Model Moderate Risk Portfolio

MODERATE PORTFOLIO 1989 - 2004 Annualized Rate of Return 11.5% RISK MEASURES Maximum Draw Down -19.1% Ulcer Performance Index 1.3 Ulcer Index 4.3 Standard Deviation 2.7

Over the last 16 years this Moderate Portfolio provided an annual return of some 11.5% for investors fitting an "average" risk/reward profile. The market exposure risk for this portfolio, as measured by the Ulcer Index (UI), is 4.3. The risk adjusted performance, or the amount of return considering the risk assumed, is measured by the Ulcer Performance Index (UPI) at 1.3. The UPI is slightly lower than the UPI for the Conservative Portfolio. See Table II.

Usually, as an investor takes a more aggressive investment posture and accepts commensurately more market risk he would expect to be rewarded by a higher Ulcer Performance (risk/reward) Index. In this case, and in the case below for the typical aggressive investor, the UPI actually fell slightly. This tendency, which ran counter to the norm, was provoked by the devastating bear market of 2000-2003 which largely destroyed recent prior stock market gains bumping up the risk number for the UI. The Moderate Portfolio is invested 60% in the TSP bond funds and 40% in the TSP stock funds--the converse of the Conservative Portfolio above.

The TSP Pilot Portfolio would have largely avoided the entire 2000-2003 bear market. This partly explains why the TSP Pilot numbers for annual return and UPI are so high and why the UI was so low by comparison. See Table II.

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