Current Thrift Savings Plan Allocation and Underlying Business Cycle Phase – October 2013


Updated 10/13/2013: My current Thrift Savings Plan allocation remains 100% in the TSP S Fund.

This month has been dominated by political rather than economic news. I wrote a special update post on the debt limit and government shutdown a few days ago, and my views remain the very much the same today. I believe the market (and our Thrift Savings Plan balances with it) will take a hit tomorrow when it opens after a weekend in which many observers expected to see more progress, but I do believe we will see Congress take action at the last minute to avoid damaging the economy enough to change the phase of the economic cycle we are in.

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 recovery/expansion phase which started in Spring 2009, and so I remain 100% invested in the TSP S Fund.

As always, I will run through the indicator data I used and what it means to me in making decisions for my Thrift Savings Plan:

(1) employment numbers: This month I could not go to the Bureau of Labor Statistics for the September 2013 numbers because they are furloughed. Instead I took a look at various reports from other sources, including this Wall Street Journal analysis:

156,000: The numbers of jobs added in September, according to an amalgamation of several private sources of labor market data.


Absent the BLS report, other data, mostly from private sources, offer hints about last month’s job markets. The cumulative result: probably no surprise pop in payrolls or unexpected worsening in unemployment.

(2) money supply growth rate: I obtain this data from the Federal Reserve:

Money Supply M2 in the United States increased to 10815 USD Billion in September of 2013 from 10768 USD Billion in August of 2013.

That continued upward trend is what we are looking for:

United States Money Supply M2 - TSP Allocation Strategy Guide
(3) the stock market: the stock market (which I really consider to be a trailing indicator even though the Wall Street types like to think that the market predicts the economy) continued to trade sidewise last month. But that is fine – remember that we aren’t worried about short term swings and fluctuations in the stock market when we are investing in the Thrift Savings Plan. Take a look at the five year chart below to put the current choppiness into perspective:

TSP 5 year chart October 2013
(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:

Yield Curve graphic Oct 2013 TSP Allocation Guide Update

(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 September for the fourth consecutive month, and the overall economy grew for the 52nd consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®. The PMI registered 56.2 percent, an increase of 0.5 percentage point from August’s reading of 55.7 percent. September’s PMI reading is the highest of the year, leading to an average PMI reading of 55.8 percent for the third quarter. The New Orders Index decreased in September by 2.7 percentage points to 60.5 percent, and the Production Index increased by 0.2 percentage point to 62.6 percent. The Employment Index registered 55.4 percent, an increase of 2.1 percentage points compared to August’s reading of 53.3 percent, which is the highest reading for the year.

So again, all of the indicators are pointing in the same direction, and I believe that we remain in the 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.

For those of you who feel you need some diversification in setting your best TSP allocation and maintain a percentage in the “safer” funds, I would still 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). It will certainly have a few good positive months mixed in, but the long term trend will be grim.

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 the near term.

Unless something dramatic happens, I will update this post again around this time in the second week of November after all of the October data comes in. I send out notifications of these updates (or allocation changes) to the email list which you can subscribe to here: SUBSCRIBE

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2 thoughts on “Current Thrift Savings Plan Allocation and Underlying Business Cycle Phase – October 2013”

  1. I generally get updates out in the second week of each month because I have to wait until the prior month’s economic data comes in. If all goes well I will get the November update out this evening.

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