Dynamic TSP Strategy
The Dynamic TSP Strategy is designed to generate higher returns and minimize losses for employees of the U.S. Government who invest in the Thrift Savings Plan (TSP) and are interested in a TSP investment strategy.
This investment strategy evaluates stock market performance at the end of each month and determines the current strongest performing funds. It then makes investment fund recommendations to hold for the next month in the investor’s TSP account.
Unlike traditional buy and hold (or static allocation) investment strategies, the Dynamic TSP Strategy is able to improve returns and minimize losses by increasing allocation to assets expected to outperform, and reducing allocation to assets expected to underperform according to current stock market conditions.
The chart below is the back-tested performance of the Dynamic TSP Strategy since 1994 (25 years) compared to the Vanguard Balanced Fund (VBINX) which holds 60% stocks and 40% bonds.
How does the strategy work?
The strategy is designed to hold a majority of assets (60% or more) in a stock fund (C Fund, S Fund or I Fund) with strongest recent performance. The remaining portion of the portfolio is held in the next-highest performing stock fund. If stock market conditions decline significantly, the Dynamic TSP Strategy will recommend a safer asset, like the F Fund (Fixed Income Index) or G Fund (Government Securities) be held for the following month.
For members without TSP accounts, the same strategy can be followed using the Strategy equivalent ETFs listed below.
| TSP Fund | TSP Fund equivalent ticker symbol | Description |
|---|---|---|
| C Fund | SPY | Common Stock Index Investment Fund |
| S Fund | VXF | Small-Cap Stock Index Investment Fund |
| I Fund | EFA | International Stock Index Investment Fund |
| F Fund | AGG | Fixed Income Index Investment Fund |
| G Fund | BIL or Cash | Government Securities Investment Fund |
Strategy Metrics
| Metric | Strategy | Balanced portfolio |
|---|---|---|
| Annual Return (20 years) | 8.7% | 6.7% |
| Sharpe Ratio (20 years) | 0.66 | 0.68 |
| Max Drawdown | -15.1% | -32.6% |
| Drawdown Start / End dates | August 2021 to March 2024 | October 2007 to December 2010 |
| Max Drawdown length | 31 months | 38 months |
Historical holdings
The Dynamic TSP Strategy was able to limit losses to the portfolio during the dot com crash occurring between 2000 and 2002.
| Calendar Year | Balanced Fund | S&P 500 index | Dynamic TSP Strategy |
|---|---|---|---|
| 2000 | -2.00% | -9.70% | -2.10% |
| 2001 | -3.00% | -11.60% | 11.10% |
| 2002 | -9.50% | -21.60% | 7.70% |
The Dynamic TSP Strategy had positive returns during the financial crisis of 2007 to 2009 while a traditional balanced portfolio (60% stocks and 40% bonds) experienced losses and holding stocks only (S&P 500 index) experienced significant losses.
| Calendar Year | Balanced Fund | S&P 500 index | Dynamic TSP Strategy |
|---|---|---|---|
| 2007 | 6.20% | 5.10% | 13.40% |
| 2008 | -22.20% | -36.80% | 8.10% |
| 2009 | 20.10% | 26.40% | 19.40% |