Risk Matters

What is risk?  While there are hundreds of measures for investment risk, we like to keep it simple.  We simply want to focus on avoiding significant losses to your investment funds while maintaining most of the gains.  If you can do this over the long-term, you will double or triple your retirement nest egg.   In order to do this, you have to stop thinking in terms of 1 year/3 year/5 year returns and start thinking in term of the full market cycle returns (bull and bear markets).  Once you stop chasing short term returns (guaranteed to send you back to GO) and look at the bigger picture you will see why risk-adjusted returns actually translate into a much larger nest egg when you retire.

TSP Returns

In the graphs below, blue represents a buy & hold investor and orange represents our simple two allocations per year strategy’s performance.  The ulcer index is a stock market risk indicator devised by Peter Martin and published in his book The Investors Guide to Fidelity Funds.  It measures only the volatility of an asset in the downward direction; in other words, only the amount of drawdowns over a period of time.   What is amazing about the performance of the TSP Smart strategy is that it turns the efficient market hypothesis on its head. 

TSP S Fund Performance

Academia and most financial advisors will try to tell you that to increase returns you have to increase risk, while this is partially true, the TSP Smart strategy INCREASED returns by REDUCING risk. 

 

Risk Market Exposure

How does it work?  During the weakest time of the year historically for equities the strategy moves out of the equity funds and into the TSP G fund.  The TSP G fund has practically no risk, but still provides a return that beats the stock market on average during the time of the year invested.  This strategy is not designed to beat the stock market every year, but by focusing on the full market cycle, it has easily beat the indexes the past 60 years and will over your investment horizon (until you retire and during retirement).   It is the reduction in market exposure (market risk) during the time of the year responsible for 75% of that last two bear market drawdowns and most other major market corrections that helps blow away the buy and hold strategy.

 

 

TSP Bear Market

How do we determine timing?  You can visit our free Learning Center on our member’s website to get the full explanation for our method.  You can also view our TSP fund model performance on our member’s website.

Next please see Simplicity Matters to understand how our low cost service works.


 

TSP Strategy


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Please visit our TSP Perspectives Free BlogTSP Charts, TSP Smart Learning Center or our TSP Smart Investor Dashboard