I was born in 1961 and all I ever heard growing up is it is always the best policy when investing long term to buy and hold. I will say that during this time frame, it was mostly true. But then personal computers came online, computer trading came online, then the internet came online and things changed. There might be others out there that will blame it on something else, but no matter what you want to call it or blame it on, something changed. What really got me going to write this blog is that I went to a retirement seminar and they were still trying to convince us that buy and hold would always win. I should have stood up and called BS, but I didn’t have black and white facts. Now I do. So next time I will.
Let me show you two different pictures.
That is from June 1961 until January 1 2000. So as you can see the buy and hold strategy was spot on. Yes they are a few bad spots but nothing that would kill a portfolio like your TSP. But what happened after January 1, 2000? Let’s look.
Those dips where massive, expensive, and crushing to people like me that did the buy and hold. There is a simple method that will help avoid this blow to your retirement account and that is making moves using a monthly chart with a 10 period moving average. Most of you that have been following me, know what and how to use this.
The S&P 500 is what the C-fund is invested in. I’m going to show you some numbers that will make you think. I also need to tell you that the TSP website will only let me get price per share information from June 2003 to present. So I did this a two different ways but the results were basically the same. Where I could use share prices, you got to see bigger gains because what you likely do not know is that we are paid dividends in our accounts but the TSP managers never show it. They just roll it in with the share price.
Ok so lets get started. So if you started buying the C-fund November 1, 1998 which was the last buy signal on the monthly chart before 2000 and held it until today, your gain would end up being 83.04% or 5.19% a year as an average. Not to bad considering those two massive crashes during the 2000 – 2009 area. But what would gains been if you would have used the monthly method mentioned above?
During the same exact period there would have been 7 buys and 6 sells and you would still be invested in the C-fund as of today. So over 16 years, basically 7 moves. That is pretty awesome. So what was the result? A 245% gain or 15.31% a year. That’s huge. Below is the S&P 500 with the calls in and out.
Now when I use the actual share prices reported by the TSP website and put them in place of the index pricing the gain grows. The C-fund with the monthly moves comes to 290% or 18.12%. I think it is worth monitoring the charts and not believing what some broker is telling you. This is easy. Someone just needs to show you and I just did.
This method works extremely well on the S&P 500 but not as well on the Small Cap, International, and specially the slow moving bonds. The reason my data is not as good in my opinion on the Small Cap and International is I can’t find the data back to 1998. But I will show you my results in numbers.
Buy and Hold Small Cap = 66.96%. Using the monthly moves = 88.60 and using TSP pps = 129%
Buy and Hold International = 76.75%. Using the monthly moves = 83.65% and TSP pps = 145%
Looking at those returns, the monthly didn’t do any worse than buy and hold, so what would be the harm in using it.
Lastly was Bonds, Buy and Hold = 8%. Using monthly moves 0%. I kid you not!! But using TSP pps, 33.31%.
So even the buy and hold method worked for the slow moving bonds. If you have any questions on my research and how I came about my numbers, email or track me down and I will show you my data. But as for me, I will never buy and hold with my retirement money even after I stop depositing new money to my account. This proves that I can make it grow even without new money.
Consider yourself educated.
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