deployment, but every time I deploy I take a look at the gear lists I have to see what I might need to bring that I’m forgetting. Some of the gear lists and deployment checklists I have are old and I don’t even know who created them, but I wanted to post them so people could use them if they so desired. Here they are:
CDR Temerlin’s Gear Organization
Recommended Blackhawk Stomp II Load
Thanks to Steve Temerlin and whoever else created these, and if you have any gear/deployment lists you’d like to share just use the Contact Me tab and you’ll then be able to send them to me over e-mail once I reply.
Army Surgeon General’s Leadership Lecture Series: HON McCaffery, Assistant Secretary of Defense for Health Affairs
Here’s a link to a 1 hour video on leadership from the Assistant Secretary of Defense for Health Affairs:
Associated Press: Navy-Trained Doctor, Immigrant Grateful for Opportunities
Here’s a link to this article about one of my prior Emergency Medicine residents:
How to Get the FY21 Medical Corps Promotion Lineal List (Even Though You Don’t Really Need It)
The spreadsheet with the FY21 promotion board zones can’t be posted publicly, but you can find it here as long as you have your CAC card (make sure you pick your e-mail certificate):
https://es.med.navy.mil/bumed/m00/m00c/M00C1/SitePages/Home.aspx
It is posted under “Career Management.”
P.S. If you are Medical Corps, you actually don’t need the lineal list to find out when you are in zone. Because the Medical Corps is DOPMA exempt, you can just use the table on page 4 of the Promo Prep to figure out when you are in zone for promotion.
U.S. Naval War College Launches Streamlined Program for Earning JPME-I Credit
By Jeanette Steele, U.S. Naval War College Public Affairs
NEWPORT, R.I. (NNS) — U.S. Naval War College’s College of Distance Education has launched a streamlined version of its online program for delivering professional military education coursework required by the Joint Chiefs of Staff.
The new Online Naval Command and Staff Program allows students to finish the intermediate joint professional military education requirement, known as JPME-I, in 10 months. The previous framework, called the Web-Enabled Program, usually took 18 months to two years to complete.
“The closure of the college’s CD-ROM Program necessitated the development of a pathway to JPME-I certification in less than 12 months to satisfy the Navy’s requirement for the joint education of its officer corps,” said Dean of the College of Distance Education Walt Wildemann.
Officials said they were able to condense the time frame without sacrificing quality by doing away with administrative pauses and some redundancies in the coursework of the legacy Web-Enabled Program.
“The goal was to deliver JPME-I education in a shorter period of time while maintaining the graduate-level standards and professional military education career requirements,” said Tim Garrold, deputy dean of the College of Distance Education.
Adding to the efficiency, students will now only register once for the program, instead of having to register three times – once for each core course – in the past. The new design is a single program made up of five blocks.
The first eight seminars in the new program started Nov. 15, and similar numbers will follow each quarter. The seminars, which accommodate 20 students each, are moderated by full-time and adjunct faculty members.
The online program is intended for Navy, Marine Corps and Coast Guard officers whose career commitments make them unable to complete the certification in residence at the War College or in the face-to-face classroom model of other College of Distance Education programs.
Eligible Navy unrestricted line officers, Marine Corps and Coast Guard officers receive the highest enrollment priority, followed by those services’ staff corps officers. Based on availability, the program is also open to Navy Reservists, officers from other U.S. military branches, Coast Guard officers, federal civilian employees grades GS-11 and higher and U.S. Public Health Service officers.
Unlike the Naval War College’s 10-month resident program and the non-resident Fleet Seminar Program, the online program is not accredited to award the Master of Arts degree in defense and strategic studies. However, the program fully covers the concepts and skills required for the award of JPME-I credit.
The program engages students in the complexities of the national security and theater security arenas and develops their critical-thinking skills.
Successful students will gain an understanding of the fundamentals of U.S. national security policy and military strategy – and appreciate the relationships between the two. Students will also learn to plan and conduct military operations that achieve national-level goals and objectives.
The program also introduces students to the role of both political and military leaders in the formulation of policy, the planning of joint and combined military operations and the conduct of war.
Students who completed College of Distance Education core courses through the Fleet Seminar Program, the former Web-Enabled Program or the former CD-ROM Program will receive credit for the appropriate blocks of the new online program.
To submit an application for the Online Naval Command and Staff Program, or for more information, go to https://usnwc.edu/college-of-distance-education/Online-Program.
Commandant of the Marine Corps: Notes on Designing the Marine Corps of the Future
Here’s a link to General Berger’s article:
Joel Schofer's Career Planning Blog 