Author Topic: Adjusting AA due to contribution limit  (Read 1711 times)

Travis

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Adjusting AA due to contribution limit
« on: July 23, 2016, 08:52:08 PM »
I decided to go heavy with my TSP contributions this year since I could afford it and I read a couple articles on how front-loading tax advantaged accounts had a slight edge over averaging over the year.  Anyways, my concern is that with my bonds in my TSP account and my TSP maxed as of next week I'll have to do some trading within my account to keep my AA as I now pour my money into Vanguard for the rest of the year.  I noticed the other day that I'm already about 3% off of my bond AA and it'll just continue to slide over the rest of the year.  Should I project out what I think the right number will be for the end of the year and adjust now, or just keep on with my normal program and make the adjustment at the end of the year?

forummm

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Re: Adjusting AA due to contribution limit
« Reply #1 on: July 24, 2016, 03:31:18 PM »
Sounds like you're overthinking it. You could just adjust your contributions (what amount from your paycheck goes to which funds) with your new money. Since you're still accumulating, and you aren't intentionally market timing, it's OK if your AA gets off by a few percent here and there.

Also, if you have TSP matching, you're screwing yourself out of matching funds by maxing out early. Some federal jobs give you up to 5% matching of your salary, but only if you contribute at least that amount on that paycheck.

Travis

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Re: Adjusting AA due to contribution limit
« Reply #2 on: July 24, 2016, 03:52:42 PM »
Sounds like you're overthinking it. You could just adjust your contributions (what amount from your paycheck goes to which funds) with your new money. Since you're still accumulating, and you aren't intentionally market timing, it's OK if your AA gets off by a few percent here and there.

Also, if you have TSP matching, you're screwing yourself out of matching funds by maxing out early. Some federal jobs give you up to 5% matching of your salary, but only if you contribute at least that amount on that paycheck.

I'm in the military, so I don't get matching with my TSP.  My problem is that I'm done contributing for the year and the TSP is where my bond allocation sits.  I can only contribute to my other stock index funds so I'm going to be way out of alignment by the end of the year.

forummm

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Re: Adjusting AA due to contribution limit
« Reply #3 on: July 24, 2016, 04:56:33 PM »
If you want more bonds, can't you buy those outside the TSP? Whether in your IRA or taxable?

What % bonds do you want? With being in the military (and possibly headed towards a decent pension?--which is like a super bond), maybe you don't need as many as you think? At least in the short term? Are you that close to retirement that being slightly more tilted to stocks is too risky?

Travis

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Re: Adjusting AA due to contribution limit
« Reply #4 on: July 24, 2016, 05:18:12 PM »
I'm up for promotion in a little over 2 years and I'll know then whether I'll qualify for the pension.  If I make it to the pension point then I've won the game (retire in 2023), but if not I'll be out of the Army in 3 years and working for a while longer.  I could wait until the end of the year to make the AA re-balance.  It won't kill me to be out of alignment. I've kept my bonds in my TSP, and I've never considered adding more in another location.  As I think about it seems overly complicated to hold them in multiple locations.  If I'm still accumulating post-Army I might reconsider.

forummm

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Re: Adjusting AA due to contribution limit
« Reply #5 on: July 26, 2016, 12:04:33 PM »
I'm not sure why its overly complicated to hold bonds in multiple locations. We hold stocks in a bunch of different places (IRAs, 401ks, taxable).

DrF

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Re: Adjusting AA due to contribution limit
« Reply #6 on: July 26, 2016, 12:24:11 PM »
Bonds aren't as efficient as stocks in taxable accounts, but have you already maxed your traditional or Roth IRA for the year? You could add more bonds to that over the rest of the year and it's tax efficient vs putting them in a taxable account. Realistically, you are over thinking it and you can rebalance at the beginning of next year.

JumpInTheFIRE

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Re: Adjusting AA due to contribution limit
« Reply #7 on: July 29, 2016, 11:34:09 AM »
What does your IPS say about rebalancing?  If you do it once a year, do it when you normally do.  If you have a time-based rebalancing plan along with trigger thresholds (i.e. more that 10% out of whack) then do it when you hit your thresholds.  If you don't have a rebalancing plan in your IPS then maybe it is time to add one, it will keep you from failing into market timing traps and keep your decisions consistent.

Travis

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Re: Adjusting AA due to contribution limit
« Reply #8 on: August 15, 2016, 10:04:02 PM »
I've decided to rebalance on New Years, but I need some help double checking my math.  My investment contributions should be: Vanguard+TSP where my TSP equals $18k and Vanguard should be around $48k this year.  If my bond AA is 20%, then my bond contribution should be ($48k+$18k) x .20.  To figure out my allocation within the TSP (where my bonds sit) it should be [($48k+$18k)x.20]/$18k.  Make sense? 

What isn't making sense to me is that equation states around 70% of my TSP contributions should be going to bonds where this year they've been at 25%.  My bonds currently make up 16% of my overall portfolio when it should be 20%.  If I'm off on my bond contributions by so much, shouldn't my current portfolio be much more than 4% off? Could that just be due to market performance skewing the results (ie. ramping up bond contributions doesn't mean so much when stocks are doing that much better?)