In Defense of the F Fund

[rokid]

[FONT=Times New Roman, Times, serif]1988-2006 Annualized Returns[/FONT]
[FONT=Times New Roman, Times, serif]G Fund: 6.42%[/FONT]
[FONT=Times New Roman, Times, serif]F Fund: 7.25%[/FONT]

[FONT=Times New Roman, Times, serif]2000-2002 Annualized Returns[/FONT]
[FONT=Times New Roman, Times, serif]G Fund: 5.6%[/FONT]
[FONT=Times New Roman, Times, serif]F Fund: 9.26%[/FONT]

[FONT=Times New Roman, Times, serif]Number of Years as the Top TSP Fixed Income Fund[/FONT]
[FONT=Times New Roman, Times, serif]G Fund: 8 years[/FONT]
[FONT=Times New Roman, Times, serif]F Fund: 9 years[/FONT]
[FONT=Times New Roman, Times, serif]Tied: 2 years[/FONT]

[FONT=Times New Roman, Times, serif]Years that the F Fund Lost Money[/FONT]
[FONT=Times New Roman, Times, serif]1994: -2.96%[/FONT]
[FONT=Times New Roman, Times, serif]1999: -.85%[/FONT]

[FONT=Times New Roman, Times, serif]In summary, the F Fund has out performed the G Fund over the last 19 years by .82%, annualized. It did a better job than the G Fund of cushioning the impact of the 2000-2002 global equities bear market. Finally, it equaled or exceeded G Fund performance in 11 of the last 19 years. [/FONT]

[FONT=Times New Roman, Times, serif]In 1994 the F Fund lost money and domestic stocks performed poorly, but the I Fund had an outstanding return (+49%). In 1999 the F Fund was again negative. However, global equities had an outstanding year. [/FONT]

[FONT=Times New Roman, Times, serif]Consequently, IMHO, the F Fund has an important fixed income role to play in a long term, diversified TSP portfolio.[/FONT]

 

[SkyPilot]

Great analysis, and well done.

Still, not much better than the G fund and includes too much risk for the benefit it provides as a safe haven (for me ).

 

[rokid]

SkyPilot,

Thanks. And, I certainly can't disagree with your assessment, i.e. "it includes too much risk for the benefit it provides as a safe haven (for me )."

 

[tsptalk]

One thing about bonds though, trends seem to be more stable and last longer than stocks. Timing the G/F thing might work if one were patient.

source www.decisionpoint.com

 

[Jonathan]

IMHO the F-fund is a solid investment, especially so during recessions. In times of economic downturns, the yearly yield for the F-fund has exceeded 10%, while the equities were solidly negative (according to my simple fund tracking spreadsheet, anyway).

 

[rokid]

For a long term investor the F Fund provides two big benefits:

1. It typically non-correlates with equities (C, S, and I). In other words when stocks are down, bonds are often up, e.g. 2000-2002. Consequently, bonds are good for portfolio diversification. I agree with your well taken point.

2. It reduces portfolio volatility. Reducing volatility helps you "stay the course" during bear markets and not sell low and buy high. In addition, reduced volatility increases your compound (annualized) return and allows it to approach your average return. Note: the compound return will always be less than the average return.

 

[rokid]

Morningstar contends that the F Fund (LB U.S. aggregate index) is a good investment for long-term investors.

http://news.morningstar.com/articlenet/article.aspx?id=196040

Although I agree, it sure is painful holding it right now!:laugh:

 

[tsptalk]

First 5-year support did not hold but long-term support on the 30-year has... so far.