TSP Pilot vs. Income L Fund

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Overview of the L Funds

The Income Fund
The 2010 L Fund
The 2020 L Fund
The 2030 L Fund
The 2040 L Fund

The TSP PILOT PORTFOLIOS

TSP Income L Fund
The TSP website describes the basic initial portfolio structure of their Income L Fund. This is their most conservative L Fund and is currently targeted to those TSP'ers who are expecting to start drawing down their accounts on or before 2008.
The mix is heavily weighted to the more conservative, less volatile bond funds with 74% currently devoted to the safe-harbor G Fund (government securities). This portfolio closely matches the more typical "20/80" mix lifestyle portfolios available for other very conservative 401k plan investors. The Income L Fund is TSP's most defensive portfolio that might be useful for those investors who either expect a bear market ahead or are very risk averse.

Performance
TABLE XXI

TSP Pilot Portfolio vs. TSP L Funds, Timed and Un-timed (1989 - 2009)*

Portfolio Annualized Return
(AR)⁵ Maximum Draw-down
(Mdd)¹ Ulcer Performance Index
(UPI)² Ulcer Index
(UI)³ Standard Deviation
(SD)⁴

TSP Income L Fund 5.5% -11.7% 0.2 1.8 1.0

Pilot Timed Income L Fund 5.6% -3.4% 0.5 0.5 0.6

TSP 2010 L Fund 3.2% -31.3% 0.1 7.2 2.4

Pilot Timed 2010 L Fund 7.2% -9.6% 1.1 1.8 1.4

Pilot TSP 2020 L Fund 7.7% -40.0% 0.3 9.9 3.1

Pilot Timed 2020 L Fund 8.1% -12.8% 1.1 2.7 1.8

TSP 2030 L Fund 8.2% -45.2% 0.3 11.9 3.6

Pilot Timed 2030 L Fund 8.7% -14.9% 1.0 3.6 2.1

TSP 2040 L Fund 8.7% -50.2% 0.3 13.9 4.1

Pilot Timed 2040 L Fund 9.3% -16.8% 0.9 4.5 2.4

TSP PILOT Standard PORTFOLIO 15.8% -8.2% 5.8 2.3 2.4

Note: Look for a low UI and Mdd and a high Return and UPI as keys to best performance.
Also see information on our Pilot Aggressive Portfolio.
* Database begins 9/1/1988. Some early periods based on proxies for L and I funds.
** Proxy for I Fund begins 1/25/96.
- The TSP L Funds were introduced in 2005. However, our performance for the L Funds begins on 12/31/88 to provide for a more useful assessment of the L Fund methodology. Fund proxies are used prior to 8/1/05. Actual performance for TSP L funds would be considerably worse than that shown if viewed from the actual L Fund inception date of 8/1/05.

Over the last 21 years this bond-heavy portfolio provided the lowest annual return of all five of the L Funds producing some 5.5% annualized while accepting a very low market exposure risk, as measured by the Ulcer Index (UI), of only 1.8 and maximum draw down (Mdd) of only -12% The idea is to maximize the annual return and UPI while minimizing the market risk (UI). This portfolio at least succeeded in limiting the exposure risk.
The market risk (UI) incurred by the L Income Fund is the lowest of any of the new L Funds primarily because it's heavy bond portfolio suffered less loss during the 2000-2003 and 2007-2009 bear markets.
However, the basic timed Income L Fund avoided most of the 2000-2003 and 2007-2009 bear markets improving both performance and risk limitation results over the standard Income L Fund. However, the results of the basic timed L Fund do not show a dramatic improvement over the standard buy-and-hold Income L Fund because it had only a minimal stock fund exposure during the 2000-2003 and 2007-2009 bear markets.

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TSP Pilot is a commercial service not associated in any way with the U.S. Federal government. TSP Pilot does not issue individual investment advice. TSP Pilot publications are prepared for informational and educational purposes only. Past stated hypothetical performance is not an indication of future performance.

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