Wow! Did I draw some fire with that first post! I won't even attempt to go point to point with the 25 people who have posted already, especially those who love to engage in name-calling and other pointless drivel.
But I would like to point out a few things:
1) Benchmarking to the S&P 500 is inappropriate if you are investing in things that are not included in the S&P 500, for example the G Fund, F Fund, I Fund, and S fund. I would submit that the appropriate benchmark for anyone to compare their TSP returns to would be 1/3 C, 1/3 S, 1/3 I for whatever stock allocation you hold and 1/2 F, 1/2 G for whatever fixed income allocation you hold. Saying you beat the S&P 500 over the last six years isn't exactly impressive. From 2000-2005 the S&P 500 (C Fund) returned an average of -1.1 % per year. Hell, my checking account beat that. If you want to market-time, fine, but be honest about your benchmarking...and if you find you continue to underperform the benchmark, I would suggest you're a fool if you don't return to a strategic asset allocation strategy that ensures you perform as well as the benchmark.
2) This brings me to the return issue. Careful reexamination (during daylight hours this time) of your spreadsheet shows the compounded return I alluded to was accurate after all BTW. Either my brain or my calculator don't work at 3 am. I reference this page for the following discussion:
http://www.tsptalk.com/returns/returns3.html
Using the numbers posted for the TSP Talk Active column for 2000-2005 (4.54%, -14.60%, -16.48%, 39.13%, 10.50%, and 0.51%), assuming of course, that these are accurate, I calculate an average annual return of 2.389%. The 20% of each allocation provides an average annual return of 3.42%, over 1% better. Depending on what percentage of the time the TSP Talk account is in the G or F fund (and assuming it is less than 40%) you could have done 1% per year better with a lower level of risk. Even if you assume that TSP Talk is ultra-aggressive (which I think is a fair characterization given the frequency of trades that it does), it should be benchmarked against 1/3 C, 1/3 S, 1/3 I which returned 0.87% per year (just about 1.5% worse than TSP Talk through our generations worst bear market.) I'm guessing TSP Talk makes a trade a couple of times a week on average so let's just say 600 trades over the last 6 years. Each of those trades, on average, made the trader about 2.5 thousandths of a percentage point worth of return over a simple, super aggressive, 100% equity buy and hold portfolio...through the worst bear market in 30 years. Let's assume, just for the sake of simplicity, that the follower of TSP Talk has a TSP account of $100,000 so that 1.5% better (again, benchmarking against the ultra aggressive 1/3 C, 1/3 S, 1/3 I) equalled a total of $9883 additional profit over 6 years. Assuming the TSP Talk trader spent 4 hours per week perusing the TSP Talk website, reading a financial journal or newspaper, reading Tom's emails, and logging in to the TSP website and actually making the trades, the return on their effort yields about $7.88 an hour. A high income person making say $50 an hour is losing $43 an hour by spending time micromanaging his TSP account rather than moonlighting at another job. Of course, benchmarking against 20% each fund would mean that the trader lost something like $5 an hour (in addition to the 31 lost work weeks of effort.) The trader would be better off with a static asset allocation rebalanced once a year and mowing lawns in the neighborhood on Saturday mornings.
Tom...it is time you admit that you really enjoy following and trading your TSP account and you are willing to pay for the privilege of doing so by having lower returns that you would otherwise have. I cannot imagine the immense amount of time you spend updating the website, sending out emails, and swapping in and out of funds. I hope the fun of trading and the social interaction with others on the site is worth it, because it is clear to me that financially you would be better off with a buy and hold static asset allocation. And if you honestly look at your numbers, you'll see that too. You say "
Following and predicting the action of the market has been a hobby of mine." The true gurus say this about predicting the action of the market:
"It's extremely rare to hear of anyone winning at it (market timing) over a period of years. Indeed, I've never heard of such a genius." Jack Brennan
"I never have the faintest idea what the stock market is going to do in the next six months, or the next year, or the next two." Warren Buffet
"If I have noticed anything over these 60 years on Wall Street, is is that people do not succeed in forecasting what's going to happen to the stock market." Benjamin Graham
"Forget about timing the market, it doesn't work. You'll lose money. Invest for the long haul and then sit back and wait--the market always goes up in the long-run." Paul Farrell, CBS Marketwatch
"There will always be someone predicting disaster and someone predicting great fortune. At one time or another, each will be closer to correct than the other. But it won't matter to you if you understand this and have invested responsibly. You have a long-term plan; stick with it." Peter Lynch
"Everyone wants protection from the bear. But it's best to get it through diversification, not by trying to outsmart the market in a game in which the deck is stacked against the investor." C.V.Sanders, Morningstar
"Transaction costs and taxes kill most active traders. That's why no market-timing letter beats buying an index fund and standing pat." Mark Hulbert
"The market timer's Hall of Fame is an empty room." Jane Bryant Quinn, Author, Columnist
"
Market Timing is a poor substitute for a long-term investment plan." Jonathan Clements, Wall Street Journal
"No, I don't believe in market timing. I've been around this business darn near a half-century, and I know I can't do it successfully.-- In fact, I don't even know anyone who knows anyone who has ever successfully timed the market over the long term." Jack Bogle
"Market timing is an ineffective strategy for mutual Fund Investors." CDA/Wiesenberger
"The only way to make money with a newsletter is by selling one." Malcolm Forbes (Hmmm....I would assume Revshark would disagree with this one, or at least it would be in his financial interest if he did.)
"Nobody but nobody, has consistently guessed the direction of the bond or stock market over any meaningful length of time." John Markese, President, AAII Journal
To the others who are doing well this year...sheer probability theory would dictate that some would beat the averages, some by a significant amount. But be honest with yourself, calculate your return and compare it carefully against an appropriate benchmark, and be sure you truly are a skilled active manager, year in and year out. Also be sure it is worth the amount of time you are putting into it.
And please please please, if you must be a frequent trader, do it within your TSP account where at least the costs/taxes don't eat you alive. These kinds of tactics in a taxable account, even at a low-cost index type institution such as Vanguard or Fidelity, would decimate returns.
For those who suggest I'm some kind of Wall Street Proponent, nothing could be further from the truth. Wall Street's marketing departments push frequent trading, close market following, technical analysis and other strategies which (in a non-TSP account) dramatically increase Wall Street profits. I truly believe that any reasonably intelligent person can manage their own investment accounts with great success. But I do believe they will be much more successful if they carefully design a strategic long-term asset allocation plan appropriate to their need and willingness to take risk, and then implement it with occasional rebalancing to the original allocation. Is the market perfectly efficient? No, but it is sufficiently efficient that rapid-fire trading in a TSP account is a zero sum game, and rapid-fire trading in any type of account where there are commissions, fees, or taxes is a negative sum game.
Revshark, I'm curious as to how you define the risk you describe in this statement: "
what makes us feel very good about our results is that they were achieved with much less risk than a buy and hold strategy."
Well, it doesn't look like I'm going to convince anyone here. Invest however you like. I wish you much success in your endeavors. I'll pop in from time to time to see how things are going. Continue to max out your TSP contributions and you'll do fine in the end. There isn't a single bad investment in the entire program. For federal employees, it is the best 401K program ever. It would be for the military too if the government would just match their contributions. But apparently braving IEDs in Iraq isn't quite as valuable as keeping the government churning here at home.
). Thanks again for your keen and timely reply!!!
