Current Thrift Savings Plan Allocation and Business Cycle Analysis – August 2015


The market caused a little bit of angst among investors this week, which generated a number of emails from fellow members of the TSP Allocation Guide community. My favorite had to be this one:

Thrift Savings Plan idiotLet me start by saying that I absolutely did see this coming. I have explained the regularity of market corrections and why I don’t panic when they occur on numerous occasions since starting this blog. For example, see A Look Forward at Thrift Savings Plan Investing in 2015 in which I wrote:

As at the beginning of every year, I will confidently predict we will see four or five 5% corrections, and probably a 10% correction at some point (because that happens pretty much every year). With history as a guide, I am convinced the timing of those corrections isn’t predictable, and that the market will recover and move higher in each case within a matter of weeks.

What we are seeing right now happens routinely and is inevitably followed by a resumption of the market’s upward trend. This is what markets do. The stock market, on average, has a correction every 357 days, so pretty much once a year. Our last correction was nearly 1,000 days ago, the third-longest streak on record, so we were well overdue from that perspective. Over the past 35 years, we saw an annualized average drop of 14.7% (see the red dots in the chart below), but the market finished the year in positive territory in 27 out of those 35 years. And we aren’t even close to the average: – Friday’s S&P 500 intra-day low of 1,970 represents a 7.6% drop from its intra-year high of 2,134, so this correction would have to double just to hit average.

14.7 Thrift Savings Plan correction

Of course in the very next paragraph of the post I referenced above, I talked about the potential risk posed by a Chinese financial crisis. I don’t think that is where we are at this stage, but even if China doesn’t completely melt down it can obviously still do some damage to global markets.

You will forgive me for doing some cutting and pasting from an earlier post (May 2014), but this is a routine enough event that I have covered it in the past:

Bull markets end when the economy enters a recession. In the history of the modern stock market (since 1966 for today’s purposes) there have been nine bull markets, including the one we are in now. Seven ended when the economy entered a recession. Not because they got “tired” or any other nonsense the communications majors on TV spouted at the time. (No offense to communications majors in other fields – you are doing fine work!)

The solitary exception was the crash of 1987 when the market had the largest one day drop in history on October 19. That was an outlier because the economy had not entered a recession. The crash was caused by a number of unrelated factors which combined to create a short term panic. The market had been on a tear and was up 44% in the first seven months of the year. It was due for one of those five or six corrections which happen every year (which I write about nearly every month). The crash started with the bottom dropping out of the Hong Kong stock market, that spread to the European markets, and then the US market followed. It likely would have been a fairly normal correction in the 10% range (we average one of those per year), but computerized program trading had recently been introduced in the US stock markets. These trading programs were rudimentary at that stage, and didn’t handle the correction well. At a certain point, the algorithms all had a “sell everything” fail safe which executed when the market fell to a certain point. That started a panic, market psychology took over, and the market fell over 22% in a single day.

But what happened next is instructive. The economy was not in recession, so the new bull market started immediately. The day after the crash was the largest point gain in the history of the stock market. And a few days later on October 22, the market crushed that record by 150%. At the end of the year, the S&P 500 was still up 5.2% for the year, and all of the crash’s losses were wiped out in less than two years. Not a great period, but nobody’s retirement accounts were wiped out by the crash except for those who were so frightened that they sold at the bottom and missed the recovery.

When the market is down for a few days in a row, I look at all the red and wonder if there wasn’t some way of predicting these events too. But because I know where we are in the economic cycle, I don’t lose any sleep and I don’t ever consider selling. If I bothered to check, I’m sure that in the last week I have “lost” well over $100,000 in my Thrift Savings Plan and brokerage accounts – but because I didn’t sell anything, I haven’t lost a penny. And over the past few years I have “gained” many times that amount by staying in the market and ignoring corrections. So when these events occur I shrug my shoulders and go looking for stocks I like which are on sale.

The Current Bull Market

Since the stock market’s bottom in March of 2009 there have been three corrections (I think it is safe to say we are in our fourth now). I did not sell a single share of stock during any of those corrections, and I went from being comfortable to being wealthy by most standards during that period:

  1. in the spring of 2010 the S&P 500 dropped 16%;
  2. between late April and late September 2011, the S&P 500 dropped 20%;
  3. in the spring of 2012, the S&P 500 dropped 9.9%.

During that same period, the S&P 500 has been up 165%. You can see those corrections on the chart below, but you can also see what the market has done after each:

Current TSP Bull Market

Want to go back a little further? Since World War II there have been 58 market correction. The average gain in the period between corrections has been 32%.

Ignore the Financial Media

The financial media is in the advertising business, not the news business or the financial advising business. They make money when you watch the ads on TV or fall for the click-bait headlines screaming about market collapse. They very intentionally do not put these market events into context, explain that this happens routinely and the world is not ending, or tell you that professional investors use these events to buy more stocks and funds. CNBC doesn’t get you to stay tuned past the next commercial break by bringing on people who will tell you that it is overwhelmingly likely that this is a complete routine non-event, so that’s not what they do.

So where are we now?

I want to get this update out, so I’m not going to go into any depth at all on the indicators I rely on for gauging where we are in the business cycle. July’s numbers pointed towards a continued recovery in both the US and in the key markets which make up the TSP I Fund, so my allocation remains the same as it was last month: 85% TSP S Fund and 15% TSP I Fund.

The Next Update

Unless something dramatic happens (and my threshold for dramatic is obviously pretty high), I will update this post again during the second week of next month after all of this month’s data comes in. I send out a notification of these updates (or allocation changes during the month) to the email list which you can subscribe to here: Subscribe

If you want to see what I am reading throughout the month, I also have a twitter account to which I usually post items of interest which I have stumbled across for investors, Feds and the military once or twice a day at: @TSPallocation

What’s in it for me?

I don’t ask anything of readers except that they share the site with their colleagues so we can continue to expand the community of feds and service members helping each other in a free, transparent, no-pressure environment. You can do that by linking to this site from your own webpage or blog; spreading the word on Facebook, Twitter and in other investing forums; or actively participating on our Message Board.

So if you found this post useful, please share it with your friends and colleagues using the email and social sharing buttons below right now. Thanks!

(There is, by the way, no need to comment on the propriety of my pen-pal’s word choice in the email I shared above. I did that because I thought it was funny, not to rally defenders. He and I have since exchanged some very pleasant emails and all is good there.)

36 thoughts on “Current Thrift Savings Plan Allocation and Business Cycle Analysis – August 2015”

  1. Thanks for the info. It sucks losing money when the market tanks but I don’t expect you to be a soothsayer and warn us every time there is an impending down turn about to happen.

  2. I have learned a lot following your site blog and twitter. This was a HFT flash crash bigger than May 2010. Of course it is a correction as well but I kept my confidence and even bought VTI on sale. Keep up the great work.

  3. Isn’t it practical to move your balance into the G fund when you sense something like this coming……but leave your contribution allocations essentially the same? Being able to move and safeguard my account balance into the G fund for a month or even a few weeks allows my balance to essentially not take a loss……then move it back into the appropriate funds when the madness is over. Your thoughts?

    1. If you can reliably predict these corrections, then you absolutely should. But what usually happens to people is they jump out when things drop for a couple of days, lock in those loses, and then miss the rally. I have spent a lot of time playing in the stock market over the years and almost every time I have tried to make a short term bet I have gotten it wrong, so now I (mostly) stick with my long-term strategies. (I say mostly because I recently made a short term bet on a hedged energy ETF. That one hasn’t gone well…)

  4. good advice and detailed explanations as always. Until I pay you to manage my money I won’t be complaining about what happens when I choose to listen to you. LOL Thanks for sharing!

  5. Thanks for all your great information. You have written that your information is for us to use and learn from. So to all the ones that are upset at your information, this is the stock market we are talking about. If you have fears then just leave your money in the G fund. As for me I’m grateful for all the leaning opportunities that your website has given me.

  6. Don’t think of it as losing money, think of it as buying at a discount. You’ll get back what you lost and more most likely, just stay the course and don’t try to time the market. Thanks for the update!

  7. If someone is relying only on you (who is providing all this great information as a voluntary service for us “followers”) as their primary source of investment information, well then they are the I…T! Thanks again for your usual balanced and thoughtful perspective on the latest stock market craziness.

  8. I used to foolishly try to time the market. I finally wized up and starting looking at long term trends…even the pros can’t trade the market reliably…who am I to think I can do any better. I appreciate this site and all the free advice you offer. My biggest sorrow is that I have 25 years left to work, and based on your proclaimed wealth, you won’t be advising that long. Thanks for another great article!

    1. While I can’t imagine a scenario in which I would still be in government for another 25 years, I will certainly still be investing then. No plans to stop sharing my views as long as someone is willing to listen to me.

  9. So would you now, under the current condition, have one change their allocation to the 85/15 (above)? Is this a good time to buy into a deal?

    1. I think prices are low now and if I had any funds to invest I would be putting that to work and not trying to guess at a bottom. It could still go down a bit from here, but not likely much lower.

  10. Well, I was planning on retiring Jan 2017 – 17 months from now. In this situation, would you still hold fast or move to G? Do you think a year from now is enough time to recover the losses of the last week? I’m tempted to move to G but am holding out. Your thoughts on this is much appreciated!

    1. I definitely can’t give individual advice. I think we have seen the worst of this downturn and odds are strongly in favor of things starting back up, but there are always exceptions. I might be inclined to protect whatever I planned to withdraw right at retirement but leave everything else invested.

  11. I am confused about making an interfund transfer or contribution allocation when we decide to change the amount going into each fund. Advice please? When making changes is it best to do an interfund transfer or just change the contribution allocation?

  12. Just a question, if you have the time to answer. I freaked out and moved into the G Fund Friday. I understand that market corrections happen occasionally each year, but why not freak out and move money? Thanks again for your post.

  13. Thank you so much for the timely update. I breathed a sigh of relief reading it. I got a good laugh out of that email you posted. 🙂

    What are your thoughts on being retired and no longer contributing to tsp, is it wise to follow the same investing advice or should a portion be kept in the G fund? A big loss will not be recouped as easily if your no longer buying shares.

    1. I generally think that money which I expect to spend in the next 2-3 years should be protected. Anything beyond that will be plenty of time to recover from even the worst case scenario.

  14. So it seemed my post about sensing a down turn and moving your balance into the G fund sparked a lot of discussion…..and Emotion. One comment hinted that ” if a person totally relies on you for advice then they’re the idiot”….. Maybe that was a general statement but I follow your advise, CNBC commentaries , TSP Pilot and my own research. I moved money on Wednesday…took affect Thursday, so I missed Friday and Monday’s chaos. I give credit to half planning and half luck. One thing I noticed was, everyone thanks you at the end of their post. I did not… was my first post ever. So…….thank you for the advise and insight. Looking forward to the next update!

  15. Thanks for your insights. With the markets where they are I just moved some funds from the G to the S&S. hope I am getting in near the bottom. Thanks again

  16. I couldn’t thank you enough for your outstanding information!

    I have what may be a newbie question, but hopefully many others have the same question and your answer will be helpful to us all.

    I had surmised that I should go 100% F for the last couple of weeks (so I did), and then when it looks like we are, “at the bottom” (which might be about now), I would put it back into my 70S/30I split.

    This was an attempt to shield myself from the losses, and then benefit from the rally.

    Is this not a sound plan?

    The reason I ask is due to your comments above, “what usually happens to people is they jump out when things drop for a couple of days, lock in those loses, and then miss the rally”.

    Are the losses you refer to a result of people forgetting to jump back in ahead of the rally? Or is there something else about the math of it all that I am not understanding?

    Thank you again for all of your help!

    1. If you got out before last week, that was great timing. Maybe you should write a newsletter. 😉 Most people would have waited until the worst had already happened and sold late last week or over the weekend. With the lag involved with jnterfund transfers, they probably wound up pretty much at the bottom.

      Your strategy is great, it will just be hard to repeat in the future because each of these corrections looks so different.

      1. Took a big loss for me, but stopped the bleeding as quickly as I could.

        Being new to investing, your website has opened my eyes. It’s stressful and thrilling, and I have you to thank!

        And to the benefit of your readers, I’ll leave the writing to you 🙂

  17. Thank you, as always, for your clear explanations and for putting things in perspective. I refer to these corrections as “s**t the stock market does.” Happy to say I’ve slept like a rock through all the drama. As usual, I don’t bother reading articles with click-bait type language and haven’t watched TV in months. I try to keep in mind what a friend told me about the news a while ago: most of the top stories seem to be somehow related to the 7 deadly sins.

  18. Thank you so much for your work!..the information you publish is also put a great deal of time into the work and I believe everyone can consider either sharing and/or donating to the cause to keep things going…We are an active Army family and I will share this and make a donation.. You aren’t the only one getting hit in the energy space…I did buy some more yesterday as I am averaging in to the space on auto pilot and think longer term they will pay off great…its never fun being down short term though its just part of the deal

  19. Hi Paul,

    I got scared and put all my money in the G Fund over the weekend. The change didn’t take effect till COB Monday. Now the market is back up and I am 100% G fund. I locked in the loss!

    Any suggestions on how to get back into the market now? Is it better to wait till things seem more stable or just get back in ASAP. Big lesson learned about NOT trying to time the market! Thank you for a great site. Tracey

  20. Paul,

    I really enjoy your insights and transparency of your investing decision making process. I may not always agree with your conclusions but I always leave your site feeling more educated and confident in my own investing approach.

    Once again when many finance blogs were lamenting Black Monday and the coming of the end, you remained calm. Your simple, clear, and unemotional explanations of the situation was exactly what I needed.



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