Spaf
Honorary Hall of Fame Member
Market Trading - Considerations
Trading Considerations and Insights
We are considering that the TSP account is a retirement function, and not mad money. Is the competition to have a high TSP return a proper perspective, or should we be considering other factors? The home page at TSPTalk makes this statement "A well managed TSP account could make a major difference in your balance when you retire." So the question is what is well managed? Does well mean to chase after the board leaders? Can we be better managers?
We know that there is risk in investing in stocks, there are also rewards. Some strategies use a time horizon to measure growth versus preservation, such as the Life-cycle funds of TSP.
A person with retirement 28 years or more down the road can have a low emphasis on asset protection and a high emphasis on asset growth. This equates to an asset allocation of 15% safe funds (G, F), and 85% risk funds(C, S, I).
A person 18-27 from retirement has a mix of 15% safe and 85% risk. 8-17 years the risk lowers to 35% safe and 65% risk. 1-7 years equals 50/50.
A person with retirement less than a year down the road can have a high emphasis on asset protection and a low emphasis on asset growth. This equates to an asset allocation of 80% safe funds (G, F) and 20% risk funds (C, S, I).
Recooping losses. In math a 5% loss requires a 5.2% gain, a 10% loss requires a 11.1% gain, 25% a 33.3% gain and a 50% loss a 100% gain.
In funds verus portfolios, the portfolio should be balanced well enough or safe traded to prevent a loss of 2%, and no single fund should suffer a loss of over 5%.
To prevent these losses trailing alerts and trailing stops are used. Stops can be adjusted, but for mild index funds a 1% alert and a 2% trail can be used as starters.
There are two major concepts in trading conditions: Reading the fundamentals of the market and reading the charts, the basics of technical analysis. These equate to what is the economy doing and what is the market doing. The economy could be great but the market is in a correction. The US economy could be slowing but the international economy still steaming along.
Based upon the fundamentals and the analysis the trading conditions can be broken down into: Strong conditions, moderate conditions, and weak conditions. Allocations could be rated as 70-100% strong, 30-70% moderate, and 0-30% weak.
TSP allows the reallocation of assets through interfund transfers. A transfer will take from about 3 to 39 hours, depending on the time it was initiated from The 12:00 Eastern Time cutoff and the closing processes.
Lets run two examples.
#1. A person with 28 years to retirement has a $10,000 account and suffers a 5% loss. Thats $500 and 28 years to recover.
#2. A person in retirement has a $400.000 account and suffers a 5% loss. Thats a $20,000 flat loss.
So how do you trade to your advantage.
1. Understand that risks get higher as you near retirement, whether you buy and hold or trade.
2. Never let losses exceed 5%.
3. Try to catch losses at 1-2% by using trailing alerts and stops.
4. Consider the market trading conditions; the economics, charts, and market strength.
5. Select an allocation based on risk tolerance and fund(s) performance.
6. Time your buy-ins within a few hours or near the ET deadline.
7. Monitor your trades and immediately exit a bad trade.
