Reallocating To The Funds That Outperform

Let’s say you are currently allocated 100% G fund and you want to reallocate into the stock funds. How do you decide the percentage allocation for each fund?

In general, the C, S, and I funds tend to move up and down together. It is very difficult, if not impossible, to determine which funds will outperform the others on any given day. In that case, a simple reallocation technique is to reallocate evenly between the stock funds. While this technique is simple to understand, it has long term drawbacks.

Over time, performance of the funds can vary significantly. The chart below shows the relative performance of the C, S, and I funds from 2016 through 2023. While the funds tend to move up and down together, the variation over time can be dramatic. We can see the S fund outperforming the C fund for the majority of the time but has underperformed since its peak in late 2021. The I fund has significantly underperformed over this time period.

How can we reallocate to the fund(s) that is likely to outperform?

Ratio Charts of the TSP Stock Funds

If our objective is to reallocate to the funds that outperform, we need to see how each fund performs relative to the others. We do this using ratios. By dividing one fund by another, we can get a visual of relative performance over time. The chart below shows the ratio of the C fund vs the S fund on top, the C fund vs the I fund in the center, and the S fund vs the I fund on the bottom. When the ratio line is rising, the numerator is out performing the denominator. When the ratio line is falling, the denominator is outperforming the numerator.

For example, from March 2020 to February 2021, the S fund dramatically outperformed both the C and I funds. We can see this clearly in the top chart and the bottom chart. The extreme decline in the top chart over this time period means the denominator (S fund) is significantly outperforming the numerator (C fund). In the bottom chart, the extreme rise tells us that the numerator (S fund) is significantly outperforming the denominator (I fund). During that time period, the best TSP allocation was 100% S fund!




While extreme cases can certainly occur, it's the long term trends that are most important. Since early 2021, the C fund has clearly outperformed both the S and I funds. The trend is C fund outperformance vs the S or I funds. Until this trend changes, the C fund is the place to be when reallocating to the stock funds.

A real time view of the ratio chart is extremely important for TSP investors. Subscribers at GrowMyTSP.com have this real time data at their fingertips!