TSP Pilot is successful because its effective fund timing and fund selection or allocation criteria usually place you in the right funds at the right times.
Not always, however, and not all the time--but usually. As in 2000-2003, TSP Pilot will dramatically reduce your future market exposure and risk during important market down cycles thus preserving your retirement funds. In fact that important reduction of market risk through effective fund timing is often more important than fund selection.
For example, there was no "miracle" stock fund selection or allocation that accounted for most of TSP Pilot's 94% gain during the 2000-2003 bear market. In fact the case can easily be made that fund timing (choosing the right time to be invested in a fund) is a more powerful tool than fund selection (choosing which fund to be invested in)--especially in a portfolio as limited and closely correlated as the five funds currently available in the Thrift Savings Plan.
Through the limitation and exposure of your TSP account to downside market risk, the TSP Pilot Portfolios are actually less volatile and easier to "sleep with" than a typical conservative TSP Income L-Fund invested mainly in bond funds. Yet the...
The TSP Pilot Portfolios produce nearly DOUBLE the annual return of a typical aggressive portfolio invested 80% in TSP stock funds!
Essentially, TSP Pilot drastically improves the slope of the entire risk/reward horizon rather than simply shifting it to a different level.
Typically, TSP Pilot's effective fund timing puts TSP accounts largely in the stock funds about 60% of the time when the markets are in an uptrend while moving clients to the bond funds for the remaining 40% of the time when the stock market is soft or falling. In order to minimize trades, the systems are designed to take advantage of intermediate to long-term trends. TSP Pilot systems are designed to switch back and forth completely between the TSP stock and bond funds only 2 to 5 times per year.
By avoiding most of the stock markets down cycles, you are substantially decreasing the risk and market exposure of your TSP account. The main advantage of TSP Pilot is in its unique management and limitation of market risk. That decreased risk allows you as a TSP investor to SAFELY take a more aggressive posture in your account further increasing your returns over time.
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