TSP: Through volatile times, stay the course

The temptation in times like these of volatile events and markets is to move most of your retirement funds into the very safest investments. But, feds beware, as experts say you shouldn't try to "time the market" in that way—in the long haul it could cost you.

Market volatility from the COVID pandemic was already problematic, but—with the war in Ukraine—things have gotten bumpier still.

In recent weeks, federal retirees are dealing with the even greater turbulence as world and domestic financial exchanges roil. The S&P 500 index dove more than 10% between the start of the year to the first weeks of the Russian invasion. However, it should be noted that in recent days that top-stock index has recovered most of the loss—as have some popular Thrift Savings Plan funds.  

Still, with such a large proportion of each fed’s retirement assets residing across the various funds of the TSP, the temptation is strong to jump online and start switching investments around in reaction to the day's latest market tumult and how that is being reflected in federal retiree funds.

But the best advice on that may be: Don’t do it—or at least think twice, and perhaps consult your established financial advisor, before acting.

Ann Ozuna, a retirement expert and advisor based in Washington State and focused on federal employees, is telling her clients of a need for patience and to hang in funds that include stocks and growth potential.

“I have a lot of clients that by the time they’re getting back to me they’ve already made a big move, putting way too much into the TSP’s G Fund,” Ozuna told FederalSoup, noting that though it is safe this fund holds only very, very low-growth government securities—not much help for making gains or hedging inflation. “So, what I tell them when we finally connect is, hey, this [bumpy market] is going to come up again.”

“I also say to feds you need to put at least 10% of your TSP into something like the L Income fund, which at least has a third—30%—in stocks and has some longer-term upside possibility,” she continued. “That’s the only way—if you’re like most people and relying on your TSP—that you’re going to be able to buy that loaf of bread, later.”

It’s a mantra among financial and retirement experts that although volatility hits all markets in the short- and medium-term, over the long-haul, high-quality securities like most blue-chip stocks—particularly as index funds—grow in value at a rate that tends to outpace inflation.

Another expert on federal retirement, Richard Eller with the private-sector Federal Benefit Retirement Center firm, offers similar advice.

“We take a slightly contrarian point of view when we see other advisors or even employees run and hide and jump into the G fund,” Eller told FederalSoup. “The problem with doing that is twofold. First, as we've seen with the the financial crisis about a dozen years ago—and as we saw in again with COVID in March of 2020—is that most people get out near or at the bottom, when markets have capitulated and fear has taken over.”

“Unfortunately,” Eller added, “when people do that jump, they just don't know when or how to time getting back in to markets, and they often miss the rebound.”

“You have to remember that what's going on overseas doesn't—over time—have a whole lot to do with your typical blue-chip company here in the US and how their trajectory over time turns out,” Eller said. “When there are crises, yeah, there's going to be a ripple effect or knee jerk reaction—where there's automatic selling and may take their balances lower.”

“But you have to keep in mind—all investors do—that there's a lot of trading that goes on that is computerized, that is AI-driven. And as a result, it may look like all of a sudden people are getting nervous and bailing out of markets, or that there's all of a sudden a huge surge of confidence and buying—when in reality, most of it is all computer driven.”

Ozuna reiterates the point that trying to predict and time the market short-term is impossible. She advises that no one has a really accurate crystal ball about this moment in time—and that that is actually okay, since your retirement savings is for the long-haul.

“I don't tell my clients anything about where this war is going, or anything of that nature—we just don’t know, right?” Ozuna said. “But, I do say that this is one global place, one global set of markets—everything and everyone starts and ends up there, intentionally or unintentionally.”

“So, in the end what I do say to my clients is: just make sure you've got enough money put away and make sure it’s managed well along the way, for your retirement.”

Indeed, the much-consulted investment advice publication Kiplinger, in a feature, advises that during periods of market volatility “it's important not to let emotions drive your decision-making.”

“In times of severe market volatility, the fluctuations may feel disastrous,” the post continues. “However, emotional reactions to short-term market conditions can put you at risk for further financial losses. Markets typically go up and down, and even bear markets historically have been relatively short.”

The overall drift of most experts on financial markets and federal retirement is—generally—hang tight in your allocations in TSP, and not try to time the market or stuff every dollar into absolutely "safe" parts of the funds.

Although this is true most of the time—that sticking with especially a blue-chip stock or stock index over time pays off—sometimes it does not. For a good brief discussion of the ins and outs of long-term investing, risks-vs.-rewards and market volatility, have a look at resources on the subject posted by the Securities and Exchange Commission (SEC) and the industry group Financial Industry Regulatory Authority (FINRA).
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