If you’ve followed the blog this summer, you are well aware of the subprime turmoil that has rocked the markets. I’ve tried to capitalize on people’s fears by buying into some of the most beaten down stocks this summer. However, if your only exposure to the market is through your TSP account, then you should have no fears. Why? Simple. You’re diversified and you dollar-cost average.
As you may recall, diversification spreads our risk around various asset classes while dollar-cost averaging allows us to buy more shares when the prices are cheap and low, and fewer shares when prices are high and expensive.
The allocation I’ve followed this year as been: 5% F Fund, 25% C Fund, 50% S Fund and 20% I Fund (that’s Fixed Income, Common Stock, Small Cap and International, respectively for the non-government crowd). Let’s see how this shaped up for the third quarter and the year as a whole thus far.
The returns for each fund are as follows: F Fund 2.7%, C Fund 1.0%, S Fund -1.6% and I Fund 1.4%. When we adjust for our allocation percentages above, the portfolio returned a total of -0.14% for the third quarter.
When we compare our portfolio to a common benchmark, we see that our TSP portfolio has return 9.5% so far in 2007 and the S&P 500 Index as returned only 7.6%. Even in light of the extreme market volatility over the summer, our buy and hold, diversified, dollar-cost averaging strategy is working. We’re beating the S&P 500!
For those of you looking to beat a different benchmark, you can gauge our success or failure by looking to the Stock Indexes Closing Data Bank over at the Wall Street Journal site.
I plan to stay the course with this allocation as it seems to be performing well at a time when others only experience panic and misery.
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