The market has been on one hell of a decline lately. Thanks to our allocation, the performance isn’t as bad as the media would have you believe. The bright spot in our allocation is the Small Cap Stock Index (S) Fund. It was actually up 2% over the quarter.
While the jury is still out regarding the recession question, there is no doubt that this market is dramatically undervalued. When the earnings yield on the S&P 500 is greater than the yield on secure, US 10-Year Treasuries, it’s time to buy equities. As of this posting, the S&P 500 earnings yield is 4.72% and the 10-Year Note is 4.09%.
Therefore, I am advocating a tactical change in the portfolio. Below is a diagram indicating where we are today and how we plan to change the allocation. If you are actively making contributions to your TSP, be sure to change those allocations in addition to the overall portfolio allocation.
Why are we increasing the Small Cap allocation so much? I think this article sums it up nicely. It’s a little dated, but the theory and research (I need to find the actual research report… I had it in the past) are still valid.
So jump online, log into TSP and make your changes!
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