Risk Management

How do we manage risk in our TSP account?  “Risk” is defined in many different ways by TSP investors. Conventional wisdom attaches risk to your age.  You should be in “riskier” stock funds when you’re young because you have time to absorb the ups and downs of the market.  You should be in “less risky” G and F funds as you get closer to retirement.  Unfortunately, the market does not care about you, your risk tolerance, or your proximity to retirement.  Technical analysis of the fund charts gives us an alternate way to view “risk”.

The S fund has formed 2 distinct triangle patterns over the past 8 months.  The first was a “bullish triangle” formed from higher lows.  This pattern USUALLY resolves by prices breaking out to the upside.  That’s what happened on 21 August.  That was a great day to buy into the S fund because the “Risk” at that point was very low.  Prices continued higher for 2 weeks then began to form the second triangle pattern.  This time it was a “Bearish Triangle” formed by lower highs.  This pattern USUALLY resolves to the downside….

If we extend the time frame a bit, we see that the S fund is sitting on a 6 month trend line.  The trend line has been acting as support.  A break down thru this trend line COULD be the beginning of a more extended move down.  

Here’s the bottom line.  In terms of technical analysis of the S fund, the Risk is high right now.  If the Bearish Triangle does resolve to the downside and we get a close below the trend line, odds are prices continue lower.  If the Bearish Triangle resolves to the upside then we have another potential buying opportunity.  

 By redefining “risk” we are able to detach and separate personal circumstances from the reality of the price movement.  This lets us make reallocation decisions based on the reality of the market rather than our emotions.  It doesn’t matter if you’re just starting your career or are already retired.  On August 21, risk was in your favor.  As of 11AM this morning, risk is against you…

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    1. Hopefully you jumped in 2 weeks ago. Right now the I fund is pretty over-bought in the short term for me. I’m looking for it to come back down to its 50DMA and find support there. If that happens, that’s where I’d allocate some back into the I fund. If/When I do move back into the I fund I’ll certainly post an ALERT!