day trading vs hold steady

[Guest]

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mlk_man wrote:

Wonder Woman wrote:

I think you just stimulated a lot of good coversation.

Speaking of stimulating, nice pic Wonder Woman!! <)

Thanks for noticing M_M. I just wanted to make a nice first impression

 

[Guest]

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I just noted I got mana!! I thought one earned mana by making some super insightful, intelligent and skillful financial assessment or move. Thanks all..

 

[Guest]

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Wonder Woman wrote:

I just noted I got mana!! I thought one earned mana by making some super insightful, intelligent and skillful financial assessment or move. Thanks all..

And for nice pics apparentlly............:^

 

[Pete1]

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Hi Rokid,

Do you mind running the numbers with G fund rather than F fund for the fixed income component? F fund had a nice run over those years and so, should have the edge but would be interesting for comparison. Thanks!

Pete

 

[tsptalk]

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Pete1 wrote:

Hi Rokid,

Do you mind running the numbers with G fund rather than F fund for the fixed income component? F fund had a nice run over those years and so, should have the edge but would be interesting for comparison. Thanks!

Pete

Even if it comes out good, do you really want to consider an allocation with significantF fund exposure (20-40%) right now, I mean with rates rising?

Unless you are a strict long term buy and holder and never make changes then maybe.But now?

 

[rokid]

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Pete,



I ran the numbers to capture both the bull and bear markets. Clearly, the F Fund portfolio was the winner. Incidentally, the G Fund portfolio also returned less in the 1999-2004 bear market. I find it interesting that the standard deviation for the entire period is only .1% greater for the F Fund portfolio.Finally, this result also tracks with my MVO analysis. The G Fund is never specified for higher returns, e.g. > 8%.The F Fund is always on the efficient frontier for higher returns.


60% Equities: 36% C Fund, 9% S Fund, and 15% I Fund

40% Bonds: G Fund and F Fund.


The results:

% Annual Returns 60/40: G Fund 60/40: F Fund

1995 21.0 25.5

1996 13.4 12.2

1997 17.2 18.3

1998 16.3 17.5

1999 17.1 14.4

2000 - 4.2 -2.2

2001 - 6.3 -4.5

2002 -10.0 -7.9

2003 17.6 21.5

2004 (YTD) 6.4 6.4

Average 8.610.1

Std Deviation (risk) 11.6 11.7

Starting with $100,000 in 1994:

1994 100,000 100,000

1995 120,983 125,495

1996 137,192 140,752

1997 160,779 166,545

1998 187,025 195,704

1999 219,082 223,894

2000 209,733 219,042

2001196,576 208,122

2002176,982 191,765

2003 208,148 232,941

2004 (YTD) 221,507 247,798


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[Guest]

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Nice work, ro, tell me, how did you figure out the STD? Basically you are laying down evidence that the non-equity position should clearly be the F fund and not the G, right? For only a smaller amount of risk, there is tremendous amount of F upside compared to the G.

Joel

 

[tsptalk]

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jgpalmerdds wrote:

Basically you are laying down evidence that the non-equity position should clearly be the F fund and not the G, right? For only a smaller amount of risk, there is tremendous amount of F upside compared to the G.

Come on now. With a little extra thought process you can come up with a better allocation. When the economy is growing, avoid the F fund. When it is slowing, go to the F fund. The G fund is slightly beating the F fund this year because the economy turned around.

Even DrD's once a year rebalancing can do that.

 

[Pete1]

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Thanks, Rokid.The MVO that I have been usingat Financialengines.com (William Sharpe's MVO)always favors G over F forrougly the first 30-35% of fixed income.Which MVO are you using? Also, how was STD calculated? You may want to give Financial Engines a try - it is free to TSP participants. It factors in your outsideinvestment but does not provide advice on them, you have to pay if you want advice on your outside accounts. However, it does provide advice regarding the allocation of your TSP account taking into account your outside investments.

Tom, not really considering changing at this point unless Rokid persuades me otherwise . He does a terrific job working through the numbers.

 

[tsptalk]

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rokid wrote:

Starting with $100,000 in 1994:

rokid -
Thanks for all of your calculations. I hate to do this to you, but can you run theboots allocation for that period (1994-present)? I know the S and I weren't available but can you use the Wilshire and EFA? If not how about just 100% C?

Thanks,
Tom



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[rokid]

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Pete,

No problem.

I'm using the MVO from Efficient Solutions. I discovered it off of Peter Bernstein's web site. They offer a 30 day, no obligation, free trial.

Excel has a functions for calculating standard deviation and correlation.

Roger Gibson suggests 50% money market, i.e. G Fund, for fixed investment portioninsome of his sample portfoliosin Asset Allocation. In addition, if I was close to retirement, Iwould have a healthy allocation of G Fund.

The G Fund disappears from my MVO efficient frontier at 9.44% return with 6.42% standard deviation. However, that's based on historical data. Who knows what will happen going forward.

Thanks for the financialengines tip. I'll check it out.

Finally, I'm buy and hold for now: Markowitz, Sharpe, Fama, French, Bernstein (Peter & William) and Bogle have got me convinced. In addition, I'm more than satisfied with my 2004 YTD return. However, I'll continue evaluate, watch the market and monitor TspTalk.

 

[rokid]

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Tom,

Last call

100%C Fund won - if you could stomach losing $131K+ between 1999's high and 2002's low.

Boots test allocation: 35% C Fund, 35% S Fund, and 30% I Fund

% Annual Returns Boots Test 100% C Fund

1995 28.2 37.4

1996 15.9 22.9

1997 21.1 33.2

1998 19.0 28.4

1999 27.8 21.0

2000- 13.0 -9.1

2001-14.0-11.9

2002 -12.5-22.1

2003 36.4 28.5

2004 (YTD) 9.1 6.4

Average11.813.5

Std Deviation (risk) 18.7 21.2

Starting with $100,000 in 1994:

1994 100,000 100,000

1995 128,193 137,410

1996 148,514 168,808

1997 179,795 224,802

1998 213,959 288,736

1999 273,375 349,226

2000 237,920 317,306

2001204,548 279,420

2002178,956 217,808

2003 244,083 279,970

2004 (YTD) 266,209 297,748

 

[tsptalk]

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rokid wrote:

Tom,

Last call

100%C Fund won - if you could stomach losing $131K+ between 1999's high and 2002's low.

Woohoo! :l

 

[DrD]

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tsptalk wrote:

Even DrD's once a year rebalancing can do that.

This back-handed compliment does raise a pretty good question: what is a good benchmark to judge performance of any strategy? Is it the 20% per fund allocation automatically generated by TSP? Is it the TSPtalk strategy? Is it the median return of managed funds? Very interested in opinions....

If youcan definea pretty good benchmark, is there any reason not to just adopt the benchmark as your strategy? (Similar to the 'invest in index funds' idea behind TSP...)

Best wishes, and still enjoying the discussion.....

DrD

 

[tsptalk]

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DrD wrote:

what is a good benchmark to judge performance of any strategy? Is it the 20% per fund allocation automatically generated by TSP? Is it the TSPtalk strategy? Is it the median return of managed funds? Very interested in opinions....

I have always thought the S&P 500 was the benchmark for most mutual funds and money managers. The diversification discussion was brought to the table here back when I started the site because a diversified account (20% each) beat the S&P 500 during the 2000-2002 bear market pretty handily.

Rokid showed us that a 100% stock fundallocation over the last 10 years would have brought you the best return. So I like to use the S&P 500. But since I started tracking my returns in 2000, my return will be continue to be compared to the better performing diverified account, probably until we are five years past the end of the bear market.

 

[DrD]

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tsptalk wrote:

So I like to use the S&P 500. But since I started tracking my returns in 2000, my return will be continue to be compared to the better performing diverified account, probably until we are five years past the end of the bear market.

Okay, so there areat least two benchmarks?

One is 100%C fund, mirroring the SP500.

Which diversified account do you have in mind, the 20% across all 5 funds, or the 60/40, or ? for the second?

Are both of those 'buy and hold' (or, 'passively managed') benchmarks? If so, is there a reasonable actively managed (notice I don't say 'day traded' anymore) strategy to use as a benchmark? Perhaps the 90th percentile performance of actively managed funds? If actively managed accounts do better, than using a passively managed fund as a benchmark doesn't seem to be appropriate.

By the way, Happy Veteran's Day to my fellow veterans!

Best wishes,

DrD

 

[Pete1]

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Dr.D,

Many propose the "total stock market" as represented by the Willshire 5000.However, IMO it really boils down to consistently achieving the rate of return thatwill get you to your retirement goal with the least amount of risk and on time.Ifthe rate that you need is 8% annually,that is your individual benchmark.If you don't beat the W5000 each year, don't sweat it as long as you are on track for retirement.

 

[tsptalk]

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DrD wrote:

Which diversified account do you have in mind, the 20% across all 5 funds, or the 60/40, or ? for the second?

I use the 5 x 20%, butonly because it was pointed out to me that way. That is why I use that as the diversified allocation on my returns page. Both instances have 60% in stocks but it looks like the 40% F has a better return so...

If so, is there a reasonable actively managed (notice I don't say 'day traded' anymore) strategy to use as a benchmark? Perhaps the 90th percentile performance of actively managed funds?

Not to my knowledge. Most mutual funds can't even beat the S&P 500. The difference between us(TSP) and them is that we can movefrom 100% stocks to 100% cash and visa versa, in one day.Mutual funds don't have that flexibility.

By the way, Happy Veteran's Day to my fellow veterans!

:^

 

[Guest]

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Tom wrote to me:

Come on now. With a little extra thought process you can come up with a better allocation. When the economy is growing, avoid the F fund. When it is slowing, go to the F fund. The G fund is slightly beating the F fund this year because the economy turned around.

Even DrD's once a year rebalancing can do that.

Tom,

I never claimed to be an "expert" at this. It looks from Rokidsnumbers that over a 10 year period (both in good and bad economies) you would have been better off to have your 40% non-equities in the F fund over that time versus the G fund. Did I miss something? Are you OK Tom?

Joel

 

[tsptalk]

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jgpalmerdds wrote:

I never claimed to be an "expert" at this. It looks from Rokidsnumbers that over a 10 year period (both in good and bad economies) you would have been better off to have your 40% non-equities in the F fund over that time versus the G fund. Did I miss something? Are you OK Tom?

Sorry if that came off wrong. You obviously know what you are doing.

My point is, what happens in the past doesn't guarantee anything. The F fund did well during the last 5 years because Greenspan was fighting a weak economy and lowering interest rates. I doubt we will see that over the next 5 years. So, using the F fund will probably not help too much considering the G fund is a guaranteed return and the F is more likely to be stagnant at best.

I don't claim to be an expert either but thissite is all about finding the best place to put your money. Blindly buying and holding a diversified account is not bad, but you can do better with just a few tweaks here and there.There are timesto use the F fund over G and this is not one of them in my opinion.

If someone wants to diversify (btw, a straight C fund allocation beat the 60/40 over the last 10 years) just moving your 40% from G to F and back depending on whether rates are rising or falling, could increase just a straight 60% stocks, 40% bonds allocation. Easier said than done but I know you are looking for some kind of formula or system to tell you what to do. Going 60/40 may be your best bet, but adding a G/F interest rate watch to the mix maybe all you need.

Again, sorry if I came off a being pompous. I was just surprised that you were so willing to accept a 60/40 allocation and forget about everything we talk about here.

Tom