October 16, 2018 at 8:15 am #30688
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.October 28, 2018 at 2:57 am #30694
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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