Don't Fall for TSP Timing Advice

[rcozby]

From the July issues of Federal Times, one man's opinion...

"For investors planning to rely on their invested resources to provide cash flow in retirement, market timing is a bad idea. There is so much wrong with it that it’s difficult to know where to begin or end, but I’ll try to hit the high points here.

Market timing in a Thrift Savings Plan account means electing to deviate from the optimum asset allocation scheme for a period of time. The optimum allocation scheme is the one that will support your lifetime financial goals with the minimum possible risk. The optimum allocation scheme takes into account all known risks, including the risk of changes in fund share prices.

If determined and used properly, the optimum allocation scheme will reliably support your cash flow needs in retirement without the need to predict or react to sudden market moves. Combined with your spending plan, it should anticipate and leave a cushion sufficient to absorb these moves.

The reason for taking this approach is that it’s impossible to reliably predict the future of fund share prices or to compensate for unpredicted changes after they have occurred, which is what market timing pretends to be able to accomplish.

If owning a particular combination of TSP funds will produce a particular return over a period of time, then the only reason for deviation would be to try to improve on that return. However, deviation has two possible outcomes: The resulting return will be either better or worse, but there is no way to know which of these is more likely. No one has found a way to reliably beat the optimum allocation in your TSP account when risk is taken into account. Trying to do so using market timing is a speculative endeavor. It’s a bet against the odds at worst, and a blind bet at best.

Various systems for timing your TSP investments are being promoted as the solution to a problem. They include a variety of methods, but all share in common some way of providing you with a signal to change your asset allocation scheme that is unrelated to your specific circumstances. Without exception, they are being promoted by sources that are either unscrupulous or ignorant, and they are part of the problem faced by TSP investors, rather than a solution.

Believing that there is some systematic way to predictably beat a market without exposing yourself to greater risk demonstrates a profound lack of understanding about how the TSP’s funds, and the markets they represent, work. Even if this logic doesn’t convince you that such systems are nothing more than 21st-century snake oil, it should be obvious that the promoters of these strategies have absolutely no understanding of your circumstances, goals or resources, and aren’t in any position to advise you in how you manage your money.

If, like most TSP investors, you are relying on your TSP account to provide you with predictable income in retirement, you owe it to yourself to give your account the diligence and care it deserves. Trusting your account to advice from someone who doesn’t know you, hasn’t done the work to understand your situation, and who won’t take responsibility for the outcomes you enjoy, or endure, is never a good idea."

Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.

[skiehawk11]

Well, considering how generic that advice is...

First, there are a ton of different ways to calculate risk, there are a ton of ways to determine which assets to consider and there are a ton of ways to calculate the weightings of each. So, this "optimal" allocation doesn't make sense since the optimal allocation should change as those factors change...and since all those factors are dynamic...doesn't that make shifting weights a little like market timing (albeit using risk as the main driver?)

[ArrieS]

Well, considering how generic that advice is...

First, there are a ton of different ways to calculate risk, there are a ton of ways to determine which assets to consider and there are a ton of ways to calculate the weightings of each. So, this "optimal" allocation doesn't make sense since the optimal allocation should change as those factors change...and since all those factors are dynamic...doesn't that make shifting weights a little like market timing (albeit using risk as the main driver?)

Slowly shifting assets over from C or S into F or G is not what he is talking about. He's talking about seasonality or jumping from 100% C to 100% F back to 100% C based on market indicators.

Second, after you reach retirement there should be very little change since your largest concern is wealth preservation.

[crondanet5]

Timing TSP is ridiculous. Only 2 IFTs a month. You miss a ton of trades.

[12squared]

Timing TSP is ridiculous. Only 2 IFTs a month. You miss a ton of trades.

Like having a double barrel shotgun. You'd better aim carefully.

[Tomanyiron]

Like having a double barrel shotgun. You'd better aim carefully.

Joe Biden has suggestions related to this. He said a double barrel shotgun is all you need.
https://www.youtube.com/watch?v=cIdKIM2 ... ture=share

[mjedlin66]

Huh.

[skiehawk11]

Like having a double barrel shotgun. You'd better aim carefully.

Joe Biden has suggestions related to this. He said a double barrel shotgun is all you need.
https://www.youtube.com/watch?v=cIdKIM2 ... ture=share

[ArrieS]

Timing TSP is ridiculous. Only 2 IFTs a month. You miss a ton of trades.

Like having a double barrel shotgun. You'd better aim carefully.

I thought the point of a shotgun was you didn't have to aim carefully?

[bamablue]

Timing TSP is more like pulling the pin on a grenade when you don't know how long the fuse burns. The longer you hold the grenade the more money you make. Hold on just long enough and you can throw it safely (make money); Throw it too early and you miss an opportunity; hold it too long and you get a face full of grenade.

[Wazzu82]

Timing strategies within the TSP's IFT rules is indeed quite possible...

http://www.tsptiming.com

[ArrieS]

Timing strategies within the TSP's IFT rules is indeed quite possible...

http://www.tsptiming.com

Hindsight is 20/20.

"After much research, in 2010 I began to develop my own strategies... In 2016 I worked diligently to polish up the spreadsheet..."

This hasn't been around even a year from what I can gather. The truth is you can create a system that you claim will work based on past events. But he hasn't been around to prove it in the real world.

I find this hilarious from the home page.

"Please continue on and visit the "How it Works" and "Performance" pages for details."

Quotation marks are really only used for quoting, titles for subsidiary work, or the best one, to express irony.

The only proper use that can be explained by the quotation marks is irony, so really by putting those in quotes they are saying it doesn't work and has no performance.

[XAMOTOMAX]

Funny how those who decry timing trades in TSP always seem to be the ones with sub-market returns...just saying.

[ArrieS]

Funny how those who decry timing trades in TSP always seem to be the ones with sub-market returns...just saying.

Since you've thrown down the gauntlet.

Your fantasy TSP is private. So we can't see your performance.

Why don't you point out ten members here who don't have sub-market returns.

[XAMOTOMAX]

There you go...take a gander if you like. Also add 1.43% to January when the site didn't process my IFT and I had to go back and do it again a few days later at a lower point. Note my limited exposure time to risk. 2016 fantasy moves have mirrored my real TSP moves. The couple months in 2015 where I joined the site were not mirrored to my real TSP. I'm not going to audit the leaderboard for returns that beat the market considering there are a few hundred that are YTD ahead of C fund.