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TSG ETF Allocation System

Guide to Using this System

This page is a guide to using this system. It describes the system, answers frequently asked questions (please ask me if your questions were not answered here and I'll add this information in a future update), and provides the complete mathematical algorithm, so that you have full disclosure what you are getting into and can make an informed decision before jumping in.

System Description

This page is a guide to the Trading Systems Group Exchange Traded Fund Allocation System. This is a medium to long term system that allocates percentages of a portfolio among 5 differnt Exchange Traded funds or simply the Thrift Savings Plan funds, which is the U.S. Government's 401K system for federal employees. You do not have to be a federal employee to use this system. This page includes the algorithm for this system and frequently asked questions.

System Algorithm

This system has a very simple algorithm. It has 2 decisions to make:

  1. What percentage should be invested in stocks?
  2. Of the amount not invested in stocks, what percentage should be invested in bonds?

The algorith to determine what percentage is invested in stocks is very simple. It uses SPY as the decision making ETF. If SPY goes up 8%, decrease amount invested by 5%, to a miniumum of 50%. If the SPY goes down 6%, increase the amount invested in stocks by 5%, up to 100%. These values work cumulatively, so for example, if the SPY goes up 24% with no 6% pullback during that time, the amount invested in stocks will go up 5%, then 5% again, then 5% once more, (since 24% = 3 x 8% increasing the stock allocation by 15%. How does it allocate between the differnt stock funds? Always 50% (of the amount invested in stocks) in large caps, 30% in small/mid caps, 20% in Internationals. So this part of the algorith is very simply as one can see. As simple as it is, it has worked historically.

The algorith to determine what percentage is invested in bonds is also very simple. If the F fund decreases by 1%, the amount (only the percentage of the amount not invested in stocks determined above. invested is 60% F fund, 40% G fund. If it dips 2%, 80% F fund, 20% G fund. If it dips 4%, 100% of the amount not invested in stocks is invested in the F fund. Then on the other side, if the F fund rallies 2%, the allocation is 40% F fund, 60% G fund. If it rallies 4%, it allocations 30% F fund, 70% G fund. If it rallies 10%, 20% F Fund , 80% G Fund. And finally, if it rallies 20% with no pullbacks, then it allocates 100% to the G Fund.


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