charley
04-19-2011, 01:06 PM
Hi everyone. I'm starting what I hope will become a compendium of best known methods in Tactical Asset Allocation (TAA) -- it's a topic I'm currently learning about. I'm relatively new to this, so I hope more experienced members will contribute!
When I first started to invest my TSP, I learned about asset allocation and index funds, and settled on a fixed allocation (40% C, 15% S, 15% I, 10% G, and 20% F Fund). Then the market tanked in 2008, and I learned the hard way what my true risk tolerance is :( I rode it out, but it's not an experience I care to repeat, especially as I get older and near retirement.
So now that my TSP account has recovered, I'm trying to learn all I can about tactical asset allocation, and active risk management, and decide how to best invest going forward.
Here are a few resources I've found useful so far. I'll share more as I learn more:
I recently read Mebane Faber's The Ivy Portfolio (http://www.amazon.com/Ivy-Portfolio-Invest-Endowments-Markets/dp/1118008855/), which I highly recommend to anyone who's decided that "buy and hold" is not the best way to go. In chapter 7 of this book, Mebane describes a simple but very effective TAA strategy that uses a 10-month Simple Moving Average (SMA). This strategy performed very well during the 2008-2009 crash, even though Mebane published it before then (in 2006 or 2007 I think).
I'm also trying out TSP Folio, which uses a combination of TAA and Relative Strength. One of the things I like so far about TSP Folio is that they have a conservative/diversified approach, which suits my risk tolerance and time to retirement well. Mebane Faber also highly recommends this type of balanced approach (i.e., don't ever plow your entire TSP account into a single risky fund like the S, C, or I fund).
Here on TSPTalk, I've found the 10 Month Modified SMA Method (M-SMA) (http://www.tsptalk.com/mb/showthread.php?p=311765). This method sounds very promising. I tried to replicate their results, but was not able to. If anyone else here has independently verified it, please share! My other concern is that this is an "all-in" strategy that invests 100% into a single TSP fund, often the S Fund, which can be very volatile. From what I learned this can expose your TSP to market shocks (like a 1930s, 1987 crash, or Flash Crash type of event), where you may lose 27% of your savings in a few days (or worse, who knows what the future holds?)
On FedSmith there's an article on Asset Allocation and Your TSP (http://www.fedsmith.com/article/2508/asset-allocation-your-tsp.html) which describes how you can apply a Mebane Faber type TAA on your TSP.
If anyone has found other worthwhile tactical asset allocation strategies or information, I'd love to hear about it! Thanks for sharing!
When I first started to invest my TSP, I learned about asset allocation and index funds, and settled on a fixed allocation (40% C, 15% S, 15% I, 10% G, and 20% F Fund). Then the market tanked in 2008, and I learned the hard way what my true risk tolerance is :( I rode it out, but it's not an experience I care to repeat, especially as I get older and near retirement.
So now that my TSP account has recovered, I'm trying to learn all I can about tactical asset allocation, and active risk management, and decide how to best invest going forward.
Here are a few resources I've found useful so far. I'll share more as I learn more:
I recently read Mebane Faber's The Ivy Portfolio (http://www.amazon.com/Ivy-Portfolio-Invest-Endowments-Markets/dp/1118008855/), which I highly recommend to anyone who's decided that "buy and hold" is not the best way to go. In chapter 7 of this book, Mebane describes a simple but very effective TAA strategy that uses a 10-month Simple Moving Average (SMA). This strategy performed very well during the 2008-2009 crash, even though Mebane published it before then (in 2006 or 2007 I think).
I'm also trying out TSP Folio, which uses a combination of TAA and Relative Strength. One of the things I like so far about TSP Folio is that they have a conservative/diversified approach, which suits my risk tolerance and time to retirement well. Mebane Faber also highly recommends this type of balanced approach (i.e., don't ever plow your entire TSP account into a single risky fund like the S, C, or I fund).
Here on TSPTalk, I've found the 10 Month Modified SMA Method (M-SMA) (http://www.tsptalk.com/mb/showthread.php?p=311765). This method sounds very promising. I tried to replicate their results, but was not able to. If anyone else here has independently verified it, please share! My other concern is that this is an "all-in" strategy that invests 100% into a single TSP fund, often the S Fund, which can be very volatile. From what I learned this can expose your TSP to market shocks (like a 1930s, 1987 crash, or Flash Crash type of event), where you may lose 27% of your savings in a few days (or worse, who knows what the future holds?)
On FedSmith there's an article on Asset Allocation and Your TSP (http://www.fedsmith.com/article/2508/asset-allocation-your-tsp.html) which describes how you can apply a Mebane Faber type TAA on your TSP.
If anyone has found other worthwhile tactical asset allocation strategies or information, I'd love to hear about it! Thanks for sharing!