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|Subject: Re: Need Advice on a Thrift Savings Plan||Date: 12/8/2004 8:49 AM|
|Author: CalimanDC||Number: 43465 of 81370|
You sound like you are in a good position with a promising future. I think with some sound investing you will end up with the money you want and the future you desire. Thank you for answering the question about time-frame and goals. That does help a lot.
Your TSP account, if you do decide to roll it over upon retirement, would best be suited to a traditional IRA, unless you want to pay taxes on it when you convert it to a Roth. The best answer would be to just convert it to your new employer's 401(K) upon finding a new job outside of the military.
As for the funds in which you should put your money, there are a few things you should consider. 1) The Government is currently in a very difficult fiscal position which has forced it to raise the debt ceiling allowed for federal spending. Before taking this step the Treasury Department announced that it would stop funding the (G) fund with new money from employees retirements contributions and instead use that money for daily government expenses. As the (G) fund is the government securities fund and not likely a place where YOU personally were planning on putting much, if any, of your money this may be no big deal for you. I just feel that it is necessary to point out that the government is ready, willing, and able to tap into your retirement funds to pay for normal daily expenses. They did end up raising the debt ceiling, but I have not yet seen reporting that they have reinstituted retirement investing in the (G) fund. I would advise avoiding this fund if possible.
As for the other funds, there are some options for you to consider.
Each of the TSP funds it matched to a certain level that upon a particular number of years employed by the government you are eligible to retain the matching amounts. I am not sure of that number of years for the military, but for civilian service it is 3 years. I would suggest at least contributing the minimum to gain all of the available matching funds from the government that you can. This is free money, might as well take it!
Beyond that minimal investment, though, it may not be in your best interest to put your money into TSP. If you compare the F, S, C, and I funds to their maket index counterparts you will find that TSP tends to underperform these indecies. Outside of your free money contribution, it may be worth just putting your money into a Brokerage account of a mix of the indecies that interest you. Otherwise, you are locking your money into TSP where it will not perform as well as if it were outside of it. Yes, this money is pre-tax, but you should measure that as compared to higher returns to decide which is of greater benefit to you over the long-term.
As for particular funds to invest in within TSP, that depends upon your risk tolerance and your time-frame. Since you said that you see this as a long-term investment, but you want money for a house, wedding, and the like, I would suggest a balanced approach between aggressive and low-risk funds. I think that you will be taking a good chunck of change out within the next 5 years for that house and wedding, so you want that money secure. At the same time, the rest of your money should be working hard for you, so you want that money aggressive. Find for yourself a comfortable division of labor for your money and invest accordingly.
I hope that this helped a bit. If you have any further questions I welcome you to write to me and ask. Also, read all you can on www.tsp.gov as well as sites like troweprice.com and other investment firms, to compare the rates of return on similar funds. TSP is a great program, but it does not have to be the best place for ALL of your investment money.
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