"I look for divergences… invest to take advance of the inevitable convergence"

THE THRIFT SAVINGS PLAN ALLOCATION GUIDE Forums Message Board "I look for divergences… invest to take advance of the inevitable convergence"

This topic contains 1 reply, has 2 voices, and was last updated by  TS Paul 2 months, 3 weeks ago.

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  • #30688

    rolfeskj
    Participant

    Paul,

    Per your last update in regards to the I Fund going in a different direction than the C or S Fund:

    “But I will tell you that in investing I look for divergences like this and invest to take advance of the inevitable convergence to follow.”

    On 8/29/14, the I Fund and the C Fund were both valued at about $26.25. Since that time the C Fund stands at $39.27 and the I Fund stands at $28.60. At no time have they ever converged over the past 4 years.

    Why do you thing there has to be an “inevitable convergence”?

    The I Fund out preformed the C fund from 2003 – 2014 and since then the I Fund has greatly underperformed verse the C and S funds.

    Will the I Fund catch up to the C Fund? How long might that take, days, years, decades? Is the I fund just a dead dog for the near future?

    I know it is impossible to know what the market will do but some more insight would be great. I have 50% of my funds in I Fund and I really don’t want to pull it out on such a loss, but it just keeps under preforming.

    #30694

    TS Paul
    Keymaster

    When I say they will converge, I don’t mean they will necessarily come back together enough to be equal, but rather that they will come to be a great deal closer together.

    And the “inevitable” bit is based on the almost universal history of reversion to the mean in major indexes, meaning that anytime the P/E of an index is well out of the normal range, it is a safe bet that it will return to that normal range.

    Timing for that return is the hard part. I still think the I Fund is likely to outperform the C Fund (and the S Fund) over the next year, but whether that trend starts next week or six months from now isn’t something I can predict.

    The TSP Allocation Guide www.TSPallocation.com

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