Results Matter

Many investors have a hard time believing that re-allocating only twice a year could significantly increase their nest egg.   How could a strategy so simple to execute work and will it continue to work.   We spent a lot of time comparing timing strategies and found what we consider to be the best one for TSP funds.   It has both academic support and real world evidence as seen in the Dow Jones Indexes over the last hundred years.  We optimized the strategy for investing in TSP funds to be both simple-to-execute and significantly beat the buy-and-hold investor.  There are no black boxes or emotional decision-making,  just a straight-forward approach simple to understand.

While we use the same strategy for both the TSP C and TSP S fund, we found they needed separate timing signals based on the index they track.  Our members receive an email at least one day prior to the allocation change date for the fund or funds they are investing in.  All you have to do is log onto your government TSP account on that date and make the re-allocation twice a year.  It’s that simple and the historical results speak for themselves.

TSP Returns


The TSP S Fund tracks the Dow Jones US Completion Total Stock Market Index, or basically the whole US stock market minus the S&P 500 index.  The TSP C Fund tracks the S&P 500 index.  The graph above shows what a one-time investment of $10,000 would have returned over 25 years from 1988 through 2012.   The returns include dividends and G Fund returns when not invested in the equity fund.   Blue represents a buy and hold investor.    Note the difference in an investor’s nest egg after 25 years for each $10,000 they invested.

Why doesn’t everyone follow this strategy?  Many investors are too busy chasing short-term returns published by the financial community not always realizing one company will start 10 funds with different strategies and close the losers after a few years and only advertise the winners.  Research also shows the best performing funds often turn into the worst performing funds simply because of the changing tides of investing.    Many more trade on emotions generated by both the financial news media and the performance of their funds.  The typical retail investor has the highest exposure to equities at market tops and the lowest exposure at market bottoms, exactly the opposite of where they should be.  Research by JP Morgan estimates the average retail investor earned a 2.3% return over a period when the S&P 500 earned over 8%.  Investing based on the news of financial and economic reporting is like trying to drive a car by looking in the rear-view mirror.

TSP C Fund Performance

While TSP limits your investment options, we have come to embrace them as the best vehicles for investing your core retirement funds.  The are extremely low cost and you can achieve the diversification of the whole US stock market.  This eliminates much of the risk in investing and leaves you only with market risk or basically as goes the market so goes your funds.  This lead us to focus on the best overall strategy for mitigating market risk while maintaining our gains.

What surprised us the most when looking at all the strategies, timing newsletters and market analyst is that even the professionals could be used as a contrary indicator.   Financial newsletters and analyst are at their most bullish at or near market tops and at the most bearish at market bottoms.  This is one of the reasons very few beat the broad index funds over the full market cycle.  Simply put, buy and holding a diversified low-cost fund is much better than subjective trading.  So we wanted an objective strategy that worked in all kinds of market environments.  We did this by developing a modified buy and hold strategy that captures most of the market gains while avoiding most of the significant losses on average over the full market cycle (bull/bear markets).    By not focusing on 1 or 3 year returns, but instead taking the long view of  the full cycle, our strategy significantly and conservatively beats the buy and hope investor.

TSP S Fund Chart

What we liked most about this strategy was that not only did it beat the other strategies head-to-head, but when you look at the risk-adjusted return, it blew the others away.   It does this by flipping conventional investing advice on its head.  Instead of increasing risk to increase returns, you REDUCE your risk to increase your returns.   But what does risk really mean?

Continue here to read about the only investment risk to TSP funds we care about.


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