TSP Inverse Fund

[tsptalk]

I'm not sure if you need to be logged into Facebook to see this post from one of our members. He's trying to get a petition going to add an inverse fund to the TSP...

https://www.facebook.com/tsptalk/posts/679604635413634 (https://www.facebook.com/tsptalk/posts/679604635413634)

I'm not trying to get a discussion going here, although you are free to comment. Just passing it along. Perhaps discussing it on that Facebook page would get some views.

[nnuut]

Going SHORT would be good but we would need more IFTs! IMHO

[tsptalk]

I agree that would be a priority over the inverse fund.

[JTH]

I would love to have an inverse fund, I doubt it will ever happen. The timing just isn't right, when you consider the markets made 30% last year. In addition, this would go against the Feds policy of providing liquidity into the markets, essentially we are asking for a fund that shorts the government.

Regardless, if the petition gets published, I'll sign it.

[Warrenlm]

Just a thought, in case this phrase is going to be seen by deciders on the issue: "Unfortunately, in a falling stock market, participants are NOT ABLE to benefit as the players on Wall Street can." ......might be better received by those deciders if it said..... "Unfortunately, in a falling stock market, participants are NOT ABLE to act as private sector investors can. "

[Boghie]

Just a thought, in case this phrase is going to be seen by deciders on the issue: "Unfortunately, in a falling stock market, participants are NOT ABLE to benefit as the players on Wall Street can." ......might be better received by those deciders if it said..... "Unfortunately, in a falling stock market, participants are NOT ABLE to act as private sector investors can. "

WarrenLM,

We simply do not have a safe fund that will move inversely if the equity markets drop. The 'F Fund' is in correction as I type. It does not have the room to buffer an equity correction. It will stay in correction.

And, with the FED ending QE, what happens to the 'G Fund'. We (the Imperial We as in the Federal Gubmint!!!) have sustained enormous debt growth - much of which the FED purchased. Remember also that the Treasury seems to enact extraordinary procedures every year to float their debt habit. Those extraordinary procedures are raids on your pension and 'G Fund' assets. The 'G Fund' rate of return should go up to entice the purchase of those assets - but that rate is artificially created by the Gubmint. Who is to say they will not both 'borrow' from the 'G Fund' and artificially depress the interest rate. They got to grab the easy money where they can!!!

So, back to this thread... With the high probability of F/C/S/I funds moving in the same direction during an equities correction the only asset class we have available is the 'G Fund'. And, the market does not control the 'G Fund'. While I would not really want an inverse fund I would like a REIT, a true cash fund, an emerging markets fund, and a commodities fund.

[Play_the_Extremes]

I have decided to publish my petition to the White House on on January 15th. I will have the link to it, and I will post it on the TSP Talk Facebook page. All who have a vested interest can then freely disseminate the link to whomever. By the rules set up from the White House, 100,000 signees will be needed within the 30-day limit from date of publishing. If this comes about, then the White House will release an official response. I will be monitoring comments to this post on FB/TSP Talk, and reply as needed.

[tsptalk]

I will sign the petition and help spread the word since I'd really like to see an inverse fund, but I think we'd be taking on the wrong fight as nnuut mentioned. I would guess that an inverse fund petition might generate a couple hundred responses while an increased in the limit of monthly IFT's might get thousands, maybe 10's of thousands. 100,000 for any TSP related change is a little ambitious and would take some work. I think we'd be hard-presses to find 100,000 federal employees / military personnel who would know what an inverse fund is or what to do with it. I'm with you, but just keeping it real.

[nnuut]

I'll sign that one!

[sniper]

in the past i would have been all for it, but eh I've adopted a different strategy. being in cash during a market down is the same as winning to me.

if there's an inverse fund we'd definitely need more IFT's to really take advantage of it, and I don't see it happening unfortunately

[MrBowl]

An Inverse Fund would be pretty dangerous...don't know if I'd use it. I have occasionally bought SDS shares in my trading account and I've learned a lot of lessons. The need for more IFTs is important because those vehicles tend to only go up for short durations. Afterall, the overall trend of stocks is upward, so timing is essential.

That being said, I'm all for having more freedom and choices. I would use a commodities or energy or precious metals fund more, I suspect. I also wonder why a NASDAQ tracking fund has never come about...is it because its close enough to the S Fund?

Even more important to me is to eliminate the transaction lag. I most want my transactions to be instantaneous, or as close to that as possible, with no deadline.

[Play_the_Extremes]

I will sign the petition and help spread the word since I'd really like to see an inverse fund, but I think we'd be taking on the wrong fight as nnuut mentioned. I would guess that an inverse fund petition might generate a couple hundred responses while an increased in the limit of monthly IFT's might get thousands, maybe 10's of thousands. 100,000 for any TSP related change is a little ambitious and would take some work. I think we'd be hard-presses to find 100,000 federal employees / military personnel who would know what an inverse fund is or what to do with it. I'm with you, but just keeping it real.

We need to start somewhere--as Wayne Gretzky once said: "You miss 100% of the shots you don't take." I started with the Inverse funds idea because I want to profit significantly in a falling market. No matter how many IFTs one might do in the course of one month of a falling market, going to the G fund does't really profit. Notwithstanding this, it is quite possible that--should this petition get the attention of the White House--the policy makers may even throw in extra oomph in the form of more ITFs. This petition will get the ball rolling, so regardless of whether we make the 100,000 signee minimum--and if it does, but the White House response doesn't voluntarily include more IFTs-- I will put out part two (more IFTs) to carry on the fight to improve TSP.

[Play_the_Extremes]

1/15/14...I have published my PETITION to the WHITE HOUSE today. Here is the direct link to it http://wh.gov/lIsIg
Please take time to read it, sign it, then disseminate it as widely as you can. By the rules set up from the White House, 100,000 signees will be needed within the 30-day limit from date of publishing. If this comes about, then the White House will release an official response. I will be monitoring comments to this post, and reply as needed. Below is the official White House petition as it now reads...


################################################## #################


WE PETITION THE OBAMA ADMINISTRATION TO:
Give Federal and Miltary personnel more robust funding options to their TSP Retirement Plan.


Currently, TSP provides for five major funding options:
G fund (money market), F fund (fixed income), C fund (S&P 500 Index), S fund (small cap index), and the I fund (International). Unfortunately, in a falling stock market, participants are NOT ABLE to benefit as the players on Wall Street can.


Inverse Funds would be the fund asset that helps significantly to level the playing field with Wall Street. For example, if the C fund were to fall in price by 5% over the course of a month, then the inverse fund to it (call it -C, let's say) would rise in price by 5% during the same timeframe. Inverse funds could be created for the F, S, and I funds as well. Profiting from a down market will have a monumental impact on the growth of federal/miltary TSP retirement plans.


################################################## #################

[nnuut]

I just signed the PETITION #3, best of luck!

[sniper]

i'd much rather have leveraged options than inverse funds. say like something equivalent to SPXL or TNA

[tsptalk]

Unfortunately, there is probably zero chance of that happening either (leveraged fund) just as asking for an inverse fund, while desirable, is a waste of time in my opinion, and would probably take away from any effort to get an increase in IFT's.

I'm sorry to say this because I back what you are doing and would welcome an inverse fund, but the reality is the chances of getting 100,000 signatures for an inverse fund is zero. If you get a couple of hundred signatures I'd be surprised, and the downside is that if and when we ever try to do this for an IFT increase, we would lose folks from participating because of the lack interest in this petition. I'll sign it but I'm not sure I want to waste too much time and effort on it.

[tsptalk]

OK, I signed it and posted it on TSPTalk's Facebook and Twitter pages.

(I also sent out an email our entire list). :embarrest:

Good luck!

[DrFaustus]

I think I am against creating more funds as well.

Our leadership has the mistaken notion that the TSP is a low cost (overhead) investment option. The reason they have this idea is because most people who invest in the TSP are "buy-and-holders" - they leave their money in the G fund and never move it around anywhere. Thus, because most of the TSP community are complacent investors, there is relatively little cost because there were relatively few trades.

Several years ago, our leadership freaked because some of us ( mostly members of TSPTalk, I believe ) were moving money into and out of the I-fund on an almost daily basis. As the I-fund was the most costly investment option, all of these buys and sells began inflating the overhead cost of the TSP. Our leadership reacted to this by taking the action of reducing the number of IFTs we are allowed, thus reducing TSP overhead costs back down to an acceptable level.

I believe that adding more funds to the TSP would cause even more members to make IFTs, thus increasing the pressure for the TSP board to react again. It's my guess that they would reduce the number of IFTs back to what it was - once per month.

This would be BAD.

[No-Hackle]

I am wayyyyy more interested in increasing the number of monthly IFT's from two to a higher number. I appreciate the effort to try and change things, but let's focus on the real need, lift the monthly IFT cap.

[Play_the_Extremes]

I want to address the comments about what members preferences are regarding improving TSP. The reality is that this is a long-term fight to improve the TSP Retirement Plan, so the best direction to go in is to get the word out to the uninformed TSP participants who know nothing about investing, much less about inverse funds. It's an uphill battle all the way; what needs to happen is to make them realize that TSP is actually in need of improvements, regardless of what anyone thinks those improvements might be. In order to get recognition from the White House, TSP participants need to demonstrate that they are united as one voice; even if one doesn't agree with another, we must all agree to support change. To give an example, let’s think of ourselves as a trade union. In order to accomplish anything, there needs to be membership support of an issue. So, if each of us votes ONLY for our own individual agenda, then we will have multiple factions that compete against each other. Thus, we all need to vote as one for one very important reason: to make change happen. So, whether you are in favor of inverse funds or not, in order to get ANY improvements to the TSP system, we need to demonstrate to the Powers that Be that we vote as one, even though privately one may not agree with another’s opinion. United, we stand, Divided, NOTHING happens!

[burrocrat]

what needs to happen is to make them realize... we must all agree... there needs to be... we all need to... we need to demonstrate...

a. you can't make anybody realize anything.

b. nobody must do anything, let alone must agree.

c. folks generally don't like being told what they can or can't or must do. by tsp.gov or mb posters.

d. an effective cohesive voice is flexible and inclusive. despite good faith suggestions about the original wording of 'players on wall street' the decision to not consider changing the approach to something more likely to get wide buy in such as 'more freedom and choice to ift'. the decision was unilaterally made to propose a narrow short selling investing strategery vs. a wider frequency trading option. and to demand everybody must vote for some proscribed thing.

e. both the petition to the whitehouse and the exhortation for action to tsptalkers is too 'needy'.

f. it is generally not profitable to scream at the iceberg it must change its course. because the titanic is going to run it over anyways.

g. there are probably not even 100k active tsp traders, let alone 1k who would utilize a short fund option.

h. don quixote chases wimdmills. why?

i. i've found there are outside options that provide greater flexibility and timeliness than tsp.gov could ever hope to rival. why fight it?

j. tsp is for grandmas who prefer the predictability of gov bonds, not for sharks. there is not enough meat left on the bones after the fed gets done with inflationary operations.

k. i have more but they're waving me off.

[MrBowl]

Here's the reason I don't think this will ever happen...

The inverse funds and leveraged funds are products based on an index. They aren't really anything other than a piece of paper. I know Direxion is a company that offers them. Maybe there are more, but I only know about Direxion. When you buy a share of one of these products you aren't buying anything real, its more like a betting slip at a horse track or sports book. That's why people who think buying an inverse fund is making money off of suffering don't understand what they are talking about. There is no money created when a these shares goes down because the flip side is moving in the opposite direction. There is only the small fee that the buyers and sellers pay. Shorting is something different altogether, and there are benefits to shorting. For one, short sellers act as watch dogs and hold a companies feet to the fire (wasn't it a short seller on the Enron earnings call that asked the crucial question?). Anyway, as I understand it if we were to be able to buy into an inverse fund we would merely be buying a betting slip from a company like Direxion. Just like a sports book, they are the House and pay up if we had the winning slip. I just can't imagine the TSP board viewing these as legitimate investments to build a retirement on. The shares/game is settled at the conclusion of each trading day, which leads me to...


Here's the reason I would be very hesitant to use them...

"Direxion's 3x leveraged ETFs seek daily goals, which means that the returns of the ETFs over time should not always be expected to be a multiple of the cumulative return off the benchmark for the longer period. By holding Direxion Shares Daily leveraged ETFs for periods longer than one trading day, investors subject their gains or losses to the fund’s daily rebalancing process which can either have a positive or negative impact on investment returns over multiple trading sessions. During periods of market volatility, funds typically underperform the multiple of the fund’s beta and benchmark performance while during periods of trending market performance, funds generally outperform.[4] (http://en.wikipedia.org/wiki/Direxion#cite_note-4)These funds are intended for use only by sophisticated investors who: a) understand the risks associated with the use of leverage; b) understand the consequences of seeking daily leveraged investment results; and c) intend to actively monitor and manage their investments.
These funds are NOT intended for use by conservative investors who: a) cannot tolerate substantial losses in short periods of time; b) are unfamiliar with the unique nature and performance characteristics of funds that seek leveraged daily investment results; and c) are long-term investors who do not monitor their portfolios frequently."

What this means is that if you buy 1000 shares of long SPX X3 and 1000 shares of short SPX X3 you will not break even. You will lose. If you are wrong about the direction or if the market is flat you will lose money. If you buy inverse shares and the market is volatile for a few weeks and the S&P 500 is finally down less than 0.50% there is a chance that you may not make a dime. Since the fund settles each day the longer you stay in the more any advantage you might have thought you had is whittled away. These shares slowly erode over time. You can make money over a short period if you are right about the direction of a strong market move, either up or down, and time it just right, but if you continue to hold the shares once the move is over you will start bleeding away your profits quickly. Since 2009 the inverse funds have been destroyed, as you might imagine, and they frequently have to do reverse splits to put these shares back to respectable-looking values. Direxion is doing fine (just as sports books do) and can back up their shares because the process gives them a constant stream of income, like the vig at the sports book.

I'm sure there is someone on here that knows a lot more about this than I do and I welcome corrections to what I wrote here.

[Stoplight]

PtE,

At the risk of being flagged for "piling on"....

You have little "street creds", my friend ! You've belonged to the Board for a year, yet this thread appears to be the first time you've posted. Perhaps if you'd joined in the discussions, shared your knowledge, and articulated why you feel we need a leveraged fund, you would've built up a base of support.

Also, if you've been lurking even before you joined, you'd know that the limit on IFT's is, by far, the most irksome issue for many of the members here. You'd also know about the hard work others have done to try and change the TSP system (for instance, James48843).

Anyway, it's always good to see some fresh ideas, and some new "blood" posting...gets some of us old Geezers all riled up :) Keep it up !


Stoplight...

[MrBowl]

I think this is a good topic, and I thank Play the Extremes for bringing it up. I thought this would be a good forum to get down into the weeds about these products. What are they really? What are you buying if you buy into an inverse fund? Are you actually taking an authentic short position?

I think it is important that everyone know all the details of what they are buying...how the thing works, what you are buying, what affects the performance, etc. I hope someone will come on here and tell me that I'm either full of it, have it partly right, or have it all the way right.

A bigger issue that is covered in other topics is if more fund options are coming what will they be? Which ones are requested the most? Which ones are most llikely to come about? Even bigger is how to improve the TSP overall...more IFTs, eliminating or reducing the lag time, etc.