Independent allocation advice grounded in history not hype

TSP Smart®  
  & Vanguard Smart Investor

>> Follow blog via

results matter

it really works and it is simple

First how it works

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" line in the chart 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)

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 2017 did good over the summer.  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.

Our most up-to-date results for our Bellwether timing signals

About                     Levels of Service

This website provides a commercial service and is not affiliated with the Thrift Savings Plan administration.  Recommendations are based on our best judgment and opinions but no warranty is given or implied.  Past performance does not guarantee future performance or prevent losses.   All readers and subscribers agree to this website's Terms of Use and Investment Disclaimer.   Copyright © 2011-2021 Ravenstone Research Inc.  All Rights Reserved.  


Powered by Wild Apricot Membership Software