The Thrift Savings Plan (TSP) is a "a retirement savings plan for civilians who are employed by the United States Government and members of the uniformed services" (see http://www.tsp.gov).

In general, it has 5 funds

• G: Government securities
• F: Barclays Capital U.S. Aggregate Index
• C: S&P 500 (Large and Medium sized U.S. companies)
• S: Dow Jones U.S. Completion Total Stock Market Index (small to medium sized U.S. companies not included in the C fund)
• I: Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index (international stocks of 21 developed countries)

There are two main rules of investing:

• Buy low
• Diversify

1. Get the prices of each fund. Call these G, F, C, S, and I.

2. Then take the inverse of each price. In other words, calculate 1/G, 1/F, 1/C, 1/S, and 1/I. Weighting by the inverse of the price incorporates the "buy low" rule.

3. Then take the sum of the inverses, ie. SUMINV = 1/G+1/F+1/C+1/S+1/I

4. Then take each inverse and divide by the sum of the inverses, and round that number to the nearest integer (because your allocation percent has to be a whole number), ie. calculate
   • G% = round((1/G)/SUMINV)
   • F% = round((1/F)/SUMINV)
   • C% = round((1/C)/SUMINV)
   • S% = round((1/S)/SUMINV)
   • I% = round((1/I)/SUMINV)

   These resulting percents are your allocation.

5. Check if G%+F%+C%+S%+I% = 100%. Because of rounding to the nearest whole number, the sum may be off from 100% in either direction by 1 or 2 percent and therefore you may have to tweak the percents slightly to make sure they add to 100%. Say you do steps 1-4, and you're off from 100% by a number we'll call DIFF, then an example of one strategy would be
   • If DIFF < 0, then C% = C%-DIFF (that is, add a "boost" to C%)
   • If DIFF > 0, then G% = G%-DIFF (that is, take away from G%)

   And now G%+F%+C%+S%+I% = 100%.

6. Using daily data from http://www.tsp.gov, calculate these percents periodically and change your allocation accordingly. Consider reallocating when your current allocation, (G%,F%,C%,S%,I%), has a "large" distance away from a calculated allocation, (G%*,F%*,C%*,S%*,I%*).
   • Let distance = abs(G%-G%*)+abs(F%-F%*)+abs(C%-C%*)+abs(S%-S%*)+abs(I%-I%*), where abs is the absolute value
   • If distance > 5 then reallocate according to (G%*,F%*,C%*,S%*,I%*)

The spreadsheet can be found here.

Remember, don't consider anything in this article beyond "Buy Low" and "Diversify" as investment advice. This article is just my musings/experiment on how to buy low and diversify, at the same time, in the TSP. Have fun!