TSP Center

Hey ya'll, this may have already come up and been talked about, but I am thinking we need to have the L Funds calculated into the Daily Strategies on TSPcalc.com. I have been running numbers, and if I had bought into L2050 instead of the F fund with the 1st IFT of January, according to the #16517 strategy, then January would have been a 1.04% month rather than 0.52%. Now, to be fair, not sure how that would have played out in years prior, without running numbers, but that would be another reason to have the data input from the L Funds to work with as well. Just a thought!

This year was unusual. Most of the monthly strategies are in F during January so I believe if you went back to other years, you would end up with a lower return overall.

Yeah, I could see that. That makes sense.

I expect this has been covered before, but I think adding the L funds would require some extra complexities. You can't just track the historical L2020 numbers like the website does with the other funds, since the mix in those funds changes over time. I suppose the best way to replicate it would be to instead track each fund's current mix based on the historical data from the C, S, I, G & F. ....as if the current coding wasn't complex enough.

Generally, I think it defeats the purpose of a seasonal strategy to go with L funds. The L fund may have had a higher return in past years in certain times of the year simply due to the equity performance during that time frame.

Seasonal calculators have a few issues to consider.

1) The F fund does have a seasonal tendency, but it will not achieve the same returns in the future because its yield is now so low. Same with the G fund. Sorry, past returns of the F fund can not be achieved in the future because there is little room left for capital gains and a lot of room left for capital losses.

2) The equity funds past performance comes from a very long secular bull market (long term expansion of PE ratios from low to high), so they can not perform as well going forward either.

3) Seasonal data is skewed by very rapid bear markets which distort seasonal data on certain days and time frames of the year.

None of this means seasonal investing is not the way to go. I think proper seasonal investing will beat buy & hold. I just think buy and hold is going to have negative returns over the next decade based on the extreme market valuations today. Once the markets are "allowed" to reset, then returns going forward will be reasonable.

How did I come to my views?

I developed my own TSP almanacs for the C and S fund. I was having issues with the effects of certain year's impacts on the daily seasonal patterns. So I finally excluded the effects of the bear market years 2001-03 and 2008-09 and I think it provides a better view of normal daily/monthly seasonal tendencies of the C and S fund since 1988. Understanding of course that overall it is skewed to the upside by missing some of the downside.

Case-in-point, the last two bear markets bottomed over the summer and the markets bounced back into the end of the year. The rapid bounce backs overstate the strength of the market during the last half of the year when averaged in. The final plunges understate the first half of the year's returns.

As for the F fund, it has a seasonal pattern I have not seen mentioned anywhere else and I lay it out in Bond Fund Trade Considerations for almanac access members. It would surprise you.

If an L fund increases your return, then moving 100% to C, F, G, S, or I would increase it even more. The L funds work off of weighted averaging of the core funds.

mjedlin66 wrote:If an L fund increases your return, then moving 100% to C, F, G, S, or I would increase it even more. The L funds work off of weighted averaging of the core funds.

Very good point.

The L funds are for people who do not want to touch their TSP and put it on auto and seasonals are for people who want to change it very often. Seems like 2 diametrically opposed groups.

LittleKing wrote:Yeah, I could see that. That makes sense.

Your thought was intriguing.

I would think the most difficult thing here is that the L funds would be considered a move as opposed to the G Fund would would be a final resting place. I.e. if you move more than twice in a month, your only place to go is the G Fund.

I have been telling people about L2050. It's cheap compared to other funds.

For the basis of what the daily seasonal is designed to do or strategy to beat "buy and hold" any one fund, bringing L funds into this would basically be counterproductive as well as almost impossible to incorporate. As many know, the L funds arent just a portfolio of other funds, but a fluid portfolio that's constantly updating as the date (L2020 for ex) gets closer. There won't ever be a time where any Life cycle fund beats the core fund that performs best during any set period of time. If the L2050 "could" have given you a far better return than G or F, well it was because C or S, maybe even I performed better. Additionally, having money in any lifecycle fund also increases your exposure to the markets volatility in stocks which many don't want to be that vulnerable year round. I can see how some, to include myself might use the L fund in place of the G or F IF I just want to expose a small fraction to the stocks when I want to take more risk instead of sitting on the sidelines while everyone else is in G, but that's all. I believe what the tspcalc does is literally perfect, and I understand why it shouldn't ever have Lifecycle funds added.

mjedlin66 wrote:If an L fund increases your return, then moving 100% to C, F, G, S, or I would increase it even more. The L funds work off of weighted averaging of the core funds.

I think you'd be correct IF we had infinite IFTs. But since we have limited IFTs, doesn't that open the possibility that there would be periods where an L-fund could outperform any of the core funds?

mattch45 wrote:

mjedlin66 wrote:If an L fund increases your return, then moving 100% to C, F, G, S, or I would increase it even more. The L funds work off of weighted averaging of the core funds.

I think you'd be correct IF we had infinite IFTs. But since we have limited IFTs, doesn't that open the possibility that there would be periods where an L-fund could outperform any of the core funds?

No. because its a daily seasonal strategy. One of the core funds wins every day no matter what. A mix can never outperform a core fund in a single trading day. That is the premise behind the strategy. Which fund wins today?