For Federal Employees: Market Timing or Tactical Strategy?

The Thrift Savings Plan, or TSP, employs a passively-managed approach to its funds. Passive investinggenerally means to track an appropriate index such as the S&P 500, rather than attempting to navigate the news and changes in the investment markets to stay ahead of the curve. Efficiently named, the available investment options C, S, I, G, & F allow the participant to allocate among large cap common stock, small cap common stock, international stock, U. S. government bonds, or U.S. corporate bonds, respectively. To clarify, large cap and small cap refer to the size of the company one would invest in, however, the industries held in each asset class portfolio may be similar. For example, one of the largest holdings in the C fund (large cap) is Pfizer, a pharmaceutical company. In the S fund (small cap), one of the largest holdings is also a pharmaceutical company, Alexion. Because Alexion does not have as high of a market value as Pfizer, these companies are categorized in separate asset classes. Both the C and S funds own a variety of stocks in many different industries, but there is some overlap. What is important is that these funds do not try to anticipate the future prospects of individual companies or the prospects of entire industries such as pharmaceuticals or energy. As a result of this passive strategy, the funds’ expense ratios are able to remain low by investment management standards. So, is this passive approach the best strategy or is a more proactive investment strategy more appropriate?

There are merits to both strategies, and statistics behind each approach. It can be difficult to navigate the market’s movements, especially considering the global interconnected nature of the investment landscape today. On the other hand, quality research and experience will reveal seismic movements in our society that make for solid investment opportunities. Here is one example: the energy efficiencies and discoveries taking place due to new drilling options like “Fracking” and natural gas have been reported in the US news media over the last several years. A recent article on CNBC.com, http://www.cnbc.com/id/100450133, provides a detailed outline of just how these developments will change the world we live in over the coming years. From an investment perspective, this provides tremendous opportunities for oil production companies, railroad companies (who are required to transport energy and logistics nationwide), and many other industries that benefit from inexpensive and more efficient energy. Proactive portfolio managers are exploring these opportunities by looking for well-run companies participating in this energy renaissance who have the capacity to grow and are currently valued at a fair price.

Determining whether a passive or proactive management strategy (or perhaps a combination of the two) works best for you, would be the result of a portfolio analysis and discussion with someone who can help map out your wealth management and retirement goals. Speak to your advisor to determine the best investment strategy for you and your family.

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Securities offered through Triad Advisors, Member FINRA / SIPC.  Advisory Services offered through Planning Solutions Group, LLC.  Planning Solutions Group, LLC is not affiliated with Triad Advisors.  PSG Clarity is a division of Planning Solutions Group, LLC.