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TSP Model Tutorial

TSP Allocation Model

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.

Getting Started

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.

How to Use

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
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
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.

Additional Considerations

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.

Advanced Users

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.

Color Coding

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:

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.

This wraps up the TSP Model Tutorial.

If you have any additional questions, please reach out to us by using the Contact Us page or sending an email to support@modelinvesting.com.

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