TSPinvestor Basic, Plus and Apex .. what are they?

The TSPinvestor has three investment allocation strategies – called the Basic, Plus, and the Apex. These are formulas that recommend monthly Thrift Savings Plan allocations for the individual G, F, C, S and I funds.

A simulation of implementing the Basic, Plus and Apex was done and the 10-year annual return (2005-2014) for the Basic was 12%, the Plus was 19%, and the Apex was 23% (see the comparative annual returns here).

The following link is to a third party site that I use to accurately capture the allocation returns. I have been using this since Dec 2015. So while the data thus far is limited, it is a confirmed and accurate accounting of the performance of these funds. I do recommend checking this out.

The development of the model and formulas relied upon a human decision. But these models are not tweaked or adjusted, nor is there any human decision regarding the monthly allocations.

DEVELOPMENT

The Basic has a model/formula that is solely based upon historical returns of the TSP G, F, C, S and I Funds. The Plus model/formula is based upon historical returns of the individual TSP funds, as the Basic does, but also includes several leading economic indicators.

The Basic, Plus and Apex models, and formulas were derived using mathematical and statistical techniques. A full compliment of factors/variables were considered and selected based upon their effect on matching the historical data. The historical data used was from January 2003 through the present.

The Basic uses only the TSP fund historical data to feed the model/formula. The Plus additionally uses three leading economic indicators. And the Apex uses the Plus model – but then determines if it’s optimal to invest 100% in the top allocation recommendation for that month.

Is It Right For You?

The decision to allocate your TSP account is a serious one. The strategy to allocate (buy) and then don’t change (hold) comes easy, and often is very predictable over the long run. For example, an aggressive strategy in the mid 2000’s to invest 50% in the C Fund and 50% in the S Fund over the course of 12 years yielded about 8-9% per year, which is a fairly good return on your investment. However, there is no doubt that the monthly allocation strategy will yield a higher return. And the risk is less than the aggressive buy and hold strategies, such as the example above.

IMPLEMENTATION

The first step in implementing the TSPinvestor strategy is to choose which fund is best – the Basic, Plus or the Apex. At first glance the 19% return of the Plus, or the 23% of the Apex seem obvious choices. However the 12% return of the Basic may be your choice. Look at some historical data to help decide. Either way, pick one and stick to it for the long term.

The implementation of the allocations is done on a particular day of each month. The Basic is allocated on the last business day prior to the 2nd of the month; The Plus and Apex are allocated on the last business day prior to the 10th of the month. The recommended percentage for each fund should be changed within the TSP website for the fund distribution (via interfund transfers) and also future contributions.

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the G Fund .. what is it?

The G Fund, or Government Securities Investment Fund, in the Thrift Savings Plan is the lowest gaining, least volatile fund. It will not lose money, but it also doesn’t give much of a return either. However there are months where the G Fund out gains the other funds and is a solid option during a depressed stock market.

The G Fund money is invested in short-term U.S Treasury securities specifically issued to the TSP. The payment of the principle and interest is guaranteed by the U.S. Government. The goal of the fund is to maintain a higher return than inflation. The interest rate is set every month and is based upon a weighted average of outstanding Treasury notes and bonds that have more than four years to maturity. The earnings are entirely based upon the interest income of the security fund.

The comparison of the G Fund to the short-term marketable Treasury securities (T-Bills) is often drawn. However the G Fund earns about 1.8% more annually than the T-Bills. That is because the G Fund earns an intermediate rate, whereas the T-bills earn a short-term rate.

The administrative expenses for the fund is 2.9 basis points, or $0.29 per $1000 account balance.

The 10-Year (2005-2014) annual return was 3.19%, and since its inception in April 1987 the return is 5.43% annually. There is about $200 billion invested in the G Fund.

Both the Plus and Basic utilize the G Fund heavily during times of loss in the stock funds (C, S and I).

TSP Fund Information – March 2015