Seasonal Trading Strategy for Stock Funds and US Federal Employee TSP 401k Retirement Accounts
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Seasonal Trading Strategy for Stock Funds and US Federal Employee TSP 401k Retirement Accounts
Introduction
The phrase "Sell in May and Stay Away" resonates with many investors, especially when considering the Thrift Savings Plan (TSP) retirement accounts. While past performance isn't a guarantee of future results, this strategy shows intriguing trends worth exploring.
Understanding the Thrift Savings Plan Funds
There are five key funds in the TSP:
- C Fund: Linked to the S&P 500
- F Fund: Matches the bonds in the Lehman Brothers U.S. Aggregate (LBA) index
- G Fund: Invests in short-term U.S. treasuries
- S Fund: Follows the Wilshire 4500 index
- I Fund: Tracks the EAFE index
Historical Performance and Strategy
Since its inception in 1988 until 2005, the C Fund averaged an annual return of 12.62%. However, the return was more pronounced from October through May, averaging 12.88%. The summer months, June through September, saw an average loss of 0.26%. Conversely, during these four months, the F Fund averaged a 3.36% gain.
Adopting a seasonal trading strategy?"selling the C Fund at the end of May and switching to the F Fund, then returning to the C Fund at the end of September?"would have increased the annual return by 3.62% over 18 years. Remarkably, this strategy requires only two trades per year.
From 2001 to 2005, the C Fund's average annual return was 2.22%, with a 9.24% gain from October through May and a stark 7.02% loss in the summer months. By implementing the same strategy, the annual return could have increased from 2.22% to 11.38%.
Performance of S and I Funds
Since 2001, the S Fund has averaged a 9.31% return, and the I Fund has seen 6.56%. Both funds displayed the same seasonal pattern, with significant gains from October to May (14.05% for the S Fund and 10.37% for the I Fund) and losses during summer months (4.74% loss for the S Fund and 3.81% for the I Fund).
Applying the seasonal strategy to the S and I Funds would have resulted in additional gains of 6.34% and 5.38%, respectively, boosting returns to 15.65% for the S+F strategy and 11.94% for the I+F strategy.
What’s Your Take?
This strategy merits consideration, though I suspect a challenging summer ahead?"possibly influenced by my recent pepperoni pizza rather than market analytics. Share your thoughts on the TSPcenter forum.
Conclusion
These insights suggest that a disciplined, seasonal approach to managing TSP funds might enhance returns. However, it's essential to remember that investment decisions should be grounded in personal financial goals and risk tolerance.
You can find the original non-AI version of this article here: Seasonal Trading Strategy for Stock Funds and US Federal Employee TSP 401k Retirement Accounts.
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