![]() ![]() Our response was to offer an investment strategy that actively manages the risk, has performed very well historically, is based on sound academic and practitioner research and experience, and hopefully will therefore continue to do well in the future. We read one depressing report after another about how many investors bail out at the absolute worst time, selling in a panic with severe losses, often near bear market bottoms. So if you're thinking about investing 100% of your TSP account in a single stock fund, ask yourself: Can you afford the risk? Can you stomach the volatility? Many investors do not. If you're like most investors, it's a great way to sleep better at night. At the onset of a downtrend, we switch into the safety of bond funds (G or F). We use a trend-following approach to buy stock funds when market conditions are favorable. Our long term average stock exposure is around 40%. By comparison, TSP Folio is a diversified, dynamic portfolio, never allocating more than 60% to stock funds. stocks did in the 1930s!) Many investors do not successfully weather such large market downturns. (If you think 2009 was bad, just take a look at what U.S. But lets be clear that this approach leaves you exposed to occasional severe capital losses. If you have a stomach lined with steel, and an investment horizon of 40+ years, that may be a good idea. * A 100% investment in the S, C, or I fund is a 100% investment in stocks: zero portfolio diversification. Pay attention to volatility, average drawdowns and maximum drawdowns. Please compare investment strategies on a risk-adjusted basis. There's no free lunch, there's no return without risk. But it would have tanked just as dramatically in 2007-2009. Sure, a 100% investment in the C, S, or I fund would have done spectacularly between March 2009 and today. By comparison, the TSP Folio strategy had a maximum drawdown of only -10.49%. ![]() The C fund fared about the same ( -55.22%). * Over this period, the S fund had a maximum drawdown of -57.43%. By comparison, over the same period, the TSP Folio strategy had a compound return (backtested) of over 11% per year. The S fund had a compound annual return of 9.65% between April 1987 and today. * We calculate and update the return and risk of all TSP funds every business day. So, lets compare a hypothetical 100% buy and hold investment in the C, S, or I fund to the TSP Folio strategy, using as much historical data as possible. But please judge an investment strategy over years or decades, not just a couple of months or years. Parking your money in the S, C, or I fund has been great since March 2009. Buy and hold investing is just another strategy. Rather than hijacking twingum's thread, we'd like to take the opportunity to respond specifically how it relates to our TSP Folio strategy:Īll investment strategies have good years and not so good ones. Twingum wrote:Parking your money in C, S, or I and forgetting about it, has produced higher yields this year than some of the advisory services combined. ![]()
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