A professional allocation timing service

TSP Smart Investor& Vanguard Smart Investor

risk matters

a simple strategy for long term investors


By simply adding a seasonal filter, full market cycle returns improve drastically. The seasonal filter is simply avoiding stocks when their performance lags (summer and fall) and requires only two allocation changes a year.


The straight lines seen on the "Advantage S" plot is simply the result of sitting out the unfavorable season for equities and in the safety of a no-risk interest bearing fund such as the TSP G fund. This is simply the Best Strategy for long-term investors who do not want to spend all their time following the markets. It may be the best strategy period.


How a seasonal filter improves returns while lowering risk


TSP Fund Performance Chart



The relative performance chart begins in 1988 to avoid the 1987 market crash that would have made the seasonal strategy look even better.  I did not want anyone accusing me of cherry picking my dates, so we have a 29 year look verses a 30 year look.  The Advantage S is our objective timing signals for the medium cap index fund (TSP S fund and VXF ETF). The seasonal strategy's annualized return was 5% higher than just holding the fund.  There is no leverage employed, the strategy wins by missing the bulk of market corrections and losses that occur in the summer and fall.


Avoiding Losses Matters


Let's look at the market cycle starting in 2006 in a different way.  The charts below plot the portfolio draw downs (losses) of a buy & hold investor verses a seasonal investor.  By sitting out of equities (summer/fall) the season investor manages to miss the time frame when most large corrections and losses occur.  Eliminating these losses greatly benefits your long term returns as well as allowing you to sleep better a night while other investors are panicking. Most market bottoms occur when buy and "hold" investors capitulate in mass.




see our SP500 index fund results details (TSP C fund)



The next chart shows the returns missed by sitting in a safe investment over the unfavorable half of the year.  The following results are based off of our seasonal timing models for each fund. The G fund is a safe interest-bearing fund unique to the Government's TSP 401K-like plan for comparison.  The S fund holds the non-SP500 companies (VXF ETF), the C fund is the SP500 index fund, DIA invests in the Dow Jones Industrial Averages, R2000 is the Russell 2000 small cap fund and "Sy DIA" is based on the late Sy Harding's seasonal strategy invested in the Dow.  




What this table is telling you,  if you invest in the TSP S fund or VXF ETF using our seasonal strategy and earn absolutely nothing while sitting on the sidelines, you would be ahead significantly.  The buy & hold investor's portfolio would be down -36.7% if invested in the small cap fund.  An investor down 37% has to earn 60% on their depleted funds to get back to even.  To be clear, any money sitting in your account in 2006 would be ahead 60% by simply sitting in cash half the year from 2006 to 2016.


What about the summers that do well?  The summer of 2009 did well because it was bouncing back from a 50% plunge (bear market).  We also see 2013 did well and 2016 did okay.  I attribute this to central bank monetary interventions at the time and this is unique to this market cycle.  This has lead to a very over-valued stock and bond market.  During the last two bear markets, 75% of the bear market losses occurred during the summer and fall when our seasonal strategy was out of the markets.  


Our results reflect moving 100% into and out of the equity funds each year based on the favorable and unfavorable season timing.  If an investor is in retirement or near retirement, your allocation levels to equity funds should be greatly reduced if you will be dependent on these funds for your retirement needs.  If you have questions about how much you should allocate to equities based on your age or years to retirement, we used the TSP Lifecycle and Vanguard Lifecycle funds as a baseline for the discussion in our Allocation Percentage Guide.


The details of the small cap fund


The seasonal results shown below for our Advantage S timing switches between the TSP S fund (or VXF ETF) and a safe interest bearing fund twice per year from 2006 to 2016.  This period includes one bear market and one very long bull market - a full market cycle.  You will notice the dates the favorable and unfavorable season begin are different each year.  This is based on our strategy adding a simple market trend indicator to our investment windows to delay entry or exit if conditions warrant each year.





Not Just for TSP Funds



Dow Jones Industrial Averages

Advantage D Model Details





We track and send signals on Sy Harding's original Seasonal Timing Strategy (STS) for the DIA ETF



 

Russell 2000 index

Advantage R Model Details

  

                    



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Timer Tracked 

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