There have been several major world events in the past few years that have caused either fluctuations or noticeable losses in the stock market. TSPs as well as investment accounts and 401Ks have all taken the hit.
After decades of mostly good — often great — news, the stock market is wobbling. For good reason. Thrift Savings Plan investors have grown accustomed to big returns with hiccups replacing bear markets. Generally speaking, things have been good-to-excellent since May 2009, the end of the Great Recession. The TSP is critical to federal/postal workers under the FERS program. It could provide anywhere from one-third to one-half of their total income-for-life in retirement. Their federal retirement annuity and Social Security are the other parts of that three-legged system Congress designed in the 1980s. The changes, while excellent in many respects, mean that FERS employees must work harder/plan smarter and show more discipline in order to match what they would have gotten under the CSRS program. They need to invest smarter and harder (as in more) to match or exceed what they would have gotten under CSRS. But it can be done. Most of the current TSP millionaires are FERS employees/retirees who maxed out on their contributions (ensuring the 5% government match) and who continued to invest in the stock indexed C, S and I funds during the Great Recession when the market tanked, producing a scary buyer’s market for investors.
It’s easy to talk about long-haul, no-panic investing during good times, like we’ve just experienced for an unnaturally long time. But when the going gets tough, and markets decline — sometimes rapidly — it is harder to stay the course and sleep at night.
In reviewing your Thrift Savings Program (TSP) account balance, the following tips can help you understand present day account value losses.
- TSP Account losses are not Realized Losses Unless You Sell
With all of the noise surrounding the economy and stock market, you may feel pressure to sell or reallocate your TSP investment funds. This is normal. But it could also be a risky investment move. While your investments may currently be worth less than they once were, those declines are only locked in if you sell.
- The Stock Market Has Historically Bounced Back
Markets go up, markets go down, and there’s no way to know when either will occur. In short, past performance is no guarantee of future results. Still, the long-term trend of the stock market has always been positive, given enough time.
- Selling Out Could Mean Missing Out
Dollar Cost Averaging is important in your TSP Search the Internet for “Cost of timing the market” and you will find countless articles illustrating the potential portfolio return damage of missing just a small number of the market’s best performance days. Since those days often happen in close proximity to some of the worst performance days, selling to try to miss more down days could cause you to miss big up days too.
- Long Term Equals a Long Time
When investing, experts recommend having a long-term focus measured in years or even decades, not the days, weeks or months on which economic and market headlines tend to focus. While it’s probably not wise to ignore the headlines altogether, too much focus on short-term negative news can cause you to take actions that will negatively affect your long-term returns and plans.
For more information on the TSP and how it fits into your retirement plan, speak with a Personal Financial Manager at your installation.