Best TSP Allocation

So you want to invest in the TSP I fund

Update to 6 June article:

More than any other fund for the last 20 years investors in the TSP I fund should follow a seasonal strategy.  The difference between the strong months and weak months is the greatest of all the TSP funds.  Nothing so far this year has changed our mind as seen in this chart of the performance of the three equity funds since our summer sell signal was triggered.

Since Sell

Summer weakness hits the international markets


Now to our original article about investing in the TSP I fund for the last 20 years…


TSP I fund: Summer Doldrums 

6 June 2018

I may need to add the TSP International fund to our seasonal tracking of our Bellwether signal. Take a look.

I fund chart

Look what happens when you miss the summer doldrums

The TSP I fund is the international fund which holds the largest 85% of developed world stocks minus US market.

Since most of the world’s tech stocks are in the US and tech does not have as great a seasonal variance, other country stock markets may have stronger industrial-seasonal tendencies.  I decided to compare the TSP I fund’s performance the last 21 years applying our Bellwether timing signal.

The Bellwether seasonal timing signal is based on the total US stock market price action, but since the world’s stock markets are highly correlated it should work just as well.  It did as you see in the chart above.

Our seasonal strategy is an advanced Sell-in-May strategy.  The earliest our objective strategy exits the market is early May, but it occasionally waits until June or July to sell if the market’s trend is strong.  It also buys in the latter half of October at the earliest but waits if the market trend is weak.  It seems the international stocks show the same seasonal tendencies as the US stocks.

A look at the International funds seasonal performance:

The TSP I fund following the Bellwether timing from July 4th 1998 to June 2018 (21 years) had an annualized return of 10.15% if it switched to the TSP G fund for the unfavorable season. Compare this to the 4.77% annualized return of the TSP I fund over the same time period.

What accounts for the huge difference? TSP I fund’s performance during unfavorable season was -3.43% annualized compared to the TSP G fund of 1.7%.  In other words, you gave up 5.1% annualized returns by sitting in the I fund during the summer and fall.

Forget the summer doldrums title, this is summer backtracking!

Compare the International fund’s annualized returns to the SP500 (TSP C fund) and non-sp500 index funds (TSP S fund) from 1998 until 2018:

  •                 Buy & Hold             Bellwether            Summer Only

TSP I fund           4.77%                      10.15%                  -3.43%

TSP C fund          6.22%                      10.62%                  -2.27%

TSP S fund           8.41%                     14.57%                  -3.91%


I know your looking at those TSP S fund Bellwether returns.  It’s true that small cap stocks have a greater seasonal tendency than the large cap stocks which make up the other two funds.  We see it in the -3.91% summer average returns our strategy misses while logging a gain of 1.8% average in the TSP G fund instead.  That is a significant seasonal bump in performance.

But this post is about the International fund.

What we see is that most of the I fund’s under-performance to the SP500 (C fund) occurred during the summer. There is a 1.45% difference in buy and holding these two funds.  There is a 1.16% difference over the unfavorable season.  The summers have been less kind to the TSP I and S fund than the TSP C fund.

The time frame we examined included two bear markets and two bull markets, so two complete market cycles… which is a better yardstick for comparing strategy than 3 and 5 year returns.

Remember not every summer/fall is negative.  But most of the bad stuff seems to happen during the unfavorable season.  We found that 75% of the last two bear market draw-downs occurred during the unfavorable season.

Here is the performance of the I fund listed by year during the unfavorable seasons based on the Bellwether start date shown.  Remember the bounce back years after bear markets are working from a much lower base.

I fund Bellwether Summer

BTW… it’s the unfavorable season!

“QE” is “quantitative easing” which is a sneaky way the global central banks create money out of thin air and use it to buy global bonds to drive interest rates to below free-market rates. This has been the primary driver of the current bull market in stocks and bonds…

…so its ending will be the primary trigger for the next bear market regardless of all those positive headlines about the economy designed to sucker investors into the markets near the top.

Remember, the financial news is most positive at market tops and worst at market bottoms. Could it be any other way?

International stocks are not being propped up this year by massive corporate buybacks like in the US so they will succumb first as the central banks reverse course.  The first place rising US interest rates is going to have negative effects are the international markets, but that is another story.

If you want to see more about seasonal effects, take a look at our Bellwether Seasonal Results.

If you want to learn more about all the TSP funds from our perspective please read our short series – the Best TSP Allocation.


Invest safe, invest smart.

Michael H. Bond

TSP & Vanguard Smart Investor