Author Topic: TSP Allocation Guide  (Read 4509 times)

thriftassity

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TSP Allocation Guide
« on: July 01, 2014, 10:25:42 AM »
Curious as to what any fellow feds (or folks with similar 401k-type investing options) think about this site and/or the business cycle theory of investment - http://www.tspallocation.com

I'm not affiliated with the site.  I just came across it a few days ago.

Apologies if this has already been addressed elsewhere on this forum.  I tried doing a search and nothing came up.

Sonorous Epithet

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Re: TSP Allocation Guide
« Reply #1 on: July 01, 2014, 11:19:12 AM »
To be good at Business Cycle Investing, you only need one skill, which is to accurately predict the timing of the market cycle with 100% accuracy. Now, because everyone on this forum is blessed with clairvoyance due to our dealings with Satan, we can all do this. (I see this is your first post; don't worry, your infernal contract will be arriving in the mail shortly; please remember to sign ONLY with your OWN blood -- learned that one the hard way.)

Just kidding. This is market timing baloney. Though there *IS* a business cycle, identifying *WHEN* we are at the peak and bottom of each cycle is difficult. If you are asking, it means you don't have the chops to do it. And if you think you do know, like if you're, say, a professional fund manager, then you still don't have the chops to do it. There's a reason index funds beat professional funds managers 75% of the time.

If it were my money, I'd be 100% in C, rain or shine, and I would sleep like a baby.

Higher risk, go with S or I. Lower tolerance, add a chunk of F (say, 25%).

TS Paul

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    • TSP Allocation Guide
Re: TSP Allocation Guide
« Reply #2 on: July 04, 2014, 08:16:10 PM »
Hi guys

I am affiliated with that website (what with being the creator and author of all of the content), so I might be a little bit biased and won’t address thriftassisty’s question.

I did have a few thoughts (just making conversation, not being critical) regarding Sonorous Epithet’s reply though:

“If it were my money, I'd be 100% in C, rain or shine, and I would sleep like a baby.”

If you are going to go with a straight buy and hold strategy, choosing the C fund over the S Fund strikes me as odd given that historically the small cap index has outperformed the large cap index by better than 2% annually (depending on what time range you are looking between 2.3 and 2.6%). Let’s call it 2.5% and compound that annually over the course of a 30 year federal career with a decent TSP balance and that turns into hundreds of thousands of dollars.

“Lower tolerance, add a chunk of F (say, 25%).”

SE is a buy and hold guy, and it is true that over 30 years the F Fund will outperform the G Fund. But in a rising interest rate environment such as we find ourselves in now, bond funds will decline as the value of the bonds which they hold lose value. I don’t think anyone in America believes that interest rates will be the same or lower a year from now, as is evidenced by the billions of dollars in outflows from the Pimco bond funds.

“There's a reason index funds beat professional funds managers 75% of the time.”

Index funds beating professional managers is one of the memes recently discovered by the click-bait headline writers at Business Insider and similar websites, but it is really an overly simplistic bumper sticker. The study which has generated the recent headlines compared all domestic equity mutual funds (approximately 2000) against what purports to be their benchmark index over the past 15 years. A few notes:

(1) f you actually read the study, you will find that 85% of the small cap active managers beat their benchmark index. So apparently there is some room for intelligent thought in investing.

(2) no allowance was made for size of the mutual funds. If you compare the larger active funds (those with more assets under management) to their benchmarks, the result is closer to 50%, meaning that fully half of active managers beat their benchmarks.

(3) the mutual funds compared to the indices included all sort of wacky funds, including contrarian (bear) funds which were betting that the market was going to go down, vice funds (tobacco, gambling and alcohol stocks), Christian Values funds (“wholesome” stocks), and even a fund which tracks the StockCar Stocks Index (NASCAR affiliated companies - automakers, sponsors, etc.).

(4) that 15 year period included the Tech Bubble, which saw the creation of a huge number of tech heavy mutual funds, which naturally underperformed all indices when the bubble burst.

Don’t be too quick to follow the headline and ignore the details. Plenty of investors crush the S&P 500 year in and year out, including many who focus on economic indicators and change their allocations according to where we find ourselves in the business cycle. Don’t get me wrong - virtually all of my investments are in passive equity (stock) funds. But I also believe that holding equity funds into a recession is nuts.

Good luck out there. -TS