"Sell in May and don't come back" Words to live by and make money with? I don't know who came up with the phrase, but I did some research and found that if you had used this strategy over the life of your TSP retirement account, it would have worked out for you. We all know that past performance doesn't mean that future results will be the same, but this investor thinks there might be more to the story this time.
The Thrift Savings Plan has five funds to choose from.
The S&P 500 is what the C Fund is based on.
The Lehman Brothers U.S. Aggregate (LBA) index is a group of bonds. The F Fund is made to match those bonds.
The G Fund buys short-term U.S. government bonds.
The Wilshire 4500 index is what the S Fund tracks.
The EAFE index is what the I Fund tracks.
Since its start in 1988 until the end of 2005, the C Fund, which is based on the S&P 500, has grown by an average of 12.65556% per year. From October to May, the average was 12.87611 percent. It was -0.26056 percent on average from June to September. For the same 18-year time period, the average return on the F Fund from June to September was 3.35611%. If you had sold all of your C Fund stocks on May 31 and put all of your money in the F Fund, then moved all of your money from the F Fund back to the C Fund on September 30, your rate of return would have gone up by 3.6% per year over 18 years. Let me say that again: a 3.61667% increase per year based on only two trades per year.
From 2001 to 2005, the C Fund, which was based on the S&P 500, only gained 2.22 percent on average each year. Its average gain from October to May was 9.24 percent, but its average loss from June to September was a terrible 7.02 percent. Using the same strategy as above, our average rate of return would have gone from a weak 2.22 percent to a healthy 11.38 percent. With only two trades per year, that is an amazing increase of over 9 percent.
Since its start in 2001, the S Fund (which is based on the Wilshire 4500 index) has returned an average of 9.314 percent, while the I Fund (which is based on the EAFE index) has returned an average of 6.56 percent. From October to May, they both show the same pattern of gains, with the S Fund gaining 14.05 percent and the I Fund gaining 10.368 percent annually during those eight months. They also keep up with the S Fund's pattern of losing money from June to September, when the S Fund lost 4.736% and the I Fund lost 3.808%. Using the same strategy of investing for eight months in the S and I funds and four months in the F funds, you would have made additional gains of 6.336 percent for the S Fund and 5.378 percent for the I fund, bringing your rate of return to 15.65 percent for a S+F strategy and 11.938 percent for an I+F strategy.
What are your thoughts on this? Sign up for the TSPcenter forum and tell me. I feel like this summer is going to be bad. Of course, it could be because I just ate pepperoni pizza.
