January 23, 2016 at 8:01 am #18071
Data (attached) from 2004 to 2015 shows that the relative price between any two of the three TSP stock market indices varies over a period of several months. By contrast, the business cycle model would suggest that either S or C funds should be leading over a period of many years. While this does appear to happen, (e.g. S fund rising vs. C fund from 2009 through mid 2011, S declining against C from 2014 to present) there are also many short term reversals which exceed 5 percentage points. This ebb and flow
suggests that there may be better and worse times to move between these funds. It also implies that it may not be best to stay in any one stock fund for a period of several years at a time. On the contrary, it is possible to gain ground (shares) over the long haul by switching to the fund which is on the relative increase. This approach could be used whether the market is rising or falling, avoiding the perils of being out of the market when it suddenly surges upwards.January 23, 2016 at 6:03 pm #18073
I am not sure that I can tell anything from the attached pdf–It looks like a stock market chart to me but I think I know where you are going.
Not sure if following will work, but it compares W4500 with S&P 500: https://www.google.com/finance?chdnp=0&chdd=1&chds=1&chdv=0&chvs=maximized&chdeh=0&chfdeh=0&chdet=1453589120483&chddm=1179472&chls=IntervalBasedLine&cmpto=INDEXNASDAQ:W4500&cmptdms=0&q=INDEXSP:.INX&ntsp=0&ei=jwGkVpm5FISVmAGUn7LIBw
If you look at the entire period, it looks like S equivalent generally it better. If you select a shorter period, 3 months to a year, you can see where they are switch places relative to each other, especially when you drag the bar right below the chart across different time periods. I’m also not sure how you would use the interrelationship to maximize return. But would be interested in your thoughts.January 25, 2016 at 8:54 am #18080
Choice of when to switch between S & C funds (or any other market driven fund) can have a large effect on net value. Let’s say you had $10kin C fund on 10/20/2011, or ~670 shares at $14.93 each. AN IFT to 100% S at $19.51, would yield 513 shares. The S/C price ratio (19.51/14.93) is ~130.6%. 10 months later (8/21/21012), the market was up (C=17.72, S=$23.13), you switch back to 100% C. Because the S/C price ratio (23.13/17.72) is still ~130.6%, you still have ~670 shares of C. Although the value of your shares is up18.6%, there really wasn’t any benefit to being in S fund vs. C fund over that time period. All portfolio value increase was due to the overall market change. See tab “2011-2012 same %” in attached for details.
In contrast, (see tab “2011-2012 different %” ) note what happens if you were 100% in S on 10/20/11, switched to 100% C on 2/12/2012 (S/C =137%), then back to C on 8/21/12 (S/C=130.6%). In this case, the market price of S & C funds are still up 18.6% from 10/20/11, but your portfolio value is up 24%. This is because the number of your S shares increased from 513 to 538, ~5%.
See other tabs in attached for best and worst case studies in which the S-C switch was made over 2006-2015, using the same IFT dates.January 26, 2016 at 11:17 am #18085
Sounds like just keep your money in C and S fund and forget it, that’s allot to keep track of and analyze constantly, I have been told by people who retired they just stayed fully invested in C and S funds and they retired well on their TSP.January 26, 2016 at 12:29 pm #18086
For those who don’t want to check the numbers every week or even every month I suggest the following: Calculate the ratio of S/C from when you last made an IFT between the two. Go from S to C only when the ration is higher than before. Go C to S only when it is lower. In this manner you can avoid losing shares over the long haul.
That said, a 50 day moving average seems to do a good job of showing the relative up and downs of S/C. As both funds usually move in the same direction, albeit a different amount each day, the ratio usually changes much more slowly than price, which makes it easier to keep up at longer intervals.February 26, 2016 at 12:14 pm #18291
Another way to compare fund performance is as an exchange rate. Monetary exchange rates tell us which currency is “stronger” than another. If the rate never changes, (e.g. between quarters and nickels), we just accept it as the status quo. When an exchange rate changes, e.g. between dollars and euros, we say that one currency is getting stronger or weaker than the other. Similarly, the change in the price ratio between any two funds can tell us which is getting relatively stronger or weaker.
Declining market example:
On Jan 5, 2016, 1 share of S fund ($34.65) bought 1.471 shares of I fund ($23.56), i.e. $34.65/$23.56=1.471. 4 weeks later (2/5/16), 1 share of S ($30.84) would buy only 1.391 shares of I ($22.17).
If you had moved 100 shares ($3465) from S to I ($3465/$23.56=147.1 shares) on 1/5/16, then moved every share back to S on 2/5, you would own 105.7 shares (147.1 *$ 22.17/30.84) of S, worth $3261. Compared with S, I was 5.7% (1.471/1.391) stronger on 2/5 than it was one month earlier.
Rising market example:
Yesterday (2/25/16) 1 share of S fund ($32.23) bought 1.455 shares of I fund ($22.15), i.e. $32.23/$22.15 = 1.455
3 weeks ago (2/5/16), 1 share of S ($30.84) would buy only 1.391 shares of I ($22.17).
If you had moved 100 shares ($2217) from I to S ($ 2217/$30.84=71.9 shares) on 2/5, then moved every share back to I on 2/25, you would own 104.6 shares (71.9 *$32.23/$22.15) of I, worth $2319. Compared with I, S is now 4.6% (1.455/1.391) stronger than it was 3 weeks ago.
If you had followed both of the above, you would now have 10.6% more shares in S – despite the price of S going down 7% ($32.23/$34.65=0.93). To put it in perspective, it would take me 2 years to increase my shares 10% through TSP contributions.February 29, 2016 at 11:36 pm #18308
12^2: Thanks very much for sharing your thoughts. I will spend some time digesting your ideas and playing with the numbers and see if I can make them work for me. I like the idea of simple ratio comparison, but it would take a lot of convincing to get me to change to something more complicated than my simple (overly simple?) strategy.
The TSP Allocation Guide www.TSPallocation.comMarch 13, 2016 at 12:31 pm #18325
Interesting theory. I would like to look at the data some more. Where can one download (ideally daily) data for C,S, and I fund share prices. I would like to take a look at the data. Can I simply use S&Park and Wilshire?March 13, 2016 at 7:20 pm #18326
If you scroll up, you will see 2 attachments that 12squared uploaded (S-vs-C-2004-2015.pdf & S-vs-C-lane-switching.xlsx.) Or you can download all fund pricing from 2004 to present yourself at TSP by date range: https://www.tsp.gov/InvestmentFunds/FundPerformance/index.htmlMarch 14, 2016 at 8:46 pm #18328
Another way to look for trends in relative performance is to divide each stock fund price against the total of the S+C funds, representing the total US stock market. You can do the same with Vanguard funds using the VTSAX index as the denominator.March 14, 2016 at 8:49 pm #18331
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