Taking Stock of Your TSP

Don’t make rash decisions based on recent rocky performance.

Have you peeked at your Thrift Savings Plan balance lately? It’s been a rocky time in the financial markets over the past few months, so you may be seeing a lot of red ink and feeling a little uneasy.

At times like this, you may need to step back and take a broader look at managing your retirement savings. Saving for retirement is a long-term process. I’m not a financial adviser, but since the TSP is one of your federal retirement benefits, it pays to understand the investment performance aspect of this important piece of your overall retirement plan.

In the recent past, the overall picture in the TSP core funds hasn’t been great. Here are the returns of the five core TSP funds over the past 12 months (numbers in parentheses indicate negative returns):

  • G Fund: 2.91%
  • F Fund: 0.15%
  • C Fund: (4.41%)
  • S Fund: (9.26%)
  • I Fund: (13.43%)

Not a pretty picture. But the long-term view is better. Here’s what $100 invested in these funds at their inception would be worth at the end of 2018:

  • G Fund since Jan. 1, 1987: $474
  • F Fund since Jan. 1, 1987: $615
  • C Fund since Jan. 1, 1987: $1,927
  • S Fund since May 1, 2001: $402
  • I Fund since May 1, 2001: $202

All of the funds have gained significantly in value, especially those that have been around since 1987.

So what’s a federal employee investor to do? Some immediately react to market swings. According to the minutes of the November TSP Board meeting, during the latter part of November 2018, transfer activity picked up significantly between the TSP funds—mostly into the G Fund from other funds.

That doesn’t mean this was the right move for everybody. The practice of buying low and selling high requires you to know when the high and low points in the market will be. Even financial professionals can’t do that with consistent accuracy.

Remember, retirement investments should be designed to weather the ups and downs of the market over the long haul. You shouldn’t be overly fixated on the performance of the TSP at any particular moment. It’s no fun to see your hard-earned savings lose value (temporarily), especially if you’re one of those employees who have been furloughed or forced to work without pay during one of the longest government shutdowns in history. But keep in mind that five years from now, this all will be a distant memory.

If managing your investments seems complicated and, let’s face it, a little depressing, you can always seek the help of a financial adviser. Or you can essentially put your investments on autopilot by placing your money in the professionally managed lifecycle (L) Funds. The L Funds invest in a mix of the G, F, C, S, and I Funds based on your target retirement date. As that date approaches, the investment mix gets more conservative. This strategy assumes that the further you are from retirement, the more risk you’re willing to tolerate in your investments in the hopes of getting better returns.

The L funds are rebalanced on a daily basis and reallocated on a quarterly basis. This year, the TSP is making adjustments to the funds in an effort to improve overall investment performance.

If you’re a current employee, one key to increasing your retirement security is to strive to invest more in the TSP than you did last year. The elective deferral limit—or maximum amount you can contribute—has increased to $19,000 for 2019. Those over age 50 can make an additional $6,000 in catch-up contributions. Then just stay the course with your long-term investment strategy.

If you’re already retired, one of the most important things you can do is to keep your home address current with the TSP. If you don’t, you risk becoming a “lost participant,” and potentially missing out on notices of important changes to the TSP and deadlines you need to be aware of—such as the requirement that you take minimum distribution payments from your  account once you are retired and over age 70 ½ to avoid a severe tax penalty.

If you need more education to help you understand how to invest in the TSP, a great place to start is the TSP website, which includes lots of resources to help you manage your retirement savings.

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