Thrift Savings Plan

I’ve been unusually quiet during this market debacle. No, I haven’t moved everything to cash without telling everyone. In fact, I’m staying put as should you. Stay the course especially if you’re young! Right now your contributions are buying shares at the lowest prices you will likely ever see during your time in the TSP.

All pros advise to buy low and sell high, but rarely do people do this on their own. If you’ve been following the allocation suggestions here on the site, then you’re automatically buying in at very, very low prices with every paycheck.

Outside the TSP, I’ve been buying exchange traded funds (ETFs) on a regular basis since the whole collapse began. Every paycheck I set some money aside to buy into three types of ETFs: a broad market ETF, a real estate ETF and an international markets ETF. By buying the ETFs based on market indices, I reduce my risk of any one stock going belly up. I’m not good enough to pick individual stocks in this environment. But I do know that stock indices aren’t going to zero!

As some of you know, I’m in the process of starting my own business. Therefore, I haven’t devoted much time to market commentary or the site. I apologize. But I plan to perform the year-end review as I do for all my investments including the TSP. However, if I think a change needs to be made in the allocation and contributions, I’ll will post them here.

In the meantime, stay the course. We’re long-term investors. Our investment time horizon should be ten years or more. What we are experiencing will become a blimp on that time horizon. And if you have some extra cash outside your TSP that you can invest, I highly suggest you put that money to work now. These are some of the best prices you will ever see in your lifetime. However, be prudent! Never buy all at once, and never buy at market prices. Set limits and buy in small quantities to get the best price possible. You won’t pull it off all the time, but you will succeed most of the time.

Hang tight! And good luck!

After reading the Washington Post article today, Housing’s Bright Spot: Stocks, I had to jump in with my two cents on the topic.

The report indicated that shares of U.S. home builders rose 18.5% in the first quarter of 2008. They didn’t say which shares, index or companies. I jumped over to Select Sector SPDRs and typed in XHB which is the ticker symbol for the S&P Homebuilders ETF. If you play with the charting feature there, you’ll find that the ETF began January 2, 2008 at $19.35/share and ended March 31, 2008 at $21.78/share. If you run the numbers, that’s a 12.6% return in only three months. And this index is something you can invest in, unlike the phantom 18.5% return quoted in the Post.

The article then quotes two people who are skeptical of the longevity of the rise in home builders, Seth Jayson of Motley Fool and Parrish Glover of Morningstar. I don’t know either guy nor do I know how well they perform as analysts. But here’s what I can tell you.

At the beginning of the year, January 25th to be exact, I happened to notice the XHB was beginning to rise off its worst lows in some time . I decided to dip my toe into the proverbial waters and picked up a few shares knowing it was a risky move as the sub-prime slime continued its oozing into the new year.

I’m glad I did. And I’m glad I didn’t listen the nay-sayers saying it’s not the time. As of the date of this post, my investment in XHB is up 16.1% since jumping into the ETF. This is a prime example of betting against the crowd, or contrarian investing.

Glover does go on to say that there are some companies worth looking at for possible consideration for investing: NVR, Meritage Homes, M/I Homes and Toll Brothers (actually, Eric Landry of Morningstar suggested Toll). Interestingly enough, all of these companies except for M/I Homes are members of the XHB ETF.

I think it’s still a good time to jump into home builders. But I would do it with a small amount of your overall portfolio, and do so by either purchasing a diversified mutual fund that specializes in home builders or the XHB which is an Exchange Traded Fund (EFT).

If you still want to do some contrarian investing, take at look at XLF which is the S&P Financials ETF. That’s a whole new blog entry!

Happy New Year to one and all! Let’s jump right in and get a preliminary look at how our TSP performed for 2007. This is only preliminary since the year-end returns haven’t been officially published yet for the major market indices. Once those are out, I’ll post a more comprehensive analysis.

Recall that our allocation is as follows: 5% in the F Fund, 25% in the C Fund, 50% in the S Fund and 20% in the I Fund. The closing share price for each fund on December 31st was: $11.93 F Fund, $16.56 C Fund, $19.79 S Fund and $24.76 I Fund.

The 2007 year-end performance is: 6.71% F Fund, 5.68% C Fund, 5.49% S Fund and 10.34% I Fund. When we mix in our allocation, we find the portfolio returned a total of 6.57% for all of 2007.

We can’t gauge if that’s good or bad until we compare our results to the market as a whole and our other investment alternatives. In light of the market’s volatility in the second half of the year as a result of the sub-prime slime fiasco, it’s reassuring to know that we didn’t lose any money this year.

More insight and analysis once the final numbers are out this week. Until then, have a safe, happy and profitable New Year!

In my last post, I brought up the concern that the rate cut this week may not be the panacea investors expect.

CNN posted a special report on this exact same issue. However, the article does a better job than I at suggesting why the cut might be too much.

I can breathe once again! Yesterday the Fed made its move by cutting the federal funds rate by 500 basis points, or 0.5%, to 4.75%. Needless to say, our markets rallied on the order of 2.5% for the Dow and as high as 3.97% for the Russell 2000. Markets worldwide also rejoiced in the news by surging in some cases as high as 4%, as in India.

While this is very good news for our TSP portfolios, I’m not sure it’s good news for the currency markets and thus the economy in general. The dollar seems to have taken another beating on the news. When a country lowers its interest rates, foreigners view that as a sign of weakness and thus avoid purchasing that country’s currency. This leads to less demand for that currency. In our case, why would I buy dollars when I can buy some other country’s currency which may be yielding more than the U.S. markets?

This action also leads to more expensive international trips for U.S. travelers as goods and services overseas are now much more expensive. On the other hand, exports that U.S. companies create for overseas consumption are now much more affordable in the people to in those countries. That bodes well for large multinational companies like the Procter & Gambles of the world as they get to sell more goods internationally.

And finally, the U.S. government runs on debt. The Treasury issues short-term investments, like Treasury Bills, and more intermediate debt, like Treasury Notes, to raise enough money to keep running. With interest rates now lower, will it be more difficult to fund the government’s insatiable appetite for expenditures?

I’m just not convinced a rate cut was the way to handle the subprime slime situation. These guys have much more information than I ever will, so maybe, based on the facts they had, it was justified. Now, only time will tell. In the meantime, let’s figure out how to make some money from all this!