I thought I’d share this follow-up on my research into the “Seasonal Strategy” for investing. I’ve researched the idea further with an eye on how to use this in retirement. Using theTSP funds, the seasonal strategy demolishes a simple buy and hold approach. So I was wondering, if Itransfer out of the TSP and into a traditional IRA account upon retirement, can I do even better using carefully selected ETFs?
The short answer appears to be a resounding yes.Here’s my initial results…
First, a recap…the seasonal strategy is that in general small caps do better in winter months, and bonds in summer and fall months, and the large caps the rest of the year and for whatever reason during the month of July as well. So after optimizing it tomaximize long-term returns (going back to 1988), it looks like this:
Jan – S fund
Feb – S fund
Mar – C fund
Apr – C fund
May – C fund
June – F fund
July – C fund
Aug – F fund
Sep – F fund
Oct – C fund
Nov – C fund
Dec – S fund
For the retirement version of this strategy outside of the TSP, I have a long list of ETFs that I’ve been narrowing down as candidates to invest induring retirement. Many of them include the 100 ETFs that TD Ameritrade lets you trade with no commissions (if you hold them for 90 days) since I’m leaning toward that brokerage for my IRA (others are probably as good or better, that’s just where I have my accounts now). If one wanted to emulate the TSP, you could use Vanguard’s “VOO” to replace the C fund, and AGG to replace the F fund, but I wanted to try to do even better and I selected the following for my initial back testing:
PKW – PowerShares Buyback Achievers ETF to replace the C fund
VXF – Vanguard Extended Market ETF to replace the S fund. This ETF includes small and mid-cap stocks.
BLV – Vanguard Long-Term Bond ETF to replace the F fund.
There’s a whole universe of other ETFs to consider and play with for this strategy (and I'd welcome input from others), but using these three (with the exception of 2006 when BLV didn’t exist yet so I used AGG), here are the bottom line cumulative return results. I went back to 2006 so that I would include the last bear market in its entirety. These are the cumulative returns over the last nine years….
C fund – 100.5%
TSP Seasonal Strategy – 206.4%
ETF Seasonal Strategy – 313.8%
That’s a real eye opener for me. Just six trades per year, blindly done on the last day of the month (and that could probably be improved upon using TA), would have returned over 300% over the last nine years?! Wow. :nuts: I plan to research this more of the next couple years before I retire, but I sure like this simple but powerful strategy for at least a portion of my TSP money.
