Our TSP portfolio is at least 11 years away from being tapped, so we have a longer-term view than many who read these notes. This being stated, I have a number of signals that I employ on the short-term, intermediate-term, and long-term basis that help me to move in and out of the fund.
Back in March I published on my sister blog that my intermediate timer was moving to CASH. The short-term timer had already transitioned a few days earlier. The short-term timer is not appropriate for TSP fund management -- we are only allowed 2 transfers per month, and any third transfer would have to be to the G-Fund, which is effectively a cash position. The short-term timer is literally that -- it can move in a few days in and out, and this is counter to the design and goals of the TSP program.
The intermediate-termed timer is more applicable to the TSP program, but note, even it can move in and out a few times per month, although this rarely occurs. When it does though you're at a bit of a disadvantage, as you have to wait until the first of the next month to move back in to the long side, and this can miss the initial burst off the bottom that occurs with a new long signal.
I used the March 2014 intermediate signal to reallocate with a higher percentage of CASH in the TSP -- some of you may have moved to 100% cash -- I don't know. I've watched the account drop about -2% since the signal and a bit more than -3% since the March 6 peak, and while I hate any form of giving up gains, to make money you have to have money in play.
With the events of the recent week we've seen a slightly different behavior, and the result is that my last safety net -- the good ole "13d MA crossing the 65d MA from above" has occurred.
What does this mean?
Well, first, it means you need to pay attention. If you are retired and you are living on a fixed income, yet have money in the market, you should most likely think about how much risk you're willing to take. Right now risk is high, and the potential reward for taking that risk, at least in the short term, is pretty poor. This is not the way you make money in the long haul.
When I was doing my GGT seminars for folks, I used to cite the following statistics:
"If your stock falls X, you need Y gain just to break even"
X Y
-5% +5.3%
-6% +6.4%
-7% +7.5%
-8% +8.7%
-9% +9.9%
-10% +11.1%
-15% +17.6%
-20% +25%
-25% +33%
-33% +50%
-50% +100%
The above should help you dial in what you need to be doing in terms of your individual risk profile. How many of you have made 10% consistently in a year? If you've been in the broad market you're looking at having to make this amount over the next year just to return to the March 6th high level.
The GGT index is down -8.3% since it's March 6 high. I've been 38% in cash in the TSP account since mid-March, so I've only seen a portion of this decrease. Nevertheless, it's still a decrease. Management is key from this point forward.
This 13d/65d timer is my safety net. If you have something that can beat the following figure, I'm all ears (eyes, whatever):
Right-click on the image to open in a new tab or window.
What is crucial here is that downdrafts are swift, while grinding to the upside takes time. Yes, if you're out of the market you'll miss the bottom and the turn. Yes, you'll miss the rise off the bottom. Eventually, the markets will turn, and trend-following systems will get you back in.
Whipsaws, or going back-and-forth in the signal, is common. We whipsawed Feb 3 - Feb 14th with this timer. It could happen again. Note though that the absolute shortest long-cash-long or cash-long-cash whipsaw was 8 days, and this is since September 2008. I imagine we'll be here at least this week, and maybe for several weeks or months. My crystal ball is as good as yours.
I have placed an order to move 100% of our TSP funds to the G-Fund. This is CASH. This will execute on Monday, independent of whether the market is up +3% or down another -3%. It doesn't matter. I follow the signal, and as my last safety net, this one is saying get out.
For now, I'm out.
Regards,
Paul
No comments:
Post a Comment