Model Portfolios

The TSP Report publishes recommendations (available to our subscribers) and tracks the performance of three model portfolios that we have developed. These three portfolios are named the Growth, the Balanced, and the Conservative portfolios.

Which portfolio should you choose to follow with your own TSP account? Here are a few guidelines:

The Growth portfolio is for those of you who are comfortable being the most aggressive with your investments, and taking the most risk in hopes of earning higher levels of return. Generally, this portfolio should be used by persons with more than 10 years until retirement. Of the three portfolios, the Growth portfolio will have the highest percentage invested in the stock funds (C, S, and I-Funds). Of the three portfolios, this portfolio will be the most vulnerable to declines in the stock market.

The Conservative portfolio is for those of you who want to take the least amount of risk and whose primary goal is to not lose a lot of money. Generally, this portfolio should be used by persons who are currently in, or very close to, retirement. This portfolio will probably have the lowest total return of the three portfolios. However, it should be very stable and it should not experience large declines. This portfolio is designed to keep up with inflation plus a bit more. There several studies of this type of allocation (50% stocks, 50% bonds) which show that it should capture, over the long term, 80% of the returns of the stock market with only 50% of the risk.

The Balanced portfolio is for those of you in between the two previously mentioned extremes. Generally, this portfolio should be used by persons with less than 10 years until retirement.

These guidelines are just that, guidelines. If you have a more aggressive temperament, feel free to adopt a more aggressive portfolio. Conversely, if you are young, but very risk adverse, you should consider being invested in the Balanced or the Conservative portfolio, or you may have trouble sleeping at night during periods of stock market weakness. You should avoid switching between the different portfolios frequently based on your “gut” feeling about where you think the stock market is heading. It has been my experience that gut feelings are usually wrong. If you follow your gut, you will be buying stocks when everything seems rosy, usually near the market top, and selling when things look dreadful, usually near market bottoms. Our approach is to invest with our heads, trying to buy and sell stocks when the probabilities of making money are more favorable that losing money.

The table below shows how each of the model portfolios is allocated when we are in a fully invested position. (Please note that at the time you read this, we may or may not be in a fully invested position. You’ll need to subscribe to The TSP Report to find out how we are currently invested, and to be informed of our buy and sell signals). Once you decide which portfolio you want to follow, you should set up your current per pay period contributions to the TSP to be invested in these percentages as well. For example, if you are following the Balanced Portfolio, the money that you are contributing to TSP every pay period should be 10% G-fund, 10% Fund, 50% C-Fund, 20% S-Fund, and 10% I-Fund.

	Asset Allocation for the TSP Model Portfolios
Portfolio	G-Fund	F-Fund	C-Fund	S-Fund	I-Fund
Growth	0%	0%	65%	20%	15%
Balanced	10%	10%	50%	20%	10%
Conservative	25%	25%	50%	0%	0%

Table 1. This table shows typical TSP Fund allocations for each of the three model portfolios, when the model portfolios are in a fully invested position in the stock markets.

Buy and Sell Signals
From time to time, as warranted by stock market conditions at that time, we will issue buy or sell signals for each of the model portfolios. These buy or sell signals will be posted in The TSP Report subscriber’s (member's) area of this web site and in The TSP Report newsletter, and will only be available to subscribers. These buy or sell signals will be e-mail to subscribers either in the regular editions of The TSP Report or, if they occur inbetween the monthly editions of the the TSP Report, e-mailed to subscribers in special bulletins. When we issue a sell signal, we will want you to execute a TSP interfund transfer (https://tspweb2.tspsec.tsp.gov/) within your personal TSP account to move money out of the F, C, S, or I fund to the G-Fund according to our instructions. Conversely, when we issue a buy signal, we want you to use the TSP interfund transfer to move money from the G-Fund into the F, C, S, or I fund in your personal TSP account in accordance with our instructions.

It is important to note that when we issue a buy or sell signal, we want you to only move money around within your TSP personal account (interfund transfer). We do not want you to change your per pay period TSP contributions. You should keep your per pay period contribution elections fixed. For example, if you are following the Balanced Portfolio, then every pay period, you should be contributing as follows, regardless of any of our buy or sell signals that you elect to follow: 10% G-fund, 10% Fund, 50% C-Fund, 20% S-Fund, and 10% I-Fund.

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