TSP Income L Fund

The TSP website describes the basic initial portfolio structure of their Income L Fund. This is their most conservative L Fund and is currently targeted to those TSP'ers who are expecting to start drawing down their accounts on or before 2008.

The mix is heavily weighted to the more conservative, less volatile bond funds with 74% currently devoted to the safe-harbor G Fund (government securities). This portfolio closely matches the more typical "21/79" mix lifestyle portfolios available for other very conservative 401k plan investors. The Income L Fund is TSP's most defensive portfolio that might be useful for those investors who either expect a bear market ahead or are very risk averse.

(See our Glossary definitions for Ulcer Index (UI), Ulcer Performance Index (UPI), Maximum % Draw Down (Mdd), and Annualized % Return (AR))

In Table XXI we have provided the 28 year results of the new TSP L Funds, assuming the TSP Board had made them available then, using with a series of performance and risk metrics. Included for sake of comparison to each standard TSP L Fund is a very basic, long-term market timing model.

Since the TSP's L Funds were just released in August of 2005, alternative proxy funds were used for this analysis taking the history back to 1988; since the TSP L Funds are comprised of simple and static formulations, the chosen proxy funds would track almost exactly with the TSP's new offerings.

While our L Fund market timing models, provided for example only, are not as sophisticated as the TSP Pilot Portfolios, they do show the important benefit of adding even a very basic, long-term market timing signal to each of these new TSP L Fund portfolios.

In each case a basic, long-term computer timing model applied to each of the L Funds would have increased performance and decreased risk substantially requiring only about one switch per year from the L Fund to the safe-harbor G Fund.

These generic "timed models" show what a major impact market timing can have on performance and risk exposure. For each TSP L Fund you can see that the addition of a very basic moving average timing model would have reduced the market risk Maximum % Draw Down (Mdd) by up to 75%!

Even following such a very basic long-term timing model would have saved TSP investors from the huge losses that would have occurred sitting through the devastating 2000-2003 bear market that began after the bust of the high-tech bubble and again in 2007-2009.

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