Advice for Investors

Considering this year's volatile stock market, financial planners offer the following advice:

Make a timeline. When do you plan to retire? If you still have a decade or more until you dip into your nest egg, financial planners generally recommend heavier investments in stock funds like the C, S and I Funds. As you get closer to retirement, you should put more of your money into the G Fund, which will protect your investment. "People should not have any money they expect to have in cash in the next three years in the stock market," says Tom Grzymala, a financial planner with Alexandria Financial Associates in Alexandria, Va.

Define your comfort zone. Brian Orol, a planner with Strategic Financial Planning Group in Raleigh, N.C., poses the following question to federal employees and other clients: "If you put $100 in the market on Jan. 1 of any year, and on Dec. 31 your money is worth $80, which action would you take: Invest more, hold, or get out?" The answer to that question shows how comfortable an investor is with risk. People who would invest more may want to put more money into the stock funds; those who would get out might want to stick closer to the G Fund. Consider all your investments. How much money will you need to live comfortably in retirement? Good retirement planning includes a study of all of your investments and retirement income streams. FERS enrollees must factor in Social Security and their modest pensions, while CSRS enrollees should consider their federal pensions as well as any Social Security income they might be entitled to. Many federal employees also invest in individual retirement accounts and mutual funds and have pensions and 401k investments from other jobs.

Make some long-term decisions. After you figure out your timeline, define your comfort zone and consider your full retirement portfolio, you'll be more comfortable making decisions about your TSP investments. "I'm a big believer in diversification," says Kyra Morris, a Charleston, S.C., financial planner whose clients include federal workers and who advises clients to spread their money across funds. Morris doesn't see a lot of action in the international markets in coming years, so she recommends a small allocation to the I Fund. A harder choice is looking at the C versus the S Fund, she says. "I would put a bulk of equities investments in the C Fund," Morris says, though she's keeping an eye on the S Fund's performance. The potential for I and S Fund growth is a good reason to consider them, Orol says. Federal employees with non-TSP investments that are similar to I and S Fund stocks should note that investing through the TSP is tax-deferred. Other investments can be subject to capital gains taxes. Because international stocks and small and mid-sized stocks can yield high returns from year to year, capital gains taxes can be substantial.

Once you make your allocations, stick to them, the financial planners say. An investor who pulled his money out of the C Fund when it fell nearly 15 percent in August 1998 would have missed the rebound over the next five months that more than made up for the one-month loss. Some TSP investors also decided to bow out of the C Fund as the market dropped at the end of 2000. "I'm not a believer that you can time the market," says Morris. "If you tell someone to get out now, you're encouraging someone to buy high and sell low."