Why 50% C Fund / 50% G Fund Last Monday?

Over the past week I’ve fielded a ton of questions regarding the wild price swings of the TSP stock funds.  The 2 most common have been:

• How did I know to move to the G fund last Monday?
• Why only 50% rather than 100% to G fund?

Sunday 28 January the financial news channels were focused on a pop in interest rates over the weekend. Rates have been abnormally low for years but have been bottoming.  They finally popped to the upside last weekend.  When rates rise it creates a headwind for stocks.  Combining this with the fact that the C fund was up about 10% in January, I was looking to lock in those gains.  On Monday the I fund gapped down thru its trend line at the open and the technical indicators had already rolled over (see the chart below).  While the C fund did not gap down on the open, it too was rolling over.  This was enough for me to move to the G fund and protect those gains.

So why move only 50% to the G fund rather than 100% G fund?  This was a move to manage risk.  As we’ve talked about in the Sunday Update and on the site, the way to maximize your TSP account is to be in the stock funds when the market is trending up and in the G fund when the market is trending down.  The trend had not changed when I made this reallocation decision.  In fact, the long term trend has still not changed.  If/when a down trend is confirmed I will reallocate to 100% G fund.  This was a move to manage substantial downside risk, and it paid off…  Another reason for only moving 50% to safety is because of what happened over the past few days.  Following several big down days, the market hit a bottom and rocketed back up.  There is no way of catching that bottom due to the TSP restrictions.  50% C / 50% G manages risk AND keeps us in the game to catch some of the upside recovery.  Again, this is risk management at this point.  The larger trend has not changed.  As of this writing, the market is struggling to get back above it’s 50 Day Moving Average (DMA).  This is a critical level to watch going forward…

I hope that helps to put some things into perspective.  

If you want to know when I make my next reallocation, sign up here.  At $12 per month or $120 per year, consider it a very inexpensive insurance policy against big losses in your TSP account…

Volatility will continue.  Stay tuned…

Jerry