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The TSP Allocation Model (TSP Model) helps you manage your Thrift Savings Plan account. It utilizes a dynamic approach to
asset
allocation, allowing you to earn higher returns while taking on less risk.
This tutorial will guide you through applying the TSP Model’s recommendations to your own personal TSP account.
The TSP Allocation Model is updated monthly. Updated recommendations are accessible with a premium subscription and are available on the first
trading
day of each month. They represent proper positioning for the duration of that month.
Updated recommendations can be accessed through the Current Recommendations
page,
available at the top of our home page once you log in. An email is sent out each month
to alert you when updated recommendations have been posted.
To get the most out of the TSP Model, you will want to update your allocations immediately upon receiving the
latest recommendations.
The TSP Model works by analyzing the performance of the individual TSP funds each month, and allocating the
portfolio to the top three ranked funds. The TSP funds that are reviewed for inclusion in the TSP Model
portfolio are listed in the table below.
| TSP Investment Options | |||
|---|---|---|---|
| TSP Fund | Description | Objective | Benchmark |
| Domestic | |||
| C Fund | Common Stock Index Investment Fund | Match the performance of the S&P 500 Index | S&P 500 |
| S Fund | Small-Cap Stock Index Investment Fund | Match the performance of the DJ U.S. Completion TSM Index | DJ U.S. Completion TSM Index |
| International | |||
| I Fund | International Stock Index Investment Fund | Match the performance of the MSCI EAFE Index | MSCI EAFE Stock Index |
| Fixed Income | |||
| G Fund | Government Securities Investment Fund | Maintain a higher return than inflation without risk | N/A |
| F Fund | Fixed Income Index Investment Fund | Match the performance of the Barclays U.S. Aggregate Bond Index | Barclays U.S. Aggregate Bond Index |
Each month, when you receive the latest recommendations, sign in to your TSP account and update your specific
allocations according to the table below.
| TSP Allocations by Rank | |||
|---|---|---|---|
| Fund Rank: | 1 | 2 | 3 |
| Allocation | 50% | 30% | 20% |
Within your TSP account, you have the ability to make two types of changes to your allocations:
1. A contribution allocation directs how new money will be invested. It does not change the current allocation of your existing account
balance.
2. An interfund transfer (IFT) allows you to redistribute all or part of your existing TSP account among
the different TSP funds.
For the TSP Model to be of benefit, it’s imperative that you make the appropriate interfund transfer
(IFT) each month to align your allocations with the top 3 ranked funds. You may also
change your contribution allocation to match the TSP Model’s most recent selections, but this is not
required.
That’s really all there is. At the beginning of each month, review the latest TSP Model selections and adjust
your allocations, if needed, to match the model. You will find that sometimes the TSP model selections do not
change from one month to the next, in which case no changes are needed to your portfolio.
The historical backtested performance of the TSP Model is based on following the model exactly, moving the entire
portfolio according to each month’s recommendations. While the results speak for themselves, we understand that
you may be hesitant to fully embrace an investment strategy that you’re not familiar with.
If that’s the case, we suggest using only a portion of your account to follow the TSP Model’s recommendations. As
you see the results over time and become more comfortable with the model’s performance, then consider applying
this strategy to a greater percentage of your account.
For more sophisticated investors, you may also consider modifying the recommended allocation percentages to
better suit your specific goals and risk tolerances. Allocations can be tailored to whatever you are
comfortable with, as long as you follow some basic guidelines.
The primary consideration to keep in mind if you choose to modify the suggested allocations is to have the
highest allocations in the top ranked funds, and lowest allocations in the lowest ranked funds. In the table
below we have included some hypothetical allocations, followed by an explanation of the benefits and drawbacks
of each.
| TSP Model Example Allocations | |||
|---|---|---|---|
| Fund Rank: | 1 | 2 | 3 |
| Example Allocation 1 | 34% | 33% | 33% |
| Example Allocation 2 | 60% | 30% | 10% |
| Example Allocation 3 | 20% | 30% | 50% |
Allocation 1 evenly distributes your account balance across the top 3 ranked funds. By not
investing more in the higher ranked funds and less in the lower ranked funds, you would miss out on some of the
benefits of relative strength and momentum. Your portfolio may be less susceptible to losses as a result of
greater diversification, but its growth potential may also be slightly reduced.
Allocation 2 strongly over-weights the top ranked fund. This can enhance performance, but also
increases overall risk as the portfolio is less diversified. It can be an effective strategy for increasing
returns, just be aware that it can also add volatility to your portfolio and potentially result in greater
losses during periods of market turmoil.
Allocation 3 misses the concept of allocating a higher percentage to the top ranked funds. This
type of allocation should be avoided.
To reiterate, the allocations used in the TSP Allocation Model provide a good starting point and are what the
historical backtested results are based upon. If you choose to modify your allocations, your performance will
differ from the TSP Model’s historical and future results.
On the Current
Recommendations page you will find the latest TSP Model recommendations and you will also find a
table that ranks all the funds in the TSP Model from best to worst. We have included this information for those
who may wish to deviate slightly from the model’s recommendation, either for diversification purposes or other
reasons. In the Complete Ranking Table, you will notice a color coding schema designed to alert you to the
status of each option. The color coding is as follows:
| Key | |
|---|---|
| Green | Showing positive price performance and acceptable as an investment |
| Yellow | Acceptable as an investment but significantly better alternatives exist |
| Red | Not recommended at this time |
All items in green are considered acceptable investments, but we recommend you stick with the highest ranked
options to achieve optimal performance.
As a final reminder, not following the TSP Model’s exact strategy and recommendations will result in returns that
differ from the model’s historical and future performance.
If you have additional questions please reach out to us.
The information provided here is for informational purposes only. Model
returns do not reflect
any management fees,
transaction costs or expenses. Investing involves a great deal of risk, including the loss of
all or a portion of your investment.
Nothing contained herein should be construed as a warranty of investment results. Past
performance is not an indication of
future results. All risks, losses and costs associated with investing, including total loss of
principal, are your responsibility.
Model Investing maintains positions in the funds discussed within this site according to model
recommendations.
