Brian Connolly, with NYSE Trading Floor Operations, works on the floor of the New York Stock Exchange during the trading halt, Thursday, March 12, 2020.

Brian Connolly, with NYSE Trading Floor Operations, works on the floor of the New York Stock Exchange during the trading halt, Thursday, March 12, 2020. Richard Drew/AP

Viewpoint: Managing Your TSP Account Through Coronavirus Turbulence

Long-term market history provides a good guide for context.

These are challenging times, no doubt. Stock markets around the world have fallen precipitously in a matter of weeks. Daily declines of 5%, 7%, and even 10% have strangely become almost… normal. This has impacted our TSP accounts as well, and the downward trend might continue in the near-term as major events are cancelled and closures are announced throughout the country.

Yet, it’s important to keep a long-term perspective when investing in the TSP and in other investment accounts even during the most trying times. Long-term market history provides a good guide for context.

In research I present in TSP Investing Strategies: Building Wealth While Working for Uncle Sam, 2nd edition, I have found that when using buy-and-hold approaches to investing in a balanced portfolio in one's TSP, accounts can recover and trend higher within one to three years.

For the 2nd edition, out this week, I iterated over 20-, 30-, and 40-year periods from 1900 to 2019 using monthly returns in government bond and U.S. stock index data to see how funds similar to the G Fund (government securities) and C Fund (common stock) would fare in a variety of market conditions. In every 30-year period examined, for example, an index fund similar to the C Fund outperformed a fund similar to the G Fund, when investing monthly from January of the first year to December of the last year examined. The one exception was 1903-1932, which ended in the depth of the Depression: the two funds ended with almost the same value (although the stock fund increased again after another year of investing).

In a recent example, the 2008-2009 Great Recession saw the stock funds drop by over 50% from their highs in late 2007 to the absolute nadir in February-March 2009. Yet, for those who continued to invest in their stock funds, portfolios recovered to October 2007 values by the end of 2009. By mid-2011, and after continuing to invest in those funds, portfolios were up another 25% to 30%, depending on the mix of funds.

This is due to several factors.

First, the TSP investor must remain invested in his or her stock funds as they decline. To reframe your mental approach to TSP investing, it’s helpful to think of your TSP account not as a bank account, where the numbers represent the amount of cash you have to use, but as the value of your house or apartment. If the value of your house were to fall by 20% due to a declining real estate market in general, would your first inclination be to sell the property? Probably not. If all else remained equal—the neighborhood was still good, no sinkholes in the backyard, that sort of thing—you would probably just continue to pay down the mortgage and wait for the housing market to recover. For these assets, it’s the act of selling that creates the loss. If you don’t sell, you haven’t created any losses, and the value of the asset can recover and go higher given time.

Second, the TSP investor must continue to invest in his or her basket of funds on a regular basis through the downturn. This keeps with the old investing adage to “buy low.” If you like it when your favorite items go on sale at the store, or negotiating the price of a house or car down by 10 or 20% from the asking price, it’s the same for investing in the markets. Buy low, when the shares are on sale.

Third, dividends are the hidden multiplier. A majority of individual companies pay out a regular dividend to their investors—over 80% of companies in the S&P 500 pay a regular dividend—and those dividends are similarly paid to investors in the C Fund as well. While the dividend rate had trended at about 2% throughout the 2010s, during significant declines the rate increases to 3%, 4%, or more depending on the decline. Regular dividend payments can be challenging for some companies during major market declines, to be sure, but a majority of companies are able to maintain their dividend pay-outs throughout these challenging times. 

For TSP investors, these dividend reinvestments are made automatically, so it is difficult to see how they impact one’s TSP investments. But by breaking out the dividends from index performance, I found that without the reinvestment of dividends, the C Fund would have actually underperformed the G Fund in 23 of the 30-year periods examined since World War II. Dividends make a huge difference over the long term, because those dividends in turn pay out more dividends along with the original investment. This creates a virtuous cycle of increasing dividend payouts over the years, but that cycle is broken when a stock fund is sold.

There are ways to prepare, financially as well as emotionally, for significant market volatility as well. But the goal now is getting through the current market volatility by focusing on the long-term potential growth of one’s TSP and other investments.

W. Lee Radcliffe is a data analyst with the Federal Government with 20+ years of both civilian and military experience. He has an MA in International Policy Studies from Middlebury Institute of International Studies and a graduate certificate in data analytics from George Washington University. His latest book is TSP Investing Strategies: Building Wealth While Working for Uncle Sam, 2nd Edition Follow the project at, on, and @TSPstrategies on Twitter.