Ultra Simple Thrift Savings Plan TAA Model – Part 2

(This article is part 2 in a series on my Ultra Simple Thrift Savings Plan (TSP) Model.  Here is part 1.) I promised to explain how my Ultra Simple Thrift Savings Plan TAA (TSP US TAA) Model works at the end of my last post.  So here we go. Let’s see how it works and [...]

TSP Ultra Simple TAA Model TSP Ultra Simple TAA Model

Ultra Simple Thrift Savings Plan TAA Model – Part 1

This is the first post in a series where I will provide details on a new TAA Model I’ve developed that is super simple to use for managing part or all of your Thrift Savings Plan portfolio. I finally made some time to develop a TAA Model that is extremely easy to follow.  I call [...]

TSP Ultra Simple TAA Model TSP Ultra Simple TAA Model

TAA Case Study With Japan Part 2 – Can 3 Losers Win?

(This article is a follow up to a previous post, TAA Case Study With Japan – Avoiding the Lost Decade). I decided to test more losing country funds with the Japan exchange traded fund (ETF), EWJ, to see if my previous TAA Case Study with Japan was some sort of fluke.  I came up with [...]

Japan NASDAQ & Italy Equity Curve Chart Japan NASDAQ & Italy Equity Curve Chart

TAA Case Study With Japan – Avoiding the Lost Decade

We’ve all heard the “lost decade” phrase mentioned when talking about the US stock market from 2000 to 2010, particularly the S&P 500 index.  Many of us experienced it, including the 2008 market meltdown! Guess what Japan has experienced – two lost decades.  You read that right.  Japan’s stock market is lower than it was [...]

Japan TAA Equity Curve Chart Japan TAA Equity Curve Chart

Thrift Savings Plan Investment Strategies – Part 3

Would you like to have equity-like returns with bond-like volatility and draw-downs? If so, Tactical Asset Allocation may be just the investment strategy you are looking for to manage your Thrift Savings Plan account. Read on….

Thrift Savings Plan TAA Equity Curve Thrift Savings Plan TAA Equity Curve

TSP TAA Models – May 2013

May 1st, 2013 12:16 am Boomers' Beacon No Comments »

Recommended TSP Model positions for May are listed in the table below.  There are recommended changes for May compared to April.

 

TSP TAA Models - May 2013

TSP FUNDBASIC TSP TAA MODEL
ALLOCATION		ENHANCED TSP TAA MODEL
ALLOCATION		ULTRA SIMPLE TSP TAA
MODEL ALLOCATION
C Fund25%25%25%
S Fund25%15%0%
I Fund25%25%25%
F Fund25%35%50%
G Fund0%0%0%

I recommend my Enhanced TSP TAA Model or my Ultra Simple TSP TAA Model if you choose to follow one of my models. However, I show the TSP Basic Model as a courtesy.

The Basic TSP Model is derived from the classic tactical asset allocation (TAA) model developed by Mebane Faber.

Mr. Faber’s model recommends five assets, including commodities and real estate. The Thrift Savings Plan has no funds available for commodities and real estate, so my Basic TSP Model is adapted using the funds that are available in the TSP. My Basic TSP Model does use the same timing signals that Mr. Faber’s original model uses.

My Enhanced TSP Model includes additional signals that allow for partial positions in each asset rather than “all in” or “all out” as in the Basic TSP Model. The additional signals are designed to shift some money to the less volatile funds when appropriate and hopefully avoid more of any downturn. As with any mechanical signal, it is right some of the time – not all the time.

My Ultra Simple TSP TAA Model is new for 2013 and extremely easy to follow and use without calculators or spreadsheets.  You can read more about it here.

If you are following one of our TSP TAA Models, remember you have until noon Eastern Time Wednesday to submit your Interfund Transfer request in order for your request to be effective at the market close Wednesday.  Here is a link to TSP Interfund transfers for your convenience.

Have a great day!

Fidelity and 65 ETFs

March 29th, 2013 8:36 am Boomers' Beacon No Comments »

Fidelity Investments rolled out a new exchange traded fund (ETF) program a couple of weeks ago.  They increased the number of iShares ETFs that can be traded commission free from 30 to 65.  Fidelity has one ETF of its own, ONEQ, that was and is still traded commission free for a total of 66 ETFs.

Most investors can now build a varied and complete portfolio using Fidelity’s free ETFs.

If you were familiar with Fidelity’s previous commission free ETF program, they are dropping 10 of the them and adding 45 to arrive at 65 (66 with ONEQ) in this new program.  I will list commission free ETFs for TAA Models, so you may have already noticed them in my monthly update.

Specifically, some TAA Model changes are as follows:

  • ITOT replaces IWV for broad US markets
  • IXUS replaces ACWX for broad international markets
  • IEF replaces AGG
  • SHY can be traded free as a cash equivalent

Additionally, I may recommend VEGI rather than DBC.  I will study this further and decide prior to next month’s update.  DBC is not commission free at Fidelity, but follows commodities and is less correlated to the broad markets than commodity related equity-based ETFs.  Fidelity has included four such commodity related equity-based ETFs to serve as a commodity related holding.  I will follow with another specific post on this soon.

An additional change to Fidelity’s ETF program is that these commission free ETFs must be held for 30 days or be subject to a short term trade fee of $7.95.  That short term trad fee is scheduled to go into effect August 1, 2013.  This may not affect most investors very often, but keep it in mind.

Lastly, I introduced a Premium TAA Model that I built around Fidelity’s new commission free ETF program.  I already decided to include VEGI in it as a commodity related holding in the Premium TAA Model.

Watch this new Model a while and consider it after you feel comfortable with its performance. As a future heads up, I may not post the Premium TAA Model allocations openly in the future. I’m just mulling that over for now.  Any changes would be at least a year or more away.

That’s all for now.  Get out and enjoy spring this weekend if you can!

Let’s Talk Diversification!

March 29th, 2013 7:11 am Boomers' Beacon No Comments »

Let’s visit the diversification subject for a few minutes.  If you ever read much about it, you will find a recurring theme in recent years.  What’s that theme? Diversify Your Eggs Most people say that diversification doesn’t work anymore. Depending on how you manage your money and allocate your funds among assets, that is somewhat true.  But don’t give up on it yet!

Correlation numbers for SPY (S&P 500) and IJR (S&P 600 small cap stocks) ETFs are 0.98 (6 months) and 0.99 (3 years) correlated, with 1.0 indicating lock-step movement and -1.0 indicating opposite movement 100% of the time.

The story for US compared to foreign stocks is a lot better.  Correlation numbers for SPY and EFA are 0.89 (6 months) and 0.4 (3 years).

Now be honest.  You probably don’t even care if our assets are highly correlated when they are going up.  But what happens when they start going down.  That’s when correlations converge on most assets.  You need it the most and have it the least when markets head down.

Correlations were a lot better 20 – 30 years ago (meaning lower and less correlated), but there has always been some convergence in troubled times.

But we’re not blindly buy and hold investors.  I know I’m not and I assume you aren’t if you are visiting this site.  So what does diversification offer us TAA followers?

Being diversified can help a lot more if you use a trend following system rather than buy and hold. Why you ask?  When the markets head south for significant declines, they don’t always make the turn at exactly the same time.  Small caps and international stocks frequently turn sooner as markets start getting nervous. So you may shift those designated assets to cash or bonds sooner if you are following their trends.  Calm or Panic

Having shifted a portion of your assets to cash or bonds before a big fall can make the difference between a shock or just a mild sweat.

Looking back at the Flash Crash of early May 2010, some/all assets for EFA (International Index ETF) were already moved to cash in some TAA systems well prior to May, which served to dampen the effect.  May 2010 was no fun to be sure.  We all took a hit.  But the hit was not nearly so bad as it could have been if you were “all in” with your assets.

And don’t forget that diversification still offers the benefits of some assets performing better than others at times even when they are moving in the same direction.

So don’t become complacent!  Continue diversifying and spread your portfolio across multiple asset classes.

Ultra Simple TSP TAA Hedged

Ultra Simple Thrift Savings Plan TAA Model – Part 3

March 29th, 2013 5:37 am Boomers' Beacon No Comments »

(This article is part 3 and the last in a series on my Ultra Simple Thrift Savings Plan (TSP) TAA Model.  Here is part 1.  Here is part 2.)

I recently introduced a new TSP TAA Model called the Ultra Simple Thrift Savings Plan TAA Model.  My previous posts explained how it works and showed back-tested historical performance.

In this post, I will add one minor optional feature.  I will add a timing hedge similar to the other TSP Models.  I know, I know; using the timing hedge sort of conflicts with my “ULTRA Simple” goal in that it does require some calculations.  Stay with me a minute though.

I base this timing hedge on how the S&P 500 (C Fund) is performing.  Using a simple moving average, the model moves out of the stock funds (C, S, & I Funds) when the S&P 500 is under performing.  This reduces year to year volatility a bit.  The back-test using the hedge did improve total results, but only slightly.  Down years were down less or not at all and up years were up less.

Visually, you can see from the equity curve in the image that the hedged model is a bit smoother.  Looking at it from the from the 30,000 foot view over several years, it seems that both Ultra Simple Models track very closely to each other.  And they do if you look at several years.

However, make no mistake, that modest (compared to the benchmark) dip in the 2008 – 2009 time frame may not feel so modest when you are living it.  So I emphasize as always to be honest with yourself.  Select your asset allocation percentages and your investment model carefully.

Specific numbers from Dec 2000 are shown in the table below.

 

Ultra Simple TSP TAA Annual Returns

YEARULTRA SIMPLE
TSP TAA MODEL
(NO HEDGE)		ULTRA SIMPLE
TSP TAA MODEL
(HEDGED)		BENCHMARK
BUY & HOLD C, S, I, &
F FUNDS - 25% EACH
CAGR9.15%9.86%4.70%
2013 - YTD
(As of 3/28/13)		6.57%6.57%6.94%
201213.44%13.44%14.36%
20119.13%9.84%-1.58%
20101.53%6.19%14.58%
200923.08%15.10%24.58%
2008-3.54%5.04%-29.70%
200710.82%9.30%7.03%
200611.60%12.66%15.07%
20053.22%3.22%7.75%
200412.36%10.06%13.33%
200326.12%21.56%27.25%
2002-0.68%5.49%-11.80%
20016.67%7.65%-9.06%

I will post recommended positions for the hedged Ultra Simple TSP Model each month.  The rules are so simple for the un-hedged model that you don’t need me to post recommendations.  The rules were listed in the second post of this series, Ultra Simple Thrift Savings Plan TAA Model – Part 2.

If you like this TSP Model, watch it or paper trade it for a while to see how it performs.  Or you could go ahead and use it, but remember that achieving good back-tested results are easy. So go easy and allocate only a portion of your funds to this or any single strategy, especially a new one.

I hope you enjoy your weekend!

TSP TAA Models – Apr 2013

March 28th, 2013 2:27 pm Boomers' Beacon No Comments »

Recommended TSP Model positions for April are listed in the table below.  All TSP Models recommend the same percentage allocations for April.

 

TSP TAA Models - Apr 2013

TSP FUNDBASIC TSP TAA MODEL
ALLOCATION		ENHANCED TSP TAA MODEL
ALLOCATION (Recommended)		ULTRA SIMPLE TSP TAA MODEL ALLOCATION (Recommended)
C Fund25%25%25%
S Fund25%25%25%
I Fund25%25%25%
F Fund25%25%25%
G Fund0%0%0%

I recommend my Enhanced TSP TAA Model or my Ultra Simple TSP TAA Model if you choose to follow one of my models. However, I show the TSP Basic Model as a courtesy.

The Basic TSP Model is derived from the classic tactical asset allocation (TAA) model developed by Mebane Faber.

Mr. Faber’s model recommends five assets, including commodities and real estate. The Thrift Savings Plan has no funds available for commodities and real estate, so my Basic TSP Model is adapted using the funds that are available in the TSP. My Basic TSP Model does use the same timing signals that Mr. Faber’s original model uses.

My Enhanced TSP Model includes additional signals that allow for partial positions in each asset rather than “all in” or “all out” as in the Basic TSP Model. The additional signals are designed to shift some money to the less volatile funds when appropriate and hopefully avoid more of any downturn. As with any mechanical signal, it is right some of the time – not all the time.

My Ultra Simple TSP TAA Model is new and extremely easy to follow and use without calculators or spreadsheets.  You can read more about it here.

If you are following one of our TSP TAA Models, remember you have until noon Eastern Time Monday to submit your Interfund Transfer request in order for your request to be effective at the market close Monday.  Here is a link to TSP Interfund transfers for your convenience.

The markets are closed tomorrow for Good Friday.  If you are off tomorrow, enjoy your long weekend!  Have a great day!

« Older Entries