How To Begin

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To follow our ETFs Program recommendations you will need to open a standard stock (fund) brokerage account (if you don't already have one), preferably with a discount broker such as TD Ameritrade, Scottrade, or eTrade.com. All offer very low trading commissions and good service. TSP Pilot has no financial interest in, or relationship with, any brokerage company.

It would also be wise to set up a web enabled, online access to your account with your broker to facilitate making the portfolio changes we recommend in a timely manner. We would also suggest setting up an attached banking feature to facilitate your moving funds in and out of your brokerage money market account.

Since there will be no email alert notifications provided for this program (as they are currently provided for all Thrift Savings Plan fund allocation changes), subscribers will need to visit the regular TSP Pilot Current Advisory Page daily to determine any new recommendations for portfolio changes in the TSP ETFs Program. The ETF recommendations will be provided at the bottom of that page after the recommendations for our Fidelity Selects Program.

Realizing that ETFs are often quite targeted and undiversified, we would suggest that only a portion of your non-TSP funds be devoted to either TSP Pilot's ETFs Program or our FidSel Program. The level of investment in these specialized portfolios would simply be based on your personal risk tolerance level.

Since ETFs are less diversified and more niche targeted than even the Fidelity Select Portfolio of sector fund offerings, TSP Pilot's EFT's Program will take positions in the top three covered ETFs based on TSP Pilot's proprietary fund selection criteria. Therefore each position will require a 33.3% funding commitment. With its slightly better level of diversification the FidSel Program only requires taking two fund positions with 50% in each.

Our ETFs Program recommendations will always be expressed in percentages to facilitate differently sized accounts. For example we might suggest at some point investing (of funds made available) 33% in Vanguard Total Stock Market VIPERs (VTI), 33% in iShares MSCI Japan Index (EWJ) and 33% in iShares Morningstar Small Value (JKL). A simple Excel spreadsheet may assist in tracking your ETFs trades.

An important leverage feature of the ETFs Program is its partial use of the ProFund's Short Small Cap Inverse (SHPIX) on many occassions when when sell signals remove accounts from the sector funds in the Fidelity Selects Portfolio.

ProFund's Short Small Cap Inverse (SHPIX) fund is the inverse (or short) of the daily Russell 2000 small cap index. Committing a portion of funds to an inverse Russell 2000 small cap index (SHPIX) on sell signals leverages ammounts to taking a partial "short" Russell 2000 index position on sell signlas. Thus on ETFs Program sell signals accounts are 50% net short the market. To reduce transation costs you may want to open a small account just to trade SHPIX directly at ProFunds, the family that sponsors that fund.

More experience traders may want to simply short an equivalent amount of the Russell 2000 Exchange Traded Fund, IWM rather than purchase SHPIX. Remember, ETFs will allow you to go short as well as long.

For those unwilling to take a partial short position on sell signals when a partial short is suggested subscribers can simply sideline all funds into the Fidelity Select money market fund (FSLXX), or any other money market fund for that matter, during the same sell signals. However, keep in mind that the best returns have historically come from including the short index fund on sell signals since the past has included several protracted bear market cycles. ETFs performance Tables XIII - XV assume a 50% commitment to the Fidelity Select money market fund (FSLXX) and 50% to the Profunds Short Small Cap Inverse (SHPIX) fund.

Again, we suggest that your non-TSP funds be divided equally between commitments to our ETFs Program and our FidSel Program. That diversification will yield a smoother performance profile while decreasing market exposure risk.

Since your "other" investment funds may not be in the same tax preferred setting as your TSP account, you will likely have short term capital gains to pay on most of your FidSel/ETFs account profits. You should therefore adjust your net return expectations accordingly.

 

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