This is an archive page. Click here for Current Thrift Savings Plan allocation update.
Updated 08/12/2013: My current Thrift Savings Plan allocation remains 100% in the TSP S Fund.
Based on all of the economic indicators which I describe in my How to Determine the Business Cycle’s Current Phase post, I believe that we remain in the early (recovery) phase which started in Spring 2009, and so I remain 100% invested in the TSP S Fund. See my note below about the momentum shift we are seeing in the TSP I Fund.
Once again, although I personally spend a fair amount of time reading business and economic news each day, it really only took ten minutes today for me to pull the data which I feel like I need to make that Thrift Savings Plan allocation decision.
I will run through where I get the indicator data I am using and what it means to me:
(1) employment numbers: This month I just went straight to the Bureau of Labor Statistics press release with the July 2013 numbers:
Total nonfarm payroll employment increased by 162,000 in July, and the unemployment rate edged down to 7.4 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in retail trade, food services and drinking places, financial activities, and wholesale trade.
This is the trend which we like to see:
(2) money supply growth rate: The Federal Reserve has not yet released the July numbers, but I don’t have any reason to believe that the growth trend will not continue. From last month:
Money Supply M2 in the United States increased to 10598.1 USD Billion in June of 2013 from 10552.60 USD Billion in May of 2013.
This continued upward trend is what we are looking for:
(3) the stock market: Virtually all sectors of the market ended July higher than they started and it is so clear that the market’s upward trend continued in July it is not even worth bothering to bore into the details.
(4) yield spreads: I continue to get my data for this section from the Cleveland Federal Reserve. The yield spread is huge, which indicates a very, very low probability of recession, and it continues to trend in the right direction:
(5) Purchasing Managers’ Index (PMI): as usual I went to the Institute for Supply Management and pulled up their most recent report (remember that any number above 50 indicates economic growth):
Economic activity in the manufacturing sector expanded in July for the second consecutive month, and the overall economy grew for the 50th consecutive month. The PMI registered 55.4 percent, an increase of 4.5 percentage points from June’s reading of 50.9 percent. June’s PMI reading, the highest of the year, indicates expansion in the manufacturing sector for the second consecutive month. The New Orders Index increased in July by 6.4 percentage points to 58.3 percent, and the Production Index increased by 11.6 percentage points to 65 percent. The Employment Index registered 54.4 percent, an increase of 5.7 percentage points compared to June’s reading of 48.7 percent. The Prices Index registered 49 percent, decreasing 3.5 percentage points from June, indicating that overall raw materials prices decreased from last month. Comments from the panel generally indicate stable demand and slowly improving business conditions.
So again, all of the indicators are pointing in the same direction, and I believe that we remain in the Early/Recovery/Expansion Phase of the Business Cycle for all of the reasons which I described in my earlier post on The Business Cycle Theory of Investing.
With respect to the TSP I Fund, if this was my Vegas money instead of my retirement account, I would be rolling some of my Thrift Savings Plan allocation into the TSP I Fund because I think that it is likely to outperform all of the other TSP Funds over the next few months. I believe that that positive media and investor sentiment on the European recovery has created enough momentum to make that happen. But this is my retirement account, and I don’t want to be buying single ply toilet paper when I’m in my 80s, so I will remain conservative at this point and stick with the TSP S Fund. While I think that we are going to see at least a temporary move in the TSP I Fund, I haven’t devoted the time to really understanding the underlying economies so I am not comfortable enough risk any of my Thrift Savings Planbalance, particularly not when the TSP S Fund is performing at the fantastic levels that it is (up 24% over the last 12 months), and I believe that there is a significant downside risk to the TSP I Fund as well. I will take a closer look at both Europe and Japan before my September update, and may well decide to make a shift then. If you have not read my explanation of the TSP I Fund yet, you can find it here: The Best International Fund of the 1970s.
For those of you who feel that you need some diversification in setting your best TSP allocation and maintain a percentage in the “safer” funds, I would caution you not to be invested in the TSP F Fund during this period of increasing interest rates. I go into great detail in my F Fund vs. G Fund post, but the nutshell is that as interest rates rise, the bonds held by the TSP F Fund will lose value and the TSP F Fund will do poorly for the foreseeable future (as it has the past several months). And if any of your current Thrift Savings Plan allocation is in the TSP L Funds, remember between 6% and 9.25% of your savings are in the TSP F Fund which is almost certain to perform badly in at least the near term.
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