Thrift Savings Plan

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!

It could have been worse. Here are the returns:

• F Fund: +1.58%
• C Fund: -8.15%
• S Fund: -8.30%
• I Fund: -8.37%

The overall portfolio with its current allocation is off -7.78%.

It was a rough quarter, but I believe the worst is behind us. I will maintain my present allocation as I see no immediate need to change.

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!

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.

Today my standing limit order to sell the FLEX Jan 7 1/2 call contracts triggered at the set price of $4.75 per contract. That assured me a $1.00 per contract profit.

The contracts were initially purchased on August 29th. My holding time was only six trading days. After all commissions, but not counting Uncle Sam’s take, I made a return of 25.7%.

I also had a standing order to by additional shares of Countrywide Financial, the troubled mortgage lender. In an earlier post, I suggested looking into this stock. That order, too, triggered today. The order was to pick up additional shares if the price dropped to or below $18.50. I’m now officially knee-deep in the subprime slime.