Alex Strashny, Ph.D.'s  Instablog

 Peaceful Gains ETF
Financial advisory newsletters
with consistently high long-term returns
October 18, 2009
Update frequency: weekly

(For recommended allocations, see below.)

Dear subscribers,

It has been a year since we have launched our our company, and with it, our TSP newsletter. That newsletter follows the Thrift Savings Plan, the retirement plan for federal employees and the military. So let's take a look at how that newsletter has performed over the past year. Note that what I am discussing here is real, verifiable performance starting on October 15, 2008, the day that the first issue of our TSP newsletter came out. I myself am following the Balanced recommendations in my own TSP account. You are welcome to verify for yourself that the performance that I am describing is accurate.

Over the past year, out Conservative allocation had a return of 7.90%; our Balanced allocation had a return of 17.70%. While these are very healthy returns, it is important to remember that return is not the only measure of performance. Another important performance measure, which we take into account as part of our investment methodology, is risk. One common measure of realized risk is called maximum drawdown (MDD). MDD is the largest drop in equity, measured as a percent. Low MDD implies low risk. MDD for both of our allocations over the past year was just 4.01%.

The fact that the "buy and hold" approach to investing can be very dangerous has recently been brought back to public consciousness. MDD for the C Fund, which tracks the famous S&P 500 stock index, has reached 55.22% earlier this year! MDD's for the other two stock funds within the TSP are even higher — 57.43% for the S Fund ("Extended Market") and 60.89% for the I Fund ("Europe Pacific"). Despite the media reporting a recovery, as I am writing this, the three stock funds are still down about 25% to 30% off of their peaks. In my opinion, such huge drawdowns are not acceptable.

It is always important to have a solid investment strategy, especially in risky times like these. I believe that we have such a strategy. Ours is a scientific approach developed by a Ph.D. statistician. We consider not just the return but the risk as well. Our method adjusts to changing market conditions, is fully automated, and tells you exactly what to do. If you find our newsletters helpful, please help us spread the word by telling your friends and coworkers about it. Also, write about us on various blogs and online forums.

Thank you! Now, on to this week's allocations...

Allocations
Conservative

• Cash: 100%

Balanced

• HYG (iShares iBoxx $ High Yield Corporate Bond Fund): 75%
• EWW (iShares MSCI Mexico Investable Market Index Fund): 25%

Commentary: Bonds and Mexico (3)
Happy birthday to Peaceful Gains (and to myself)!

Both of the funds that we've recommended two weeks ago, a bond fund and a Mexican stock fund, have done well. We see more potential growth for them and are therefore continuing to recommend them this week.

Our method
We pick the mix of investments that maximizes the expected return while not exceeding a fixed maximum risk.