Why You Should Strive for Average — With the TSP at Least

When it comes to your retirement investments, “average” can be extraordinary.

Growing up, I played a lot of sports and I hated being average. I wanted to be the best and win at everything I did. And this mentality has stretched over to school, work and family life. I am always striving to be above average at everything. Everything, that is, except for investing. 

And for those that are familiar with the investing world, this may sound pretty strange. Much of the investment world is obsessed with “beating the market” and being above average. But not me. I don’t want to be above or below average. I just want to be average. Let me tell you why.

For someone to get above average returns in the stock market, there are two main strategies:

  1. Predict market swings
  2. Invest in individual stocks that grow faster than the market

For the feds who invest solely in the TSP, only the first strategy is an option.

And the problem with these strategies is not that they don’t work. They can actually work exceptionally well (if you are good at them). The problem is that it is so incredibly hard to do either of these things well over a long period of time. As a result, people who try to get above average results often get worse results than those who tried to be average.

Even professional investors struggle with this. Some studies show that only 1 in 20 professionally managed funds beat the market. But even if you successfully pick the 1 out of 20 funds that does well, the odds of that fund beating the market over a long period of time is close to zero. Not to mention that these professionally managed funds require much higher levels of expertise, time, and resources. This results in higher fees, which eat away at the returns.

Even within the TSP, many people try to time the market. They do this by moving all of their investments into the G fund right before they think things are going to go down. The problem with selling right before a “down market” is twofold. First, it is very difficult to predict a down market. Second, now that you moved everything into the G fund (even if we assume that you correctly predicted a down market), when do you move it back? The only thing harder than knowing when the market will go down is knowing when it will recover. 

The bottom line is that the odds are against you for trying to beat the market. That doesn’t mean it is impossible (Warren Buffet being a great example of that) but it does mean that you should think twice before betting your retirement savings on it. For every Warren Buffet, there are thousands, if not millions of people that tried and failed. 

The good news for federal employees is that TSP funds were built with all this in mind. That is why the TSP funds will always be average. They will match the index of whatever they are meant to track. No more and no less. For example, the C fund is built to track the S&P 500 (500 large to medium stocks) and it does just that all the time. While other funds on the private side spend millions on managers to try to do better than the S&P 500, the C fund doesn’t. It then pushes the millions of dollars that it doesn’t spend on fancy managers back to you in exceptionally low fees. Over the course of a career and retirement, these small differences can make a huge difference in your retirement savings and in your peace of mind.

Your personal circumstances should determine which TSP funds you invest in. But it’s important to keep in mind that when it comes to investment decisions, “complicated” does mean better.

I talk with federal employees all the time who are looking for fancy investments outside their TSP and most of the time, after a short conversation, we agree that it makes much more sense to stay within the TSP. Investing outside the TSP can make sense for some—there are many low-fee index funds and exchange-traded funds that are great long-term options. You’ll just have to wade through thousands of different funds to find ones that do as well as the TSP funds. Oftentimes, it makes the most sense to keep it simple and stick with a buy-and-hold strategy in the TSP. 

Being average is not as exciting as investing in the hottest new stock or fund but it has shown to work consistently over the long run. And for my fellow overachievers out there, that means (at least with investing) the best way to be above average is often by being okay with just average. And over time, these consistent “average” returns grow into incredible retirements. 

Dallen Haws is a financial planner and host of the “Plan Your Federal Benefits” YouTube channel as well as a podcast at

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