What is in your Official Personnel Folder?

What documentation should be in the Official Personnel Folder (OPF)?

◦    The beginning and ending dates for each period of employment which will be used for your benefit computation;

◦    The effective dates for each promotion or within-grade increase during the period that will be used to compute your high-3 average salary;

◦    The dates of pay changes or earnings and the pay rate, during employment periods when retirement deductions were not withheld from your salary;

◦    The tour-of-duty during any part-time employment (if you worked more hours than the official tour-of-duty, document the hours actually worked.);

◦    A record of time actually worked during intermittent or "when-actually-employed" service; and,

◦    Documentation of the dates of military service.

◦    Your Official Personnel Folder should contain a record of your current Federal life insurance coverage on a Standard Form 2817

◦    Your current life insurance designation of beneficiary, Standard Form 2823

◦    Your Official Personnel Folder should contain a record of all of your health benefits registration forms, Standard Form 2809, and, if appropriate, Standard Form 2810

If any service is not verified or any of the required documentation is missing, you should obtain assistance from your personnel officer.

Understanding Diversification

If I were to offer you the opportunity to have above-average returns while taking on below-average risk, would you take the offer? If you answered yes, it's likely that your portfolio has under performed the S&P 500. But there is a perfectly legitimate reason for this under performance.

Please don’t shoot the messenger

Allow me to clarify. Let's say you're a long-term investor, and you are comfortable with a balanced asset-allocation of 50% stocks and 50% bonds. Let's also assume that the long-term average annual return for stocks is 8% and the average for bonds is 5%.

By doing some simple math, you can project an expected long-term annualized return. First calculate what each asset is expected to contribute to your portfolio. Multiply your stock allocation percentage (50%) by your expected return (8%), and you arrive at 4.0%. Now do the same for bonds (50% times 5%), and you get 2.5%. Now add those two products together (4.0% plus 2.5%), and you get a total expected long-term portfolio return of 6.5%.

Over the course of your projected investment time frame, you will expect your portfolio to outperform the 6.5% estimate in some years and underperform that mark in other years.

The purpose of portfolio construction

If your ultimate goal were achieving high returns while paying no heed to market risk, you might put all of your eggs into one basket and invest in a single security or asset you believed would provide the best return over a given period of time. But this investing behavior borders on gambling; I wouldn’t recommend that.
The ultimate purpose of constructing a portfolio is diversification; you want to achieve reasonable returns while taking on a level of market risk that you can accept. To do this, you simply build a portfolio that has a mix of asset classes.

Why diversification*

So why build a diversified portfolio? Because no one knows with certainty what financial markets and economies will do in the future. For roughly the past 3 years, US large company stocks have been one of the best performing asset classes. The S&P 500 happens to be an index that is essentially made of US large cap stocks. If you are properly diversified, meaning you own some foreign stocks, some small company stocks, bonds, and maybe some other asset classes, then your portfolio will probably have under-performed the S&P 500 since 2010. On the flip side of this, US large company stocks were one of the worst performing asset classes from 2000 – 2009. Having diversification into other asset classes would have helped the total portfolio greatly during this time period. 

So how does a diversified portfolio look in today’s market

Thought you’d never ask. Let’s take a look at how a diversified portfolio has done this year. Here’s a chart that shows the performance of the five major asset classes of a diversified portfolio:

 First I have to apologize… the markets have been a bit moody of late making the chart hard to read.

- US stocks (red/green thin line) are up about 4%
- Foreign stocks (pink line) are down almost -2%
- 3 month T-Bill (purple straight line) or cash is flat
- Commodities (blue line) are up 0.5% for the year
- Bonds (green line) are up just over 2% year to date 


So if we look at a diversified balanced portfolio, it would look like this year to date:

So, despite the media attention over the performance of the US stock market, diversified balanced portfolios are returning just over 2% year to date due to the broad weaknesses in the other areas. This hypothetical portfolio is intended only as an illustration of the math involved rather than the results of any specific investment.

* Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.