TSP Allocation Model (TSP)

The Thrift Savings Plan is a defined contribution retirement savings and investment plan for Federal employees
and members of the uniformed services. It is one of the most effective retirement plans in use today, but it must be
managed on an ongoing basis if you expect it to be a primary source of retirement funding.

Many Thrift Savings Plan investors are lulled into a sense of complacency by the simplicity of their TSP accounts. They
are led to believe that they can simply choose a fund, set up a contribution amount, and their retirement will grow on
autopilot. However, this is not the case. TSP members are encouraged to update their allocations frequently, but few
take the time to do this, and even fewer know how to do this strategically.

If you are enrolled or are eligible to enroll in the TSP, the TSP Allocation Model (TSP Model) can help you earn
higher returns while taking on less risk. The TSP Model is designed to keep your account allocated to the strongest
performing funds, while still maintaining adequate diversification. Like all of our investment models, the TSP Model contains
a built-in
mechanism for moving to a position of safety during severe market declines.

The chart below shows the backtested performance of the TSP Model over the last 21 years (since the TSP’s current
incarnation). For comparison, the performance of the C Fund (an index fund that tracks the performance of S&P 500), the
F Fund (an index fund that tracks the Barclays U.S. Aggregate Bond Index), and a 60/40 blend of those two fund are
included in the chart. Make sure to read this entire page to understand how the results below were achieved and how you
can apply these results to your own portfolio.

Model performance represents total returns and includes reinvestment of dividends and interest. No management
fees or transaction costs are included. Historical performance is not an indication or guarantee of future
performance.

Notice that the TSP Model was able to largely avoid the losses associated with the dot-com collapse and the financial
crisis. This was achieved by dynamically reallocating investments into the F Fund during these periods of market
turmoil. When the other funds resumed their ascent, the TSP Model shifted back into the market to capture the growth in
those funds.

Not only was the TSP Model able to outperform various allocation strategies, as well as the broader market, it did so
with less portfolio volatility and overall risk. The table below contains a series of performance metrics that allow you
to compare the TSP Model against several benchmarks.

Key Performance Highlights:

• Over the last 21 years the TSP Model’s compound annual return has significantly outpaced that of both stocks and
  bonds, as well as a blended portfolio.
• When compared to stocks, the TSP Model generates strong excess returns (alpha) while experiencing significantly
  less volatility (risk).
• The reduced volatility and enhanced returns provide for notably higher risk-adjusted returns, as evidenced by
  the Sharpe, Sortino and Treynor ratios, and a positive alpha.
• Stocks lost over half their value during the financial crisis. The TSP Model was able to sidestep those losses
  by repositioning the portfolio into the F Fund.

The TSP Model utilizes the five individual funds below to achieve its high risk-adjusted returns. Please note that
the TSP Model does not use the Lifecycle Funds (L Funds) because target date funds are not a suitable option for TSP
investors. For more information on why investors should stay clear of target date funds, including the L funds,
please click
here.

The specific TSP Model performance seen above is based on the following criteria and allocations:

• The performance of each TSP fund is analyzed monthly and the portfolio is reviewed and adjusted on the first
  trading day of each month.
• The portfolio balance is allocated to the top 3 ranked funds, based on the following allocation percentages:

• If any of the top 3 ranked funds do not meet specific performance criteria, that allocation is placed in the F
  Fund.

The end result is an innovative strategy that achieves steady growth, while protecting investors from major losses
associated with market crashes. Regardless of how much you currently have or contribute to your TSP account, the TSP
Model can help you achieve better returns with less overall risk.

The current TSP Model selections and ongoing monthly updates are accessible with a premium subscription. Updated recommendations are
provided on the first day of each month. Sign up today for access to the TSP Allocation Model and all of our other models.

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TSP Allocation Model FAQs

• What is the TSP Allocation Model?

  The TSP Allocation Model (TSP) is our premier Investment Model for Thrift Savings Plan investors. It’s designed to provide a complete portfolio management solution for people investing through their TSP accounts.

• How does the TSP Allocation Model work?

  The TSP Model dynamically switches between the G, F, C, S and I funds to achieve outstanding returns while exposing your portfolio to significantly less risk than traditional investment approaches. Learn More

• Who should use the TSP Allocation Model?

  Any federal government employee or member of the uniformed services who has or is eligible for a TSP account will benefit from following the TSP Allocation Model. The TSP Model will help you keep your investments in sync with changing market conditions.

• What role should the TSP Model play in my overall portfolio?

  The TSP Model is a complete portfolio management solution, designed to manage your entire TSP account. If you’re new to Model Investing, consider using it for only a portion of your account to get started. As you become more confident in the TSP Model’s performance, you can begin using it to manage your entire account.

• Where can I see the TSP Model’s historical performance?

  You can view the TSP Model’s historical backtested performance here. Pay special attention to the table of risk metrics, it’s important to understand that the TSP Model’s outperformance does not come as a result of taking on more risk. In fact, the TSP Model exposes your money to significantly less risk than traditional investment approaches.

• How does the TSP Model achieve such high performance?

  The TSP Model uses a completely different approach to investing than traditional portfolio management. Instead of splitting your money between stocks and bonds and staying invested regardless of market conditions, the TSP Model tracks the performance of each of the TSP funds and allocates the portfolio accordingly, transitioning between funds as they take turns leading the way higher. Learn More

• Where can I see the latest TSP Model recommendations?

  You can see the latest TSP Model recommendations here. Access requires a premium subscription.

• How do I use the TSP Model?

  Using the TSP Model is simple. Each month you will receive an alert when the latest TSP Model recommendations have been posted. Simply log in to your TSP account and make the appropriate changes to your allocations. Learn More

• I’m already retired, can I still use the TSP Model?

  Yes. People are living longer these days and it’s important that your money continues to work for you during retirement. Because the TSP Model has been able to generate higher returns than both stocks and bonds, and also avoid major losses during market crashes, we feel comfortable recommending it to investors of all ages. For more information on how to de-risk your portfolio during retirement, please see this article.

• Will I incur transaction costs while using the TSP Model?

  In our experience, no. The Thrift Savings Plan will allow you to change your allocations free of charge.

• What happens to the TSP Model if the stock market crashes?

  The TSP Model is able to recognize developing periods of stock market weakness and will typically move the portfolio to the F Fund during the early stages of a crash. This limits losses and is one of the primary benefits of the TSP Model. When the stock market begins to recover, the TSP Model will move back into the C, S, and I Funds.

• Does the TSP Model use the Lifecycle Funds (L Funds)?

  No. The TSP Model does not use the L Funds. Model Investing recommends that all investors avoid using target date funds due to their inherent problems.