Who Beat the Market in 2020?
Well, here we are again. Time for the annual review of those aspiring market-timers, the TSP Allocation Services. If this is your first time reading one of these, let me give you a brief orientation. Each year I compile the returns of services that advise you on the moves to make inside your TSP. Their goal is get you to time the market in such a way that you beat the do-nothing, buy and hold approach.
For example, if you subscribe to one of these services, you might get an email next week that says now is the time to move 100% into the G Fund. Or 50% C and 50% S. That sort of thing.
At the bottom of this page, you will see a button that will take you to a spreadsheet of the 2020 results. As far as I know, I am the only one out there compiling this data each year. And each year, I just add the most recent year onto the end. That means with the addition of 2020, you will see 14 years of returns.
(Click Here for the 2019 Version)
About the Services
There is nothing standard in these services as you will see if you study them for any time at all. Some are very transparent and post all of their results every year so you can see if they accomplish what they claim. Others don’t reveal any performance data whatsoever. Some are free, some cost several hundred dollars. Some websites are clear and easy to understand, some are ridiculously complicated. Some have been consistent with their strategy over years, some change all the time. The phrase “buyer beware” would most definitely be applied to these services. Be very careful if you choose to use one of these—you really need to do your homework.
Backtesting
I write about this every year. It is probably the absolute most important concept to understand when you look at the chart below. Backtesting is the method of coming up with a strategy or technique today, and then testing it back in the past to see how it would have done. This can be a valuable tool, but it can also be dangerous. Dangerous because it may identify a trend that is absolutely irrelevant for the future. For example, let’s say I found that the market typically went up on the last Thursday of the month for the last 5 years. I come up with that system and tell you when to jump into the markets on certain Thursdays. Does that make sense? No. What if I said, if you had done this over the last 10 years, you would have earned 45% a year? And then I claimed that my system earned 45% a year? That’s not true. The system didn’t earn that much, it would have earned that much. Big difference. That is backtesting.
Backtesting results aren’t real. Because, by definition that strategy didn’t exist back then.
I talk alot about this concept because the top services listed in the chart below have substantial backtesting components to them. If this is confusing, just understand this—no one actually made that amount of money following that strategy in say, 2010, because that strategy didn’t exist then. No one from that company was around in 2010 to advise you to, “Do this.”
Updates for 2020
I decided to clean the spreadsheet up this year because so many of the funds are no longer around, or have changed substantially in their methods/strategy. The TSP Millionaire seems to be gone. For years, it was at the top of the heap. TSP Timing has gotten rid of some of their strategies, and created new ones. The new ones created in 2020 were backtested and show remarkable gains over the past few years. But then again, those strategies created in 2020 were not actually around in 2015, for example.
If it is a new strategy without at least a 10 year history, I did not include it. The exception is the L 2050 Fund, which has clear data showing its return each year.
The 2020 TIMING THE MARKET TROPHY goes to.…TSP Coach. Congrats! It beat the market considerably-even the S Fund. In past years, I have written about the user-friendliness of their website. It is routinely updated, and provides clear information and performance data. Of the services that cost money, this is one of the more reasonable ones as well.
One thing I am unclear on is what years, if any, are backtested, and which years are real, actual results (maybe they all are?). I reached out to the company to ask them this question but have not heard anything back as of this writing.
If your favorite service is not listed on the chart below, it is because of one of the following reasons:
It does not reveal its results, so I cannot measure it
It no longer exists
It has changed substantially so that the strategy it used before is no longer the same and any reporting would not be consistent enough to be fair
Or, simply that I have not learned of it yet. If this is the case, let me know and I’ll include it for next year
Because there are so many services now that are not around any more, or don’t reveal their performance, I quit listing all of them. If you claim you can beat the market, but don’t actually show that you’ve ever beaten the market, there’s really no reason for me to include you in a ranking.
TSP Calc
A note on TSP Calc. I have had several people mention this one to me over the past year. So I went on their website to check it out. I even watched a 40 minute YouTube video. The gist of this service is that they have compiled, calculated, or whatever you want to call it, different combinations of funds at different times of the year. Each combination is a strategy. They have over 130,000 different strategies on their website, each one identified by a number. The goal being (best I can understand it) is that you choose a strategy based on its past performance, and then that strategy tells you when to move your TSP funds around as you progress through the year.
Since there are a ton of different strategies, it’s basically impossible for me to report how they did throughout the year. As such, you won’t see them on my spreadsheet below. The basis behind the strategy is predicated on seasonal trading. The premise is that certain funds do better during certain times of the year (remember my ‘last Thursday’ example above?). This fund trades based on that type of strategy.
(If I got this wrong, and someone from the company wants to send an email to straighten me out, feel free. I spent a good amount of time on it but I’m still a little shaky.)
CAGR
Don’t get scared off by weird acronyms. CAGR is simply shorthand for Compound Annual Growth Rate. This is just the rate of return averaged over a certain period. In the spreadsheet below, I calculated the CAGR for the entire length of my study—14 years, as well as the last 10 years, which is a more conventional reporting period. When you hear people say something like, “My TSP has returned 12% over the last 3 years”, this is what they are referring to. For those of you that wear pocket protectors and want to research this more, we are discussing the geometric mean, not the arithmetic mean.
But let’s get practical.
Chris, do you use any of these?
No. I do not see conclusive evidence that they are worth spending the time and/or money on them. I deal with a LOT of TSP millionaires. I have never met any that claim they were a millionaire because of these services. In fact, I have found consistently that those that have the highest TSP balances also have the fewest number of interfund transfers. Indicating to me (at least anecdotally), that those who trade more, have lower balances.
Someone once said, “If you want to learn to be a pilot, talk to the man who has flown the plane.” If I want to be a TSP millionaire, I’m going to talk to people that are TSP millionaires and find out how they did it.
Chris, are any of these right for me?
I cannot answer that. Do your own homework. I will say this—and I believe it wholeheartedly—if you aren’t maxing out your TSP, that is far more important than using a service that tells you when to trade. Spend your energies trying to figure out a way to get to that $750 a pay period threshold. THAT is priority #1.
Chris, what do you do?
I have written about this quite a bit lately. I am 70% C and 30% G. You can read my reasoning here.
But Chris, you’re missing out on huge gains if you are just passively going along with the flow and not trying to avoid the downsides!
My TSP balance says otherwise.
Chris, I’ve done very well using [whatever service].
That’s fantastic. I hope you have! My experience has been when I sit down and actually run the numbers, the individual has made less than the old buy and hold approach has made. The fact that your account went from $400k to $600k in the last year or two is not an indication that you were doing well relative to the market. You have to crunch the numbers to see if you actually beat the market. Perhaps your $400k would have been $700k if you had just set it and forget it. Be careful thinking you’ve done great if you aren’t actually measuring that greatness.
Chris, these services seem complicated and they intimidate me—is there anything wrong with just sticking with the C and/or S funds?
No. In fact, lets review a couple of numbers. Over the last 10 years, if you had just bought the C Fund and held it, never trading, you would have made an average of 13.9% a year. Putting that in real numbers: $200,000 ten years ago is now worth over $750,000…even if you didn’t contribute a single dime! That is a nice return. In fact, it beat all other TSP funds over that same period, including the S. So, no, just buying the old boring C Fund is nothing to be ashamed of.
Here’s another interesting tidbit. There are 5 TSP funds (G, F, C, S, and I). If we were to rank each one of them based on performance each year (1 through 5), we would find that each one of them had come in 5th place at least once over the last 10 years. Each one, that is, except that old boring C Fund. It never came in last. It has always finished ahead of at least one fund each year. That may not mean much on the Ricky Bobby Scale, but never coming is last is pretty good too. Not that that is the sole reason to make an investment, but it helps illustrate why I stick with the C as opposed to the S—less volatility most times.
Every year I close with these two quotes from some of the greatest investors of all time. They are always applicable, but given the events (and subsequent market reactions) of 2020, they are perhaps more important than ever.
“After nearly fifty years in this business, I do not know of anybody who has done it [market timing] successfully, and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently” -- John Bogle, founder of Vanguard
“The primary cause of failure [in the market] is that they pay too much attention to what the stock market is doing currently” – Benjamin Graham, author of The Intelligent Investor, and Warren Buffett’s mentor