Sunday Update: 10 March 2019 (TSP Trading Strategies)

After 10 weeks of significant gains, the TSP stock funds finally took a break.  For the week, the C fund was down 2.16%, S fund down 3.62%, and the I fund down 1.78%.  This week’s pause in the rally should have come as no surprise.  All 3 of the stock funds have hit short term resistance as we discussed in last week’s Sunday Update.  As expected, this week’s price action gave us no further clarity on the long term direction of the market.  We are still looking at one of the two possibilities discussed in the 24 February 2019 Sunday Update.  In the short run, this week was significant as we’ll discuss below.

Simple TSP Trading Strategies

I am often asked the question that goes something like this, “I have X number of years before I plan to retire.  What should my allocations be?”.  If you are asking this question, it implies that you do not want to trade the ups and downs of the market to maximize your return.  There is absolutely nothing wrong with that!  Most people want to “set it and forget it”; that’s why the L Funds were created.  The L funds are a very convenient, hands-off way to contribute to the TSP but they are not the best way to maximize your rate of return.  See this Jerry’s Blog post for a deep dive into the L Funds.  Nothing valuable in life grows with a set/forget mentality and your TSP account is no different…  There is a better way to increase your rate of return without agonizing over daily market fluctuations.  Below are 2 “systems” you can use, one monthly and one weekly, that can keep you invested in the stock funds when the market is trending up and avoid losses when the market is trending down.  They don’t work 100% of the time and they take some attention on your part but, over time, each of these systems will result in higher returns than the L funds.  

Monthly Close and the 10 Month Moving Average

Below is a 20 year chart of the S&P500 (C fund) where each block represents the monthly closing price.  The blue line is the 10MMA (Month Moving Average).  As you can see, when prices are moving up they tend to ride above the 10MMA.  When prices are in decline they ride below the 10MMA.  The system is simple.  Pull up this chart at www.stockcharts.com on the first trading day of each month.  If the block (closing price from the previous month) is above the 10MMA, then you should be in the stock funds.  If the block is below the 10MMA, then you should be in the G fund.  This system is NOT timing; it is a trend following system.  It will NOT get you into the stock funds at the bottom of a bear market nor into the G fund at the top of a bull market.  It WILL keep you in the stock funds when the long term trend is up and out of the market when the trend has turned down.  With this system, you only look at the market and your TSP account on the first trading day of each month.  The allocation decision is very simple.  If you’re mostly a hands-off type of TSP investor, this is a great system for you.  If you followed the 20 year chart below, you would have made 11 reallocations during that time.  You would have been protected from the majority of losses leading into the 2003 and 2009 market bottoms and enjoyed most of the gains of the rallies over that time period.  

Weekly Close and the 40 Week Moving Average

The system below is the same as above except we are using the weekly close rather than the monthly close.  If you are a more active TSP trader, this system would work for you.  Trading would be more frequent but the idea is the same.  Every weekend you would pull up this chart at www.stockcharts.com to see where the prior weekly price closed relative to the 40WMA (Week Moving Average).  If the block is above the 40WMA, you want to be in the stock funds.  If the block is below the 40WMA, you want to be in the G fund.  Again, this is a trend following system.  It will not get you out of the stock funds at the top or into the stock funds at the bottom.  It WILL keep you on the right side of the trend and minimize your downside losses.  

If you don’t want to follow the day to day market gyrations but are engaged in managing your TSP, either of these systems will help you grow your TSP account over time while minimizing downside losses.  There are many ways to play the TSP game.  The key is to have a plan/system and stick to it.  

As always, if you have questions, please post to comments or hit me on email, FB or twitter (@GrowMyTSP).

Have a great week!

Jerry