The TSP Timing System 1

The TSP Timing System is designed for allocating funds within the Federal Thrift Savings Plan (TSP). The TSP is part of the retirement system that is available to US federal employees and military members and is similar to a private 401k plan.

The system allocates funds between the S Fund, the I Fund and the F Fund. Although other funds are available within the TSP, our back testing shows that these three funds provide the best returns with suitable volatility in the S and I Funds, and with the F Fund providing better returns than the G Fund when it is prudent to move to a more conservative position. The S Fund tracks the broad US stock market (small capitalization stocks), the I fund is an international stock fund and the F fund is a bond fund.

The system only reallocates once per month at most - some months there is no reallocation if the current position is adequate given the current market conditions.

How the System Works

The system is designed using the simple concept that it is likely that returns near the average historical returns will be achieved again in the future. Using the idea that the current returns will revert to the mean, each month the system examines the recent performance of the S and I Funds. When either Fund is over performing compared to the historical averages, the system assumes that the performance will decline in the relatively near future and under weights that Fund. If either Fund is under performing its historical average return, the system over weights the allocation to that Fund.

An additional moving average rule is applied that forces  the system to move out of both the S and the I Funds when the overall recent market activity is extremely negative.

When there is excess risk in the S and I Funds because of the rules described before, the system moves to the F Fund.

How to read the TSP Timing System Table

The TSP Timing System's trade table shows the past history of the trades of the system and a box at the top that tells exactly what the system will do during the next trading day.

The current position and trade history is below:

The first three numbers next to the "Date" in each row are the percentages that the system was in those Funds during those days.

The box at the top is the most important. It specifies what the system will do - when there is a new signal, it states what positions the system will take on the next trading day after the signal. So, if there is a new signal on a weekend, the system moves the the new position at the close of the next market day (usually Monday). Results from the new position begin to accrue as of the day after the position is taken since positions are taken at the close.

We first posted the TSP timing system on the web on March 9, 2008. We have followed the system in real-time since the beginning of December, 2007 Results before that date are back tested.

The first three numbers next to the "Date" in each row are the percentages that the system was in those Funds during those days.

The box at the top is the most important. It specifies what the system will do - when there is a new signal, it states what positions the system will take on the next trading day after the signal. So, if there is a new signal on a weekend, the system moves the the new position at the close of the next market day (usually Monday). Results from the new position begin to accrue as of the day after the position is taken since positions are taken at the close.