Reducing risks by diversification


Q. Excellent article by Mr. Miles on reducing risk by diversification  of your TSP portfolio.  The missing factor though is, what is a good diversification of the five funds in regards to time until retirement or time until the money is needed?  Comments would be appreciated although they are simply comments with no inherent liability.

A. While shorter time horizons tend to benefit from more conservative (bond and cash heavy) allocations, there is no allocation rule of thumb that is safe for every investor. This is because allocation selection should be dependent upon cash flow and terminal value needs, as well as time horizon. If I have to provide a rule of thumb, it is: Start with a 60 percent stock, 40 percent bonds and cash allocation and adjust it only when a competently designed and run analysis indicates that either; A) your needs are underfunded and the best recourse is to increase the exposure to stocks, or B) your needs are overfunded and you can afford to reduce the exposure to stocks.


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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to and view his blog at

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