Long Term: Buy and Hold

[Boots]

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My contributions begin 1 December. Yes, I'm that new to the TSP. Actually, I'm that new to investing as a whole.

I'm trying to evaluate and analyze the best method for making steady gains on my money given the fact that I have multiple decades to invest my money.

Right now I'm considering having all my money go into the G-Fund, buying stocks low (based on a 200 day moving average maybe?), and keeping them there. Since the stock market has a history of making 9-10% gains, I think I can use the amount of time I have to my advantage andI won't need to time the market. I can be comfortable with 9-10% gains over that length of time.

Next, however, is the rebalancing factor (essentially buying low and selling high). That seems to me to be justanother form of market timing and not necessary unless there is some kind of system to gauge what the right time is to buy and sell.

 

[grums]

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I would recommend reading William Bernsteins Four Pillars of Investing. You will learn about buy and hold vs market timing, asset allocation, and more.

This is probably the wrong board to be anti-market timing, but after reading that book and a couple of others, and hanging out on the morningstar diehards forum, im an asset allocation/buy and holder all the way

But it is fun to live vicariously though all of the timers on here, and I still readthese boardsevery day

 

[ehopper302]

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Keep in mind I know very little about this investing stuff. The advise that i got for long term, medium to high risk, was the C, S, and I funds with a 40%, 40% and 20% allocation in those funds or somewhere in that range.

 

[Dave M]

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Fund prices on Jan 3: G10.69; F10.42; C12.81; S14.50; I15.41. Fund prices on Jun 24: G10.90; F10.69; C12.81; S14.85; I15.41.

Percentage change: G2.0; F2.6; C0; S2.4; I-0.5.

40-40-20 CSI = 0.9. There just isn't a lot of money to be made in this market.

Dave

 

[The_Technician]

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Notice divergence in the Dow and the S&P....indicates bearishness...started in and around Oct.....remember my comment on negative impulses....They started in Oct...

http://finance.yahoo.com/q/bc?t=1y&s=%5EGSPC&l=on&z=m&q=l&c=&c=%5EDJI

I sure would love to copy paste the actual gif file....but to no avail I'm having problems getting it done where one can see it.....don't know why.....cutting and pasting isn't rocket science....but this editor seems to be.....even attaching the file is screwy.....

:dude:

 

[Spaf]

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[The_Technician]

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didn't someone mention a Trojan Horse virus the other day.....Maybe its the Trojan horse blocking taken affect.......

 

[mlk_man]

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The Technician wrote:

Notice divergence in the Dow and the S&P....indicates bearishness...started in and around Oct.....remember my comment on negative impulses....They started in Oct...

http://finance.yahoo.com/q/bc?t=1y&s=%5EGSPC&l=on&z=m&q=l&c=&c=%5EDJI

I sure would love to copy paste the actual gif file....but to no avail I'm having problems getting it done where one can see it.....don't know why.....cutting and pasting isn't rocket science....but this editor seems to be.....even attaching the file is screwy.....

:dude:

Can you explain your meaning of divergence? To me, divergence means one is going one way, and the other is going the other way. From this chart they look like they are going the same way just that the Dow dropped a little more than the other....

M_M

 

[Spaf]

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The Technician wrote:

didn't someone mention a Trojan Horse virus the other day.....Maybe its the Trojan horse blocking taken affect.......

OK! How do you remedy it???????

 

[mlk_man]

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Go see your pharmicist silly......................:^

 

[The_Technician]

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spaf...I just put the link in to view the plot......

Divergence suggest investment into quality over non quality investments.......

http://www.bullandbearwise.com/DJIASP500Chart.asp and click on the bearish reasons why on the upper right of plot.

:dude:

 

[Wimpy]

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Boots wrote:

Next, however, is the rebalancing factor (essentially buying low and selling high). That seems to me to be justanother form of market timing and not necessary unless there is some kind of system to gauge what the right time is to buy and sell.

You raise a very important point. Why should a person ride the bull all the way up and not attempt to take some profits off the table versus riding it back down to earth again? As you suggest, however, if time is on your side why take any unnecessary risk? I think the biggest mistake people make in the market is NOT determining the type of investor or trader they are? There are all different degrees in either categoryand you've pretty much determined you are an investor versus a trader, but eluded to the possibility you might become an aggressive investor, if there was a system to gauge when to buy or sell.

I'll throw out a non-original approach or system that allows you to take some profits without undue risk. There are some assumptions built into this approach. Those assumptions are:

1. You can tell the difference between a bull and bear market by looking at various charts.

2. You can draw a trend line using a straight edge.

3. You can determinea trend channel - (upper and lower limits of a trading channel).

4. You can, by looking a chart, determine upper and lower resistance points.

If you are convinced you are in a bull market you simply sell 1/3 of your growth index allocation into strength. (I'm talking individual funds here not the collective of C, F, S, and I.) You don't have to sell this 1/3 all at once. You cansell 11% at a time until you hit your target of 33%. Ideally, you would have begun selling in the upper third of the bull trend channel and completed sellingnear the top of the channel, in a perfect world. Being the type of investor you've indicated, I wouldn't roll these profits into another growth fund, but put them directly in the G Fund. Theprofits or dry powder from this reallocation sit in your G-Fund until the price of the fund you sold retraces to the bottom third of the channel and you begin buying back in with your dry powder.

The beauty of this system is you don't have to be exact in your timing. Matter of fact, inherent in this system isthe acknowledgement you can't be exact in your timing because the future can't be predicted. Your charts and your straight edge point to probabilities but not theexact timing. If your timing is off and you sell1/3 of your growth fund too soon because an unforseen'event' took place that caused the price of your fund to exit the bull channel in a powerup trend move, after you've sold, you still have 2/3 of your position to play with to take advantage of the 'unforseen' event. If, on the otherhand, it retraces to the bottom third of the channel, you can pick up additional shares with your dry powder. By doing so, you've effectivelyintroduced the power of compounding to your TSP portfolio. Compounding is something normally associated with the G-Fund (interest bearing funds), but by selling 1/3 of a particular growth fundinto strength and buying itback on weakness you cancompound your growth fund without undue risk, provided youhave a handle on the 4 assumptions listed above.

Yes,we could potentially make more money and accumulatemore shares ifwe traded in and out with 100 percent of our given growth allocation, but thatassumesone of two things...we can either afford the inherent risk or we can predict the future. I don't recommend that approach, butmaybethat is why they call me Wimpy.

 

[Spaf]

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The Technician wrote:

spaf...I just put the link in to view the plot......

Divergence suggest investment into quality over non quality investments.......

http://www.bullandbearwise.com/DJIASP500Chart.asp and click on the bearish reasons why on the upper right of plot.

:dude:

Tech,

I like that bullandbearwise site! :^ Stuff in a nut shell!

This chart I like! [da big pic]

http://www.bullandbearwise.com/SP500Chart.asp

This chart I don't like! :X

http://www.bullandbearwise.com/CLYChart.asp [We've gone off the chart!!!]

Rgds Spaf

 

[Birchtree]

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Wimpy,

One of the nice things about the TSP is that risk is really marginal. I play the 100% game with my power account because I like the leverage that can be applied - not of course in the real sense - but I have enough of an accumulation that I can make a difference in my potential gains. I can afford the inherent risk because there isn't that much risk - and the ability to dollar cost average helps to smooth over any mistakes I may make. There is only one way to build a power account and that is by saving over many years - I've arrived. You may wonder just exactly what is a power account? IMO anything over the $400,000 mark qualifies for the designation. That sum of money will allow any participant to have a position of over 30,000 to 40,000 shares of the fund of their choice. That's the type of leverage I'm talking about and I know there are many TSP participants out there that command that kind of power. Going forward it will be even easier for the newer generations to save with no caps placed in the way - and this is the site to help them learn what to do with the money when they finally arrive too. So Wimpy, get on board and let'er rip - it's time to have some fun.

 

[Wimpy]

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Birchtree,

I’m on board…just on a different train. The let’er rip part is not my style, but I do appreciate the entertainment value it has…at least as a spectator sport

I am actually quite bullish on the ‘I Fund’ mainly because I’m very bearish on the dollar. With Bernanke’s appointment as Fed Chairman, I’m even more so.

A bull and a bear are simply opposite sides of the same coin. There is a time to sow and a time to reap…a time to buy and a time to sell. For every buyer there is a seller and for every seller there is a buyer. The only unknown, before the transaction, is at what price the trade takes place. If we were all Bulls who would we buy from? If we were all Bears who would we sell to? It takes both Bulls and Bears to make a market. I’m not married to either critter.

Selling 1/3 of the ‘I Fund’ into strength and buying it back on weakness seems like a prudent and additional way to gain shares (accumulation) and still have 2/3 invested in a Fund that I believe is in a long term bull uptrend and therefore will appreciate handsomely.

I believe in the very near future (1-2 years) the dollar will slide far and fast. By NOT selling 100% of the ‘I Fund’ during normal price rises it leaves room to take advantage of an unforeseen ‘event’ that could take the dollar much further down and the ‘I Fund’ much further up.

I wouldn’t want to be sitting on a suitcase full of cash (destined to lose much of its value) while the ‘I Fund’ train is pulling away from the station in haste. Since these unforeseen ‘events’ tend to happen at the most inopportune times, I don’t advocate being out, on a 100% basis, of a fund that is fundamentally in a long-term up trend. I could see possibly letting go of an additional 15-20 per cent in a power uptrend move or an additional 50-55 percent in a stage 3 parabolic rise, but for normal trading conditions 1/3 would be my limit…especially with Bubble Ben Bernanke in charge of the printing presses.

The only time I would consider working myself out of the ‘I-Fund’, on a 100% basis, is when there is a fundamental monetary policy change, by the powers that be, to drastically rein in the triple deficits as happened when Paul Volker (sp?) was appointed Federal Reserve Chairman. Until that time, I would not want to be sitting on the sidelines with a suitcase full of cash and 100% sold out of the ‘I Fund’.

The accumulation (with new money and also via dry powder from previous selling into strength) of more shares that are and have a potential for appreciating is what I call a ‘power’ account. I’m more interested in calculating percentage gains versus dollar gains. My small accounts are just as important to me as my larger accounts and the measuring stick I find most useful is percentage gains. I’ve found that if I take care of the percentages, the dollars have a way of taking care of themselves.

My view of dollar cost averaging has changed over the years. The ESF and PPT actions of late (last decade) tend to smooth out much of the dips in the general equities thereby reducing much opportunity for gaining cheaper shares, as has happened in previous years. That also serves, at least perceptually, to eliminate some of the risk inherent, but only as long as the ESF and PPT are supporting it. Once that pillar of artificial support is removed things could slide pretty quickly and my preference would be to pick up those general equities more near the bottom versus buying all the way down…I’m cheap and wimpy

The biggest risk I see in the ‘I Fund’ is the lack diversification of the Asian consumer base away from the U.S. I think the Asian markets are feverishly working to diversify their consumer base, but still have a significant way to go in spite of their motivation and current zeal in doing so. They feel very vulnerable to a dollar devaluation because they are holding such large amounts. With anticipation of Bernanke’s helicopter air drops of cash to one and all…the Asians have broken out in a cold sweat.

This appointment of Bernanke will, as a natural result, realign the Asian community into a more cohesive unit and in my opinion could lead to a competing Asian currency somewhat like the Europeans accomplished with the Euro.

These are certainly interesting times and we all wish to not only preserve what we have, but to also prosper. This a great forum to learn from one another and I appreciate all those that share their point of view so freely.

 

[Soldat]

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Wimpy, you have certainly done your homework.
I also have little faith in holding the dollar\S for the long run. I think that the temporary boost of our war economy will be met with a great deal of economic recession; the longer we are sustained by dependance on the war economy, the greater the ensuing depression will be.

But then again, look to domestic matters. Hurricane Katrina has been estimated to cost more than the war in Iraq and Afghanistan combined. How will this effect the markets? No doubt this will create a great many jobs in the long run. I foresee yoyo investing in the dollar, and possibly a largescale market crash inside of a year or two.

I think the best bet is on bonds and G fund all the while grinding out a few % on S and I funds in the second half of the year. From my viewpoint, the I fund is less likely to see another landslide -20%, where is, the dollar just might. Let me know.

 

[Wimpy]

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I'm looking for the trend in interest ratesto be up for the next couple of years with a slight pause and/or arelatively short lived retracement in 2008 before topping out in the 2011-12 time frame. 25-30 per cent interest rates would not be out of the question. I would not want to bet against thistrend by being in the F-Fund during the trend up. However, once it becomes evident all the monetary excesses have been purgedand the deficits have been corraled...the F-Fund would be a good place to have amajority position with the rest in the G-Fund. But that will be a long ways off from where we are currently sitting.

The dollar is toast for the next few years so the G-Fund will be losing a considerableamount of purchasing power. For every penny gained in interest over the next couple of years,there will be a 15, 20, or 25penny loss in what those dollars will be able to purchase. The safe no risk G-Fund is an illusion during inflationary times.

Katrina ishaving a bigeconomic impact, but if you consider what the U.S. government expended in the 12 months just prior to Katrina...it wouldrepresent an economic impact of 36 Katrinas. We have muchbigger problems in our economy than the random hurricane. When they focus onthe impact of Katrina they are straining on a knat and swallowing a camel.

 

[Wimpy]

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A lot of people have a hard time understanding inflation and its effects. As government workers there is a bright side to inflation, at least from a consumerist point of view, because our dollar is worth more today than it will be tomorrow. We get our money, in the form of ETF transfers, hot off the printing presses. Before the ink is hardly dry, we are spending those still warm and wet dollars on products and services TODAY while those next in line to receive the fruit of our labor will enjoy a dollar that has shrunk a bit. As they in turn spend the dollar they earned from us the recipients downstream from them will receive even a smaller dollar as it relates to purchasing power, so on and so on.

Picture yourself standing on the curb waiting for the Ding Dong ice cream truck to arrive at your place in Phoenix in the middle of August. You've got ten really good friends waiting in line with you and the reason they are really good friends is because you've all agreed to share a popcicle together. You (the government employee) are at the head of the line and without a moments hesitation rip off the wrapper and go for a couple of quick licks before passing it to your friend the neighborhood banker. The neighborhood banker gets his two licks in before passing it to one of his favored clients who has a new car dealership. The car dealer gets his two licks in and quickly passes the popcicle to his friend who owns a local rental car company. The popcicle, in the meantime, has lost20to 30 percent of its mass as a victim of the high Phoenix temperatures. Everyone, so far, with the exception of the government worker, is still licking popcicle drippings off their fingers and knuckles while enjoying the show downstream. Well, it finally makes it to the poor schmuck at theend of the line and the heat has finally taken its toll...the last little bit of popcicle drops to the groundjust as the transfer is taking place and heis left holding awetstick (he's thinking shaft). That pretty much describes how inflation works. As a consumerist, you want to be at thehead of the line and not the poor schmuckbringing up the rear.

Inflation encouragesconsuming because consumers want to get itbefore it melts, so to speak, because they know tomorrow their purchasing power will be less than it is today...and they are fearful they too could wind up being shafted.In an inflationary environment, savers (in dollars or any currency that is being mismanaged) are punished.

That brings us to the dilemma of saving and planning for the future. Some of that popcicle has to be stored for a rainy day.A freezer works good for popcicles, but what works for the dollar?That is the dilemma many will be faced with in the nextdecade or soand quite frankly many are going tofeel likethe poor schmuck left holding the popcicle stick.

 

[The_Technician]

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Wimpy wrote:

I'm looking for the trend in interest ratesto be up for the next couple of years with a slight pause and/or arelatively short lived retracement in 2008 before topping out in the 2011-12 time frame. 25-30 per cent interest rates would not be out of the question. I would not want to bet against thistrend by being in the F-Fund during the trend up. However, once it becomes evident all the monetary excesses have been purgedand the deficits have been corraled...the F-Fund would be a good place to have amajority position with the rest in the G-Fund. But that will be a long ways off from where we are currently sitting.

Wimpy, I'm not buying your high interest rates....if we had Jimmy Carter in using flim flam economics I would buy in to it.....but with the current systems in place it would be flat out depressionary to any economy in the world..... I would look to some higher interest rates fluctuating some like we have today, but only to throttle the world economies for a steady growth....-control system theory....

Take a look at control systems and you too will see what is really happening.....

:dude:

 

[Mike]

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I don't see double digit interest rates anytime soon. The major inflationary pressure on our economy is coming from energy costs, which by definition are extremely volatile. Wage growth isn't all that tremendous, and core inflation is relatively tame. What this tells me is the Fed funds rate won't clear 6-7%.

Where to put your money? Diversify your holdings and catch a part of every wave. This will also reduce volatility. If you only have TSP, put part of your money in all five funds (I'm just gonna ignore the L here). If you have something in addition to TSP (Roth or regular brokerage account), try to invest in things that you can't get via TSP with your other accounts: emerging markets, commodities, REIT's, etc. I'm not doing that just yet, though - I want to wait for those markets to fall out of favor and drop before I invest in them.