December 2017 TSP Allocation Update



Welcome back for the last update of 2017.

This month I will write briefly about a few items of interest for Feds and investors, including the impact of the pending corporate tax cut bill, Bitcoin mania and the spending bill, then run through the economic numbers from November.

First up though, I want to again thank the folks who donated to support the site since my last update. I have big plans for the site in 2018 and those donations will make that a lot easier.

Bottom line up front: I will be sticking with an allocation of 100% TSP C Fund in both my existing balances and new contributions this month. That could change in the months ahead as I look again at international markets as we start the new year, and give some consideration to the S Fund as well.

Thrift Savings Plan Fund Returns

The stock market continued to move up nicely in November:

  • TSP C Fund:  3.07%
  • TSP S Fund:  2.90%
  • TSP I Fund:  1.06%
  • TSP F Fund:  -0.11%
  • TSP G Fund:  0.19%

And some pretty spectacular results for the TSP Funds year-to-date (through 12/08/2017):

  • TSP C Fund:  20.71%
  • TSP S Fund:  16.88%
  • TSP I Fund:  22.55%
  • TSP F Fund:  3.61%
  • TSP G Fund:  2.18%

In the News

Before I continue in this section, let me repeat my disclaimer that this is a strictly non-partisan blog and I do not ever favor one candidate or party over another here. To the extent that I am talking about “politics”, it is for the purpose of explaining how what is going on in the political world effects my investment decisions. My opinions about the impact of particular policies on the economy or the stock market do not necessarily mean that I either support or oppose those policies (in many cases I support polices which are not good for my individual bottom line). If I poke fun at your chosen one, please don’t take it personally, I make fun of everyone. If you still get offended after all of those disclaimers, your time may be better spent sounding out the words on another website.

The Corporate Tax Cut

The Senate’s tax bill and its implications are way too complicated to cover in a paragraph or two, but a few quick points: (1) because it was so hastily written and so full of errors (retention of the Corporate AMT at existing rates, for example, actually raised corporate taxes by $189 billion, and some provisions as written would encourage business to move operations overseas), the House couldn’t just pass the Senate bill. Instead, it had to go to conference committee. And what will come out of there is still very much up in the air. (2) But unless major changes are made to the bill, there is no “middle-class tax cut” in this thing – any benefits which people at our salary levels accrue initially will time out and go away over the course of a few years. Nearly all benefits will go to the very wealthy.

Impact on housing markets will likely be the most notable effect because of the focus on capping deductions which benefit homeowners (a limit to deductions on $10,000 in property taxes and mortgage interest on only $500,000 of debt instead of the current $1 million) and limiting the number of tax payers itemizing deductions. Estimates are that tax bill would cut 3% off home prices nationally, but of course that would be spread very unevenly. The greatest impact would be in the Northeast, Chicago area, and California, with the very worst hit areas like Manhattan and Essex County, NJ, seeing up to a 10% drop in prices. I think actual declines are unlikely in most markets, instead prices will flatten for a year or two before resuming upward trends, but with an end result that prices will be lower than they otherwise would have been.

Impact on the stock market may be largely priced in at this point. As lower taxes are realized in quarterly earnings, that will give some relief to the high valuations we are seeing currently and give the market a little more room to the upside. There are arguments on all sides for which TSP fund might see the greater benefits. Small caps (the TSP S Fund) may see a slight edge because they do a higher percentage of their business domestically and therefore the US tax rates are more important to them. But the large caps (the TSP C Fund) are more likely to have huge cash hoards overseas which they will be able to repatriate at a lower rate, so those companies should also see a bump.

The Fed

Markets appear happy with the selection of Jerome Powell as the replacement for Janet Yellen as the next Fed Chairman. Powell is seen as likely to continue Yellen’s policies to the degree possible. A number of other openings on the Board of Governors will, however, allow the possibility that more members with different views could stir the pot over the next term.

In the short run, I (along with absolutely everyone else) expect the Fed to raise rates 1/4 point next week. After that, I believe they will hold off until March before raising again. Both of those moves are expected and should have no impact on the market.

Government Spending Bill

Congress averted a shutdown on 12/8 by passing a spending measure to keep the government open until 12/22. I frankly don’t believe that they will be able to reach an agreement on both the tax bill and the spending bill before Christmas and we will see another continuing resolution pushing the budget until February. I expect a bit more brinksmanship this time around, however, but even a short shutdown would be unlikely to have more than one or two day impact on the market.

That said, it has been a very long time since we have had even a 3% correction, so a lot of nervous types will be looking for any excuse to pull out and we could see a very modest correction based on any sort of bad news at any time.

This budget process will bear close watching, however, as proposals coming in included higher contributions for FERS annuities (effectively resulting in an average $5000 pay cut for Feds), stripping COLAs from annuities after retirement (which could cost some Feds hundreds of thousands of dollars over the course of their retirement), and other nasty provisions.

The Mueller Files

The investigation into Russian interference with the 2016 Presidential Election continues apace with the guilty plea of Michael Flynn. I don’t know anything more than what is in the papers, but can guarantee Mueller didn’t assemble a dream team of prosecutors to extract a plea to one count of False Statement from Flynn. Flynn was the National Security Advisor for only 24 days, but he was part of the Trump campaign from early on and was a principal advisor with regular contact with senior members of the campaign and people very close to the President. His cooperation will open up a dozen avenues of investigation and the Special Counsel investigation is going to keep going for a long time.

As I have mentioned before, however, that really shouldn’t have an impact on our TSP investing unless we reach the point of a constitutional crisis.


Bitcoin Thrift Savings Plan Allocation GuideI still don’t like it, still don’t see any use for it beyond speculation, and still think it is going to crash and wipe out a lot of people who are buying in now.

To be clear, blockchain technology is awesome and will be used in many applications in the future. I’m just not convinced that a crypto currency with nothing standing behind it is the use which will go mainstream.

I first wrote about Bitcoin in December 2014:

I don’t like Bitcoin as an investment because an asset derives its value from either an ability to generate income (earnings) or through some intrinsic value. Anything else is speculative value. Scarcity is what makes something which has intrinsic value worth something, but scarcity alone does not convey value. The alleged purpose of Bitcoin is to create a currency which can be used to conduct transactions inexpensively and without government oversight – to buy and sell things. But that’s not what is happening. Instead, the overwhelming majority of Bitcoin transactions are speculative trades – people who are buying because they think the price is going to go up from people who are selling because they think the price is going to go down. They aren’t buying a product or paying for a service, they are just exchanging one (real) currency for one which exists only in computer code. Most of the people who own Bitcoin have never used it to buy something and probably never will. The futurist in me sees lots of different platforms for conducting transactions efficiently and privately, but this imaginary currency is not one of them.

Bitcoin has three big problems in my opinion:

  1. It is a purely speculative play with no underlying value, so at any point the market can decide to value it at pennies. (For what it is worth, I don’t think that is likely anytime soon, but neither do I see broad adoption.)
  2. The “rules” which control Bitcoin can be changed at any time, so the number of Bitcoin could be increased by a factor or two or three or 100 with obvious results to value.
  3. Bitcoin is not secure or insured, and there is a very real possibility of having your Bitcoins just disappear through fraud – 7% of all the Bitcoin in the entire world went poof during the Mt. Gox debacle, and I can’t imagine that will be the last time something happens along those lines.

All that said, if anyone wants to support the TSP Allocation Guide with a Bitcoin donation, I will set up an account faster than Rolling Stone fact-checks a story.

A single Bitcoin was worth about $400 when I wrote that. Today it is trading at $16,680 – a roughly 4000% gain. I wish I was smart enough for speculating. And I did finally set up that Bitcoin wallet: 1A3H2ieHRvnW7RSohuMW9ZYpcMHc3YRYXi

November’s Economic Numbers:

In this section I discuss the key indicator data I use in determining where I think we are in the economic cycle and what that data means to me in deciding how to allocate my Thrift Savings Plan balance. (These indicators are explained in some detail in How to Determine the Current Phase of the Business Cycle.)

Employment numbers:

Total nonfarm payroll employment increased by 228,000 in November, and the unemployment rate was unchanged at 4.1 percent. Employment continued to trend up in professional and business services, manufacturing,  and health care.

The change in total nonfarm payroll employment for September was revised up from +18,000 to +38,000, and the change for October was revised down from +261,000 to +244,000. With these revisions, employment gains in September and October combined were 3,000 more than previously reported. After revisions, job gains have averaged 170,000 over the last 3 months.

Taking a look at the unemployment rate over the course of the year, you can clearly see that we are at the natural rate of unemployment and further improvements in the rate are unlikely. So we focus much more on wage growth at this stage in the business cycle.

unemployment rate 2017 through November


In November, average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents to $26.55. Over the year, average hourly earnings have risen by 64 cents, or 2.5 percent. That’s not impressive, but there was some good news as we are seeing a bit of a move from part-time to full-time jobs.

I obtain this data from the Bureau of Labor Statistics.

Purchasing Managers’ Index (PMI):

As usual, I pulled up the most recent report from the Institute for Supply Management. Any number above 50 indicates growth in manufacturing and anything over 43.2 indicates an expansion of the overall economy. The November PMI reading of 58.2 is a very strong number:

Manufacturing expanded in November as the PMI registered 58.2 percent, a decrease of 0.5 percentage point from the October reading of 58.7 percent.

A PMI above 43.3 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the November PMI indicates growth for the 102nd consecutive month in the overall economy and the 15th straight month of growth in the manufacturing sector.

The past relationship between the PMI and the overall economy indicates that the average PMI for January through November (57.4 percent) corresponds to a 4.5 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for November (58.2 percent) is annualized, it corresponds to a 4.7 percent increase in real GDP annually.

The last twelve months:

PMI November 2017 thrift savings plan


Yield spreads: The yield curve has made a parallel shift upward, with both short and long rates increasing. I get this information from the Cleveland Fed, who had this to say:

Using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.4 percentage rate over the next year, even with October’s estimate and a bit above September’s 1.3 percent. Although the time horizons do not match exactly, the forecast, like other forecasts, does show moderate growth.

Using the yield curve to predict whether or not the economy will be in recession in the future, we estimate the expected chance of the economy being in a recession next October at 11.8 percent, just down from September’s 12.0 percent, which was a drop from the August probability of 12.5 percent. So the yield curve is optimistic about the recovery continuing, even if it is somewhat pessimistic with regard to the pace of growth over the next year.

Money supply growth rate: Money Supply M2 (which includes savings deposits, money market mutual funds and other time deposits which can be quickly converted into cash or checking deposits) increased from September to October.

Money Supply M2 in the United States increased to 13747.30 USD Billion in October from 13692.40 USD Billion in September of 2017.

The growth rate is what is meaningful here, and you can see that growth has accelerated over the past two months – a good sign for an expanding economy:

Money supply and the Thrift Savings Plan December 2017



All of the above data leads me to believe that we remain in the Mid/Growth/Performing stage of the business cycle and so I am going to continue to allocate all of my balances and contributions to the TSP C Fund.

Recommended Reading

This month I have been reading a new book by famed investor Ray Dalio: Principles: Life and Work. The book talks equally about his investing philosophies (well worth studying as he runs the world’s largest and most successful hedge funds) and his management philosophies (which are interesting, but need to be taken with many grains of salt considering the turmoil his organization has gone through).

The Next Update

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 stumble across for investors, Feds and the military a few times a week at: @TSPallocation

What’s in it for me?

I don’t ask anything except that you share the site with your colleagues so we can continue to expand the community of feds and service members helping each other in a free, transparent, no-pressure environment (although if you want to, you can donate to support the site here). You can help by telling the person sitting next to you, linking to this site from your own webpage or blog, liking it on Facebook, sharing on 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!


30 thoughts on “December 2017 TSP Allocation Update”

  1. Hey! Glad to see you’re still doing well! I just had wanted to touch in on the Bitcoin mania going on. I’ve been unsuccessfully looking around and trying to find what started it. I mined a bit back in 2011/2012, and all I’ve got to say is that I wish that I had backed up my wallet! I’ve read that one guy in my service (Air Force) made about 3 million from this hype and is hoping not to be forced out! What this means for me is that I’m just going to continue mining Ether and hope Ethereum gets a similar hype (though it does seem to be enjoying its own gains right now). Until then, looks like I’m doing my TSP, Roth IRA, and my mutual fund.

    What’s your take on Bitcoin, Ethereum, and cryptocurrency in general? Do you see anything of value in them beyond the generic “decentralized currency” take?

      1. Ah, I guess I was too quick! I always look forward to the new update! Yeah, I think I’ll just stick to mining with my computer when I’m not on it. That way, I’ve not lost any money if Ether ends up not working out.

        My prediction is that when Bitcoin crashes (it’s definitely in a bubble), it’s not going to go lower than $1,000. It’ll go back to being 16k gradually over time (probably about 3-5 years after the crash), and then it’s going to go even higher. I’d think at its height at the next bubble, it could hit 100k, but not much more than that.

        My prediction is just based off of trends I’ve seen the past seven years with cryptocurrency. I would love to be right, but I’ll not speculate on it like I am. Unless Bitcoin/Ether starts trading at $1, I won’t (and wouldn’t suggest anyone) buy more than $100 worth of it.

        Thanks again on the Bitcoin section!

        1. There is definitely money to be made speculating in cryptocurrencies, I just don’t know how to do it. I may yet toss some small-dollar Vegas money at it and try to trade a little just for fun if I find time to come up with a strategy, but I won’t be able to think of it as investing. Maybe I’m just old…

  2. Thanks for the update. this isn’t related to this months update, but I was wondering if you would be able to write about the new Blended Retirement System since it is due to come out this year. Maybe you have and I just haven’t seen it. I’m thinking of switching from the High-3 Legacy system which is currently in place to the new system because it looks like it will work out better for me in the long run, Im halfway to retirement from the military. I would love to hear your thoughts and opinions on the system and gain some outside perspective just in case there is some drawback I’m not seeing. Thanks

    1. I humbly second this request. I refer several feds a week to this site as it provides an amazing amount of information from the basics of TSP funds all the way up to deeper reading topics and investment styles/recommendations. Many that I initially referred had been in the G fund, but now adjusted, since their start of federal service. A topic about BRS on your site combined with the looming required retirement decision could provide an opportunity for more feds to take charge of their retirement plans.

      1. I have really been meaning to spend some time on the new Blended Retirement System, especially because so many military members are really getting exposed to the Thrift Savings Plan for the first time. It is on the list, but I am going to have to spend a lot of time reading more before I will be comfortable writing anything.

  3. I currently have 100% of my balance in one of the L funds. I just took your advice and completed an allocation request to put 100% of my future money in the C fund. Should I also complete and Intra Fund transfer to transfer the money from my L fund to the C fund?

    1. Not the writer but he’s mentioned before that when he changes allocations he also performs intrafund transfers to match. If the tax plan passes, and it looks likely it will, S&P could top 3K. Not a bad bump to throw in on.

  4. I had to leave federal employment secondary to some active duty orders. This is a long 3 year tour. My military TSP is basically starting at zero as I was only a reservist. Thus, I’m hesitant to buy into the C, S, or I fund due to the elevated prices. I was thinking of sticking with the G fund and building a little nest egg. Then, once the way over due correction occurs transferring the nest egg from the G over to the C/S/I fund. I know you can’t time the market but I feel confident that a correction will occur sooner rather than later.

  5. Thanks for the update.

    Do you have any idea on what happened to the DWCPF, (S Fund benchmark), midday on December 6th when it spiked about 10% for ~ an hour?

    For the military that will have a choice on BRS, I would say it is probably similar to the change from CSRS to FERS, shifting from a defined benefit to defined contribution plan. I’m not familiar with the specific details, but most major changes to pay/benefits/retirement systems are done for the employer’s benefit (NOT the employee’s benefit). For those not planning on a 20 year career, it is more beneficial to get something. A lot depends on how much you can consistently contribute, the government contribution/match, your rate of return and time (before retirement/until withdrawals) I imagine it will be really good for a very small percentage but not for most.

    1. I don’t know why things showed up that way on the index ticker, but I’m sure someone would have noticed if there had really been a 10% swing that day.

      BRS is going to be great for the 83% of servicemen and women who don’t do 20 years, but only if they maximize the opportunity presented to them. For the 17% who do 20+ years, they could still come out ahead with the new system, but it will be a lot more complicated and they will have to make some decisions.

    1. I Fund has been doing well. My general sense is that overseas markets may have a slight advantage over domestic markets in 2018, but I don’t feel so confident in that opinion that I would be 100% in the I Fund. I suspect I will allocate some percentage to the I Fund starting next month, but will have to spend some more time with the numbers before I make a final decision.

  6. TSPaul,

    With the decision to moev the I fundindex from the MSCI EAFE to the MSCI All Country World Index, would you update the ETF equivalency funds when that move happens?

    1. Unless I missed it, that change to the TSP I Fund just a recommendation at this point. I hope it happens, as the EAFE is so limited whereas the proposed index pulls in emerging markets. I definitely will update the TSP ETF equivalent finds when/if that happens (if it does it will likely be in the second half of 2018).

  7. Hey man,

    First off the fact that you do this for relatively no profit is awesome. My question is about the tax reform…it was my understanding that while we are being capped on certain deductions, out standard deduction would double from the current $12,000 to $24,000. Now I don’t know anyone else’s situation but I never come close to deducting that much from itemizing. Just wanted to see if I’m correct.

  8. Hey man,

    Sorry if this comment appears twice in this feed, I tried to post earlier and didn’t see it. Anyhow I was curious, you said that the new tax reform wouldn’t help the middle class, but I read that both the house and the senates reform plans would raise the standard deduction from the current $12,000 to $24,000. If that is correct then I personally would be winning because I don’t think I’d ever touch that amount by itemizing.

    Thanks man

  9. I was recently turned on to this site and have been impressed with the tsp information. With that said I’ve had my contributions and full balance in the L2050 fund. I was looking through your posts to see your thoughts on the life cycle funds but didn’t find anything. What’s the downfalls of investing in the L funds? Thanks again for all the useful information you provide to fellow federal employees.


      What’s the difference between the TSP Allocation Guide strategy and the other Thrift Savings Plan guides on the internet?
      The short answer is that this strategy anticipates downturns in the economy, which inevitably lead to downturns in the stock market. We don’t try to time the stock market, we try to time the economy which is much more predictable and is not subject to manipulation by Wall Street.

      Other guides seem to fall into two categories: (1) “safe” allocations which are guaranteed to get average returns and which largely look like the TSP LifeCycle funds, and (2) market timers who attempt to use technical analysis and news events to predict short term moves in the stock market.

      I haven’t spent any time looking at the paid services except to note that their annual returns look poor to average. Maybe I’m missing something, but I can’t imagine paying hundreds of dollars a year to under-perform the S&P. ”

      The gist of what I take from this is the L-fund is the “safer” method because it allocates the money for you. You will never hit it big or be hurt as bad by the market fluctuation. If there is an outlier year where a different fund outperforms then you still get a little bit. This sites strategy is more of a timing strategy, depending on the numbers he presents dictates which business-cycle phase we are in declares the most profitable fund.

    2. The short answer is to simply look at the returns. According to the October 2017 TSP Highlights newsletter, the L2050 Fund had a 5-year return of 11.78%, L2020 had 7.64%, but the S Fund had 14.85% and the C Fund 14.83%. I’ve done math going back to 2011 (origination of the L2050), and the differential between the Lifecycle funds and Core funds is profound.For the same funds listed above and in the same order, the rates of return have been 36%, 50%, 62% and 82%.

      If you are interested, you can look into what composition of investments that constitutes each of the L funds (link: L . They are made up of the lettered “Core” funds (F, G, I, S & C). The relative percentages of each lettered fund is based upon the time horizon of the L fund by name. It is that time horizon that determines the amount of risk that each fund theoretically assumes and then tailors the mixed of the Core funds according to the (grossly oversimplified) theory that a longer time horizon = higher risk tolerance. So, L2050 assumes the investor is younger — whose characteristics include more resilience to market corrections because of length of time until necessary withdrawals, and assumes the market will recover stronger after each correction/recession/depression. It always has, so it seems a fair assumption. L2020 assumes you are going to retire in three years, and therefore you are older and have lower risk tolerance because you must (or will) begin making withdrawals sooner, and cannot wait as long for market recovery after future corrections.

      Typically, the L Funds will start off with more C,S & I Funds, and little (if any) G & F Funds, then as you get older/time progresses the ratios will reverse. The shorter-term L Funds will have much more F & G, and far less C, S & I Funds. I’d be surprised to see very much I fund in the L2050 and equally surprised to see much/any G Fund in the L2050. I’m not sure where to find the actual ratios and how they change over time, but I believe what I wrote above to be essentially true.

      All that said, the longer time horizion Lifecycle Funds are not doing poorly at all, but never as good as the C or S Funds. But keep in mind that the pattern is that the Lifecycle Funds will decrease in rates of return over time because the assumed risk tolerance is lower as you get older.

      Make sure you check out the rates of return for the annual/4th Qtr TSP HIghlights newsletter. 2017 is proving to be an even more telling year in terms of the relative goodness of Lifecycle Funds v. Core Funds.

    3. I talk about that a bit in FAQ #9 ( The short answer is that in my opinion, only one fund is the “right” fund to be in at any given point in the business cycle (discounting the TSP I Fund). The stock and bond funds will move in opposite directions during a contraction or recovery, which means that you are effectively canceling out your best returns when you are in both types of funds at once (which of course you are if invested in the L Funds, as they have all the different funds mixed in there).

  10. I much appreciate this newsletter—very valuable. Quick question….I am a recently retired 63 year old and collect both a Navy Reserve and FERS annuity. I don’t intend to collect SS until latest date or touch my TSP account until I have to (70 1/2).

    I have always been able to accept risk because I keep up with current events, and while employed and able to add to TSP, I always “knew” I would recover from market swings / downturns, staying the course with 60-75% of TSP in the C Fund. So I did well through my career. However, now looking at it, even a moderate market hit could cause a substantial unrecoverable loss to my TSP principal. So today, I reallocated my TSP to 50% G, 30%C, remainder among the other three…to get me through the holidays and mitigate a substantial loss in the event of something???? Needless to say, I am already kicking my own “6 o’clock” position for doing so!

    What is your advice—if any–to those of us already retired who cannot regularly add to our TSP? Reason I ask, is that I am considering pulling from TSP altogether and putting it all into Vanguard or Fidelity funds. Also getting some pressure from the wife to consider her firm, Edward Jones (they have done very well for her).

    Any advice for an old sailor who might be overly-concerned with unseen threat OTH*?

    *Over the horizon


    1. For my general views on changing investments as you approach and enter retirement, see FAQ #4 (

      It appears that the new TSP withdrawal options are on the way shortly, which should mitigate the need to for most people to move out of the TSP post retirement. I am also a fan of Vanguard, so when the time comes for me if I am not happy with the options available to me through the Thrift Savings Plan, that’s where I will be headed.

  11. I recently discovered your page while researching how to be a better investor with my TSP fund. I would like to retire in 10 to 12 years and have a good idea what amount I would need to pull that off. Thank you for this page. I always felt the L fund I was in was maybe a bit too conservative. Rest assured if I find that my returns improve after reading your page, I sure will donate!! I have been spreading the word with whoever will listen about your page as well. I am now…. 100 percent in the C fund.

    1. Thank you for the kind words and for sharing the website. But don’t rely just on me – I can’t take that sort of pressure and there are lots of other things to read out there. Good luck.

      1. Oh yes, I am one that does tons of research for any new endeavor I take on. As far as becoming a more informed TSP investor I am researching and learning from many sources. I appreciate your page as one of many! But, I really appreciate what seems to be your philosophy and motive for doing this, so, thank you.

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