One of the best things you can do as an investor is understand the fundamentals of market cycles. While most cycles have fundamental and technical indicators all markets are cyclical. They go up, then they peak, then they go down, and they bottom. Rinse wash repeat. I will admit not all market cycles are easy to identify while they are occurring, however when they are finished they are much easier to identify.
Let's review a couple assets that display market cycles very clearly:
This is a 20 year chart of the Euro currency. At first glance it looks like a bunch of gibberish but for right now all you need to pay attention to are the lines that trend up and down, that's the price. If you look at 2001 you will see the Euro bottomed out around 85 then peaked around 2008 at 160.
Here is a 20 year chart of oil. If you notice 1999 was the last year we saw oil around $10/barrel. Then around 2008 it peaked at $150/barrel.
If you're not familiar with any of these markets are, don't worry. You don't need to know what they are or how they work at this moment, simply look at the way they rise in price, then fall. While you are doing this please understand this simple concept all investors lose focus of.... No asset can go up in price forever, it must inevitably fall. This is a natural cycle, things get very expensive, then they get very cheap.
Our system takes a simple, technical, and time efficient approach to investing in the Thrift Savings Plan.
All too often individuals and advisors believe they should be jumping in and out of funds in order to properly capitalize on market movements and I'm here to tell you that couldn't be any further from the truth. As of now our system utilizes only two of the funds offered in the TSP:
The G Fund - Acts as a money market account earning less than 1% return annually but preserves the capital that you contributed.
The C Fund - Aimed at mimicking the performance of the S&P 500.
With these two funds we conduct what is called "Trend Following." In short, we are primarily concerned with the technical performance of the market and less concerned with the fundamental aspects of the market. I know this may sound very "technical" and hard to understand but believe me it's not. You will see how simple it is in a moment.
With our trend following mantra we are trying to identify when the market will rise and when the market will fall. This in turn helps us avoid catastrophic loss to our portfolio - You may remember the two most recent stock market crashes of 2000 & 2007.
Individuals who stayed fully invested in their portfolio's suffered catastrophic losses during both time periods. Each crash resulted in approximately a 50% loss of their portfolios - In order to recover from such a loss you would have to turn around and generate a 100% gain (not an easy task). Think about it this way, if you had $100 and it was cut in half you would be left with $50. In order for you to get back to $100 - You would need to generate $50 just to get back to where you started! I have no problem with working hard, I've worked hard my entire life, but this phrase rings true.... "Work smarter, not harder"
If you knew that you were about to suffer a huge potential loss to your $100...
- Wouldn't it make sense to protect your capital?
- Wouldn't it not make further sense to step aside from the carnage that was about to ensue then simply return to the market when conditions were favorable?
- Wouldn't it be in your best interest to invest $100 at the start of a new bull market instead of $50?
These are questions - We don't have the answers for you.
But if you answered yes to all the questions above, then you will understand 100% why our system is vital to your retirement future.
As stated before, our system identifies bull & bear markets. This allows us to notify you at the beginning of every month through our newsletter and tell you what our system is indicating. This system tells us where to keep our capital and where to allocate future contributions to the TSP. It is remarkably quite simple:
When the S&P 500 is trading above our trading signal - We place all of our capital into the C Fund and allocate future contributions to the C Fund
When the S&P 500 is trading below our trading signal - We place all of our capital into the G Fund and allocate future contributions to the G fund. There is one exception to this rule but it is a little confusing and technical therefore we won't address it until the situation presents itself.
It really is that simple! Take a look for yourself...
Do you see how simple this system is? The best part about it, is you only have to take action whenever there is a huge market swing. You won't have to check your TSP every day, every week, or every pay period. You can sleep at night knowing that your road to retirement is clear and profitable!