January 2021

Goodbye 2020! TSP had an impressive run this year with positive double-digit returns for the C and S Funds. However, a major driver of the incredible returns is the Federal Reserve pumping money into the market to bolster the economy. This in turn will lead to inflation down the road. When it will hit, and how high inflation will go, is anyone's guess, but money cannot be dumped into an economy without corresponding inflation. As a result, these returns, when compared to past and future years, may need to be tempered somewhat as it was definitely not a standard year. As for my returns, I had a record setting year with 37.5%. The excess alpha generated this year was in no small part due to the use of the F Fund. As I have explained in previous posts and emails to some of my subscribers, I use the F Fund (not the G Fund) as a safe harbor, and this year, I used it exactly for that purpose. Of course, the other major driver for this year was the S Fund. As you can see from the table at left, while the standard deviation (risk) of the S Fund is incredibly high, the Sortino Standard Deviation (upside risk) is also equally high. These are lagging indicators to be sure, but they detail the tremendous activity in the S Fund this year. Moving forward to 2021, I am remaining in the S Fund for January. However, I think the risk of remaining in the S Fund is higher in January than in previous months due to the expected profit taking and fear of a market pull-back, so make sure you understand your risk tolerance. My expectation for 2021 is for the market to return to "normal" with a slightly better than average chance of having a return of 9%, a slightly less than average chance of being -5% to +8%, and almost no chance of having a year like we just had. Happy New Year and Keep Investing!