Frequently Asked Questions

  1. When you change your TSP contribution allocation, do you also change which fund your existing TSP balance is invested in?
  2. I panicked (or followed someone’s advice), sold when the market dropped, and was in the TSP G Fund when it went back up to new highs. Should I wait until another dip before I go back to the stock fund?
  3. I am currently invested in one TSP fund, but want to move my balance to another. Should I move it all at once?
  4. I am nearing retirement, should I change my TSP allocation to be more conservative?
  5. Why aren’t you sending out an update to address the news from DC or the current market downturn?
  6. I’m new to investing and it’s all pretty overwhelming. Where should I start?
  7. How did the business cycle strategy perform in years prior to 2013?
  8. Does a TSP loan appear on my credit report?
  9. Everybody talks about diversification in investing. Doesn’t that mean it is a bad idea to be 100% in a particular TSP fund?
  10. What’s the difference between the TSP Allocation Guide strategy and the other TSP services and guides on the internet?
  11. How do you invest your non-TSP funds?

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When you change your Thrift Savings Plan contribution allocation, do you also change which TSP fund your existing balance is invested in?

Whenever I refer to my TSP allocation on this site, that reflects both my contribution allocation as well as where my existing balances are invested. When I change my allocation, I both change my contributions and conduct an interfund transfer to reflect my current fund choices.

 

I panicked (or followed someone’s advice), sold when the market dropped, and was in the TSP G Fund when it went back up to new highs. Should I wait until another dip before I go back to the stock fund or lock in my losses and move it back now?

Mistakes are part of investing. The hard part is putting it behind you and moving on. With respect to locking in losses, I try to look at every decision as if my Thrift Savings Plan balance is all in cash and I am deciding where to put it that day. Whatever happened in the past doesn’t matter – all that does is where the best place for the money is today.

Now let’s look at the notion of waiting until the next downturn to occur before you move it back. There have been 19 downturns of 5% or more since the current bull market started in 2009. Odds are that there will be several more this year. But typically following one of those downturns, we get back to the breakeven point in less than two months. So unless another downturn occurs in the next month or so, any “losses” would typically have already been wiped out and the market back in positive territory before the next downturn occurs.

 

I am currently invested in one Thrift Savings Plan fund, but want to move my balance to another. Should I move it all at once?

When I am making investment decisions in my own Thrift Savings Plan account, if I am reasonably convinced that the fund which I am buying is trending up I will not “average in” by buying at different times. Instead I put whatever funds I am investing to work right away. In contrast, if I am buying a fund which is beaten up and possibly still falling, I will use the dollar-cost average strategy and invest fixed amounts over time. That results in buying more shares when the price is lower and less when it is more expensive, and results in a lower total average cost per share. So at the tail end of a recession, for example, I might move a fixed percentage from the TSP F Fund to the S Fund each week or month to hedge against the market moving lower.

I am nearing retirement, should I change my Thrift Savings Plan allocation to be more conservative?

I believe that with some very rare exceptions, Thrift Savings Plan allocations should not change based on age. You don’t stop earning when you retire unless you handicap yourself. This is because I believe that at any given time, there is one Thrift Savings Plan fund which is the right fund to be in and all of the others are going to do relatively poorly in comparison. My allocation almost certainly won’t change when I near retirement because my goals for my money won’t change. When I retire at 60, let’s say, I will hopefully still have another 30 years or so left and I am going to want for my Thrift Savings Plan balance to keep growing as much as possible for all of that time. Why would I switch to something “safe” like the TSP G Fund which is going to just barely keep up with inflation as I start approaching retirement when my earnings horizon goes out for decades to come? Imagine the difference between the 1.5% I could get for the G Fund right now, compared to the 38%+ which I got for the S Fund in 2013. Now compound that for 20 or 30 years.

That said, the market is occasionally going to have a “correction” of 5 to 10% for reasons unrelated to the economic cycle. You can’t predict those, but the market is typically back to break-even within two months. Even when we see a major “crash” of 30% or more, the market has returned to break-even on average within 14 months. For that reason, if I am planning to take a large withdrawal from my Thrift Savings Plan upon retirement to pay off a property, start a business, or travel the world – it would make sense to me to protect that portion of funds which I am counting on using from a significant decline for a year or two prior to withdrawing it. But the rest of my TSP balance will remain invested in whichever fund is indicated by the phase of the economic cycle we are in.

Why aren’t you sending out an update to address the news from DC or the current market downturn?

In the business cycle strategy, you only change investments when you believe the economy is entering a new phase and ignore the blips and aberrations along the way. Those blips can be caused by news or market manipulation or investor psychology. These blips don’t have the power to impact the economy as a whole, so the market will generally continue to trend upwards. Trying to trade the news is a fool’s errand; by the time you have seen a story it has already been priced into the market, so all you can do is sell at the low and miss the inevitable recovery.

I’m new to investing and it’s all pretty overwhelming. Where should I start?

Read everything. Please don’t read only this website and make investment decisions based on what you see here. Read everything you can lay your hands on and decide what make sense to you and works for your situation. Please remember that most of the stuff out there in the day-to-day media is drivel intended to sell advertising. I do have a few books listed on my Recommended Reading page which would be a good place to start your investing education, including A Random Walk Down Wall Street and Investing Without Wall Street.

How did your business cycle strategy perform in years prior to 2013?

Without getting into my unverifiable returns from back before I made my allocations public on the website, let’s take a look at how someone following this strategy might have looked at the economic indicators in the lead up to the beginning of the Great Recession in 2008.

 

The treasury yield spread became very tight beginning in 2006 as the housing bubble burst and became inverted at the start of 2007 which strongly indicated that a recession was likely. It started to spread back out at the beginning of 2008 as the Fed frantically dropped the fed funds rate, but at that point it was too late. With the treasury yield spread as a warning that a big problem was on the horizon, someone following this strategy would have been very focused on the stock market sell-offs and unemployment rate warning signs in late 2007 and early 2008. At a minimum they probably would have gone to a 50/50 stock Fund/F Fund split at that time. Once they saw the GDP growth rate go negative in the first quarter and the strong rise in unemployment starting in June, our hypothetical fed would have gone to the TSP F Fund until the economy showed signs of turning around and they would have missed the big drop in early fall.

All in all, I think someone being fairly moderate with this strategy would have lost about 10% in the early market drops, but would have missed out on the catastrophic fall in the second half of 2008. They would have profited nicely from the rise in bond values as interest rates were slashed. And as soon as the indicators showed signs of a recovery they would have been back into the TSP S Fund and seen returns of 30%+ for three of the past five years, 18% in 2012, and one essentially flat year (-3.3%) in 2011 due to the Eurozone crisis.

Does a TSP loan show up on my credit report?

No, a Thrift Savings Plan loan does not show up on your credit report, because it isn’t really a loan. For lots of details, please see: The TSP Loan Guide, Part 2

Everybody talks about diversification in investing. Doesn’t that mean it is a bad idea to be 100% in a particular Thrift Savings Plan fund?

Financial advisers preach diversification because they are afraid they will lose clients when the market declines unless they can point to a portion of their holdings which went up during the same period. In their view, average is better, even if they understand the historical numbers clearly show their clients would be better off over the long term not “protecting” a large portion of their funds. They have learned that the inaccurate “slow but steady” and “conservative” themes sell better with a fearful majority of investors.

 

Diversification might make some sense in a truly passive investing strategy, although even if you never make any adjustments at all, being all in stocks will result in a higher return over the long term than being in a mixed portfolio. The idea behind being diversified is it prevents a large loss when the stock market goes into recession. This works because bonds move in the opposite direction when stocks go down, so you wind up not losing as much overall. That sounds like a positive, but the same dynamic which keeps you from losing the maximum on the downside, also keeps you from gaining as much as you can when the market goes up. Because I believe I can safely be out of the market before a significant recession based crash by monitoring where we are in the economic cycle, diversification doesn’t make sense in my circumstance.

What’s the difference between the TSP Allocation Guide strategy and the other Thrift Savings Plan guides on the internet?

The short answer is that this strategy anticipates downturns in the economy, which inevitably lead to downturns in the stock market. We don’t try to time the stock market, we try to time the economy which is much more predictable and is not subject to manipulation by Wall Street.

Other guides seem to fall into two categories: (1) “safe” allocations which are guaranteed to get average returns and which largely look like the TSP LifeCycle funds, and (2) market timers who attempt to use technical analysis and news events to predict short term moves in the stock market.

I haven’t spent any time looking at the paid services except to note that their annual returns look poor to average. Maybe I’m missing something, but I can’t imagine paying hundreds of dollars a year to under-perform the S&P.

How do you invest your non-TSP funds?

The vast majority of my non-TSP investments are in mutual funds or ETFs invested in the same sectors which my Thrift Savings Plan strategy follows. I generally use Vanguard funds because of their low expense ratios. See this page for the Vanguard equivalents to the TSP funds.

20 thoughts on “Frequently Asked Questions”

  2. I haven’t really looked at the USAA mutual funds in any detail, but I imagine they must have some proxies for the TSP funds. Just taking a quick look I see:

    USSPX is their S&P 500 fund, which should track along with the TSP C Fund. The only thing I would note is that the expense ratio is about double that of the corresponding Vanguard fund and five times that of the Vanguard ETF.

    USMIX can be used as a proxy for the TSP S Fund. It’s not exactly the same index, but because these are all cap weighted, it is certainly close enough.

    I would have to do some digging to figure out which of the USAA bond funds and international stock funds would be the closest match to the TSP.

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  3. Is your investment strategy the same for your Vanguard funds as it is for your TSP? I.e., do you sell them all off and buy more appropriate funds when the phase of the business cycle changes?

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      1. My question then is how do you avoid capital gains taxes, etc. Is there a way to structure your investments to do this?

        Also, I assume you use Vanguard’s Total Stock Market Index, Small-Cap Growth Index, and Bond Market Index to represent what TSP does. Are there any other Vanguard funds you think are worth looking at.

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        1. I have several tax advantaged Roth IRA accounts which a portion of my non-TSP investments are in. Even though I make more than the cap for Roth contributions, I am able to add to those accounts each year through a “back door Roth” in which I make a non-deductible contribution to a traditional IRA and then convert it to a Roth. I plan to write a detailed post on exactly how to do that when I find some time. But outside of the tax advantaged accounts I also largely follow the same strategy because my strategy is largely buy and hold until the economy starts to contract and I would much rather pay capital gains than watch my balances plunge 40%.

          The Vanguard equivalents to the TSP funds are listed here: http://www.tspallocation.com/mutual-fund-etf-equivalents-tsp-funds/

          The funds and ETFs listed on that page are mainly what I use (I generally select ETFs over mutual funds these days because of the lower expense ratios). I have a few other odd funds mixed in – some are roughly equivalent funds but which focus more on value stocks such as VBR (small cap value). And I have a few things outside Vanguard, such as WMCR which is a micro-cap ETF.

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    1. In my case, I have a Roth IRA at Vanguard which is a mutual fund account. In that account I am invested in VSAIX (the Admiral shares version of the Small Cap Value Index Fund). I am sure I could sort out a way to add a Vanguard brokerage account and swap that over to the equivalent ETF (VBR) if it had a lower expense ratio, but it doesn’t – they both are at 0.09%.

      I suspect the most common reason to invest in a mutual fund these days is that many investors may have access to mutual funds in their 401k account, but not to ETFs.

      That may actually become an option under the TSP – I believe they are going to decide in September 2014 whether to create a “mutual fund window” which would allow us to invest in various mutual funds (but not ETFs) through our TSP accounts.

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  5. Last week I got scared and moved all the TSP to the G fund. All mine and gov’t matching have been lost for entire 2014. With less than 50 k, and three years to retire it scars the he… Out of me.
    I look at economy and it seems to be booming a!long, new housing everywhere. But the market just keeps fluttering. How do you manage to stay the course?

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    1. Malbecs, mostly.

      The market will do some unpredictable things over the short and medium terms, but in the long term when we are not experiencing recession it has always gone up. Absent a recession, I don’t give a second thought to some volatility and the corrections we know will take place every few months.

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  6. Reference your response to How do you invest your non-TSP funds?

    The vast majority of my non-TSP investments are in mutual funds or ETFs invested in the same sectors which my Thrift Savings Plan strategy follows. I generally use Vanguard funds because of their low expense ratios. See this page for the Vanguard equivalents to the TSP funds.

    I also invest in mutual funds or ETFs invested in the same sectors which my Thrift Savings Plan strategy follows. But, I am also a big DRIP investor and bypass brokers and deal directly with transfer agents like Computershare and Wells Fargo and utilize Temper of the Times service as well (directinvesting.com)…allows wide diversification among companies (and Industries), dollar-cost-averaging and low or no fees.

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  7. Hi, Thank you so much for the initiative on this website. I’m new on this so I would like to read a little more about the topic. I got this app on my cellphone that offered me some recommendations or advice about my TSP contributions allocations. The past May 29, they suggested to me change my allocations to this: G 3%. F 20%, C 7%, S 40%, and I 30%.
    What do you think??? Do you think that it would be great to follow their advice?

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    1. Hi, thanks for reading. I’m assuming you meant March 29th as opposed to May 29 of last year. Without sounding all judgey about someone else’s website, I wouldn’t be a big fan of that allocation for my Thrift Savings Plan. I’m okay with almost any combination of S, C and I right now (although 30% is more than I would put into I these days), but the allocations to the G and F funds don’t make any sense to me at all. The F Fund is going to get slaughtered when rates go up, and there is every indication that is going to happen sooner rather than later. And what does 3% in the G Fund do? The purpose of the G Fund is to protect principal either (1) in a major market downturn or (2) that you plan to withdraw in the short term. Having some minuscule percentage in the G Fund during a rising market sounds like a misguided attempt to look diversified.

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  8. Any advice as to withdrawal strategies? I am trying to plan for my upcoming retirement and I am confused as to whether I should “make my own annuity” by selecting annual payments within the TSP or withdraw and put the money in a non-tsp fund, touted for more flexibility and diversity. You have been a valuable resource for helping me save. Can you offer any insight on how to spend? Many thanks

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  9. An observation regarding your statement, “The F Fund is going to get slaughtered when rates go up, and there is every indication that is going to happen sooner rather than later.” I’m typing this reply on 25 May 2016, about 13 months after the initial post. Here are the TSP Fund returns since then: F Fund +2.28%; G Fund +2.25%; C Fund: +1.06%; S Fund -8.16%; I Fund -10.30%. I guess you never really know what will happen until it does.

    BTW – I enjoy your commentary, analyses and recommendations very much! I’m wondering if the logo you use for TS Paul means you’re a fan of Paulaner Munchen Brewery or at least their logo!

    Jim

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    1. No question about it, rates have never stayed this low, this long before. So all the smart guys who are sure they are about to start shooting up have been wrong for a long time.

      As for the avatar, please don’t tell the nice folks at Paulaner.

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  10. Hi there, do you invest in the roth tsp or traditional tsp or both? I started investing in the Roth about 2 years ago and haven’t looked back since especially because the agency matching 5% goes into the traditional tsp. If you don’ t invest into the Roth tsp why not? It seems like it is the best thing to do for retirement. Also I have a Roth account with Vanguard and Fidelity as well. It seems to me tax free earnings is the way to go especially with our pension and social security and tsp and other investments. Thanks so much for your advice.

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  12. Is it possible in the case of a divorce for the none federal employee to leave their portion of the thrift savings plan in a separate account and can they contribute to it?

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