Thread: TSP Advisory

Trish,

Studies show that advisory services overwhelminglyunder perform the market.In addition, in order to know whether TSP Advisor washelping or hurting your investments,you'd have to closely track itsperformance against the markets over a number of years. Finally, why would anyone, i.e. advisory services, who really knew where the markets were heading, reveal that information? They could make much, much more by playing the markets rather than publishing investment advice.

Of course, they don't know where the markets are heading, they're just guessing. Consequently, they can make more money publishing guesses than they can using those guesses to play the market!

The L Funds will become available in a couple of months. They'll provide an approach, i.e. passive investing, asset allocation based on risk, broad diversification, and automatic rebalancing, that is highly recommended by investment experts. In addition, you won't have to follow the markets, evaluate advisory services,orlearn about technical analysis and timing techniques to be successful. :^

Rokid.. regarding the new L fund, indeed this sounds good. I try to learn this stuff but it's so incredibly time consuming and tedious. I have 15 years before I retire and the schools of thought regarding "buy and hold" and this site's owner of constant tweeking are in serious conflictwith each other. I realize it's apersonalpreference but on theone hand I don't want to lose money by asset allocating and forgetingabout it, andon the otherI don't want to obsess over iteither.

Trish, such services should only be used as "advisory". Here we tend to try to make our own projections, based on what info we can glean on our own and from each other. No service can accurately predict day to day market activity, and since we have a four hour to two day lag time, it can be very risky to play "day to day" wiggles.

However, if you find a service that has proven to accurately forecast mid to long term trends, and you are willing to sit tight through the day to day volatility like we are currently experiencing, then you might profit from such a subscription.

Caution though, most of these services are not very forthcoming with their bona fides, thus they lack essential disclosure that most reputable financial advice firms may offer.

Ultimately, we all have to own our decisions, and whether you follow sentiment on this board, use a service, seek a proffesional consultant, or use a combination of the above, we owe it to ourselves to become educated and informed regarding our own retirement management.

Live long, and prosper!

Trish,

Don't assume that active management of your portfolio will result in higher returns. Studies show the exact opposite. Investors chasing returns invariably buy high and sell low. Over the long run, establishing an asset allocation that reflects your need for risk, i.e. investment goals, and appetite for risk, i.e. how much you can stand to lose, is the most effective approach.

Check out the Tally '05 for April in the member allocation section. The "no brainer" allocation, i.e. 20% in each fund, is at the top in 2005 returns. The average 2005 return is -3.55% The 'no brainer' 2005 return is -2.17%. The only TSPers beating the 'no brainer" allocationhave been in thebond funds for most, if not all, of the year. However, if a stock rally starts, they may miss the initial upsurge. In addition, they're not getting the advantage of buying stock at low prices. Another conundrum: a bear market is great for buying (low prices), but bad for selling (low prices). However, if you're not selling....

For more info on the buy and hold approach, see Pete1's posts.

Good luck!

Well, until last week my allocation was very conservative as well. On friday I adjusted it to reflect C=35 I=25 S=15 G=15 F=10. (75/25) and I don't assume that active management assumes higher returns. I realize that they don't have a crystal ball, however I did read that they (TSP Advisory) employ several different models. They also gives their historical of the past 2 years which seem to have done well. I'm just going by what they say.

But I think what you're saying, and correct me if I'm wrong, is that their information isn't complete or perhaps even embellished?.. not sure.. But why put themselves in the business of helping people make money if they can make more 'playing' the market themselves?.. I assume it's because they charge the fees they do and people buy the service.

Trish,

All I'm saying is that if TSP Advisorscould actually predict the market, they wouldn't be selling advice. They'd be using their special knowledge to make a killing in the market.

In addition, it takes years to determine whether the results of an investment strategy, an investment advisor, or a money manager are due to skill or luck (good or bad). It's pretty clear that Benjamin Graham, Warren Buffet and Peter Lynch were/are good. However, everyone else ????

If you want to learn more about the advantages of passive asset allocation and the disadvantages of active investingread:

Common Sense on Mutual Funds by John Bogle (he started Vanguard)

and/or

A Random Walk Down Wall Street by Burton Malkiel

Both are investing classics.

Trish- read my post reply to stebbins 777. The tsp advisory service may be all computer and no gut. What I mean is no emotiom behind decisions.

Trish wrote:

I'm new to this board......... some of us don't have the time to educate ourselves concerning market models. Thanks.

Trish

Trish.....Lets take a step back.
TSP is Thrift Savings Plan. It started out with the G-fund years ago! TSP has not to my knowledge made any attempt to educate participants, advise participants, or attempt to manage funds individually. After adding the C, S, and I funds, TSP posts the returns on their site, but it's up to the individual participants to manage allocations, transfers, and etc. Maybe some of the new funds they are working on will be different. But, for now we have unmanaged investment funds. Investments can be risky, especially when the primary movement is bearish, unstable, or stuck in a trading range as it is now. Unmanaged funds are harem skarem. Since the pop of the NASD bubble in 2000, the market has a new face. Bottom line IMHO investment funds need to be managed, either by your self or some one else, otherwise it is not investing.

I'm not speaking for or defending TSP Advisory, but I think there are some misconceptions here. My comments are in blue font, in this post andthe next one.

Studies show that advisory services overwhelminglyunder perform the market.

1) The evidence on advisory service performance isn't conclusive.

http://papers.ssrn.com/sol3/papers.c...ract_id=302888

In addition, most older newsletters that earlier studies were based on used subjective approaches to market timing and stock selection. Many newer entrants are (more successfully) using objective, rule-based timing systems.

Finally, why would anyone, i.e. advisory services, who really knew where the markets were heading, reveal that information? They could make much, much more by playing the markets rather than publishing investment advice.

Not necessarily. For example, let's say you produce returns that are 5% higher than a buy-and-hold approach--with lower drawdrowns to boot--over a period of time. That's good, but you're not going to get rich overnight by trading that. You'd do much better selling your advice/signals than simply trading the strategy yourself. Now, if you can consistently make high returns with low drawdowns day trading commodity futures, that's a different story...

Of course, they don't know where the markets are heading, they're just guessing. Consequently, they can make more money publishing guesses than they can using those guesses to play the market!

Again, I'm not speaking for the service in question. But if we're talking about systematic trading/investing in general, it's absolutely not about "guessing." It's not about predicting the market's direction, either. Instead, it's about analyzing current data from the market to determine if the reward/risk tradeoff is sufficient to invest in a stock, index, bond, etc. It's completely objective, as you only invest when your quantifiable parameters are met. It completely removes human emotions from the equation.

The L Funds will become available in a couple of months. They'll provide an approach, i.e. passive investing, asset allocation based on risk, broad diversification, and automatic rebalancing, that is highly recommended by investment experts. In addition, you won't have to follow the markets, evaluate advisory services,orlearn about technical analysis and timing techniques to be successful. :^

By some investment experts. And let's be fair: advisory services aren't the only ones trying to profit. People who push passive investing may own passively-invested oriented mutual fund companies (Bogle); sell lots of books on passive investing (Malkiel, Swedroe, Bernstein); work as "passive" investment advisors (Swedroe, Bernstein); have academic careers they've staked on their passive investing beliefs (Malkiel, Siegel). There's nothing wrong with this, but let's rememberthat theyhave an agenda, too.

Don't assume that active management of your portfolio will result in higher returns. Studies show the exact opposite. Investors chasing returns invariably buy high and sell low.

Again, these studies are almost entirely based on individuals who guess the market's direction based on news, on what other investors are doing, etc. I haven't seen a studyyet that strictlycompares buy-and-hold totime-tested systematictiming strategies.

Over the long run, establishing an asset allocation that reflects your need for risk, i.e. investment goals, and appetite for risk, i.e. how much you can stand to lose, is the most effective approach.

Not in my book. I've tested 5 of the 9 stock timing models my system useswith over 60 years of historical data. All 5 have outperformed a buy-and-hold approach ona risk-adjusted basis since 1943. Note: I couldn't test the other 4 because the data they use were notavailable until the 1980s.

Check out the Tally '05 for April in the member allocation section. The "no brainer" allocation, i.e. 20% in each fund, is at the top in 2005 returns. The average 2005 return is -3.55% The 'no brainer' 2005 return is -2.17%. The only TSPers beating the 'no brainer" allocationhave been in thebond funds for most, if not all, of the year. However, if a stock rally starts, they may miss the initial upsurge. In addition, they're not getting the advantage of buying stock at low prices. Another conundrum: a bear market is great for buying (low prices), but bad for selling (low prices). However, if you're not selling....

I can't speak for anyone else, but my system wasin stocks for about 1 month of this year. It was down about 2.7% in early January. By moving in and out of stocks on several occasionsfrom late January to early March, and by moving to the F Fund a few weeks ago, the systemhas managed to slightly overtake the G Fund at this point.So ithasn't been a matter of being in bond funds all year.

It's still early, and I could fall behind again or miss a stock rally, true. But my system is designed to catchlonger-term stock moves, and has usually done soin the past. Certain "preconditions" almost always precede a largeadvance in stocks,like we sawlast fall.

Incidentally, my system was out of stocks for 6 straight months in 2004, from April 12 to October 12.Then it went fully into stocks from Oct 12 to Jan 18 of2005. As for "buying low," that's known as "averaging down" by the pros, and is avoided by practically anyone who trades or actively manages money for a living.

A few good books and a good article on systematic investing:

1) Winning on Wall Street by Martin Zweig

Somewhat outdated, but a classic that kickstarted many other systematic investors/traders. Written by a famous money manager who holds a Ph.D. in Finance.

2) The Hedge Fund Edge by Mark Boucher

Boucher,a professional trader and money manager, doesn't give away all his secrets, but gives some great starting points for building stock, bond and precious metal fundtiming models.

A recent interview with Nelson Freeburg, the world's premier system tester and designer:

http://www.tradingmarkets.com/.site/...2005-43326.cfm

John

SystemTrader wrote:

A recent interview with Nelson Freeburg, the world's premier system tester and designer:
http://www.tradingmarkets.com/.site/...2005-43326.cfm
John

Thank you for that posting, John. Qute interesting. I gather that there are different Systems, Do they all come to the same conclusions for actions? Nelson:

Edit 10:44: : well. I don't know what happened to the rest of my note!!!- what I was asking is: even tho there seem to be a variety of system traders to use, do all of the systemsactually come to basically the same conclusion? Also - how late into the trading day are trends read - ...do you keep studying the market right up to near noon to see if a change is to be made?

Thank you - grandma