Government Shutdown

This topic contains 3 replies, has 3 voices, and was last updated by  TS Paul 5 years, 10 months ago.

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  • #1831

    bob dee
    Participant

    Does the current Government Shutdown change your TSP allocation advice? Are you staying 100% S Fund? It may be too early to tell, but can this unique situation change where we are heading the Business Cycle?

    #1871

    TS Paul
    Keymaster

    Hi Bob

    I am still 100% S Fund, despite the shutdown. The shutdown, even if it lasts a few weeks, would not be enough to really impact the economic cycle. A default on the nation’s debt (not raising the debt ceiling), on the other hand, could very well push us back into recession – but I don’t believe that will happen.

    I thought we might see a dip with the shutdown and I did seriously consider going to a 50% position in the G Fund and buying back in on that dip, particularly because I didn’t see much chance that I would miss out on a big move to the upside. But it wasn’t a sure thing, and that would have been a pretty dramatic departure from the very long term approach which I advocate here.

    As far as the debt ceiling goes, I believe that the Tea Party wing may well push it right up the wire, but then either they will declare some imaginary victory and agree to raise the limit, or else Speaker Boehner will allow a vote to raise the ceiling which Democrats will support along with enough moderate Republicans to pass. I don’t see any possibility that Congress will allow the US to go into default.

    I think it will be a very choppy next week or two, but I think the above assumptions are pretty well priced in. I doubt we will see more than about a 3% drop at worst. And when a continuing resolution is passed (and one will be), the market will rally a bit. And when the debt limit is raised, we will similarly see a small rally.

    So I’m staying the course. That said, I don’t see a huge move to the upside even once the shutdown ends and the debt ceiling is raised, so for folks who are nervous it wouldn’t be a disaster to move some or all of their balance into the G Fund briefly.

    -TS

    The TSP Allocation Guide www.TSPallocation.com

    #2275

    jh

    Just recently found this site, and really appreciate the detailed explanation of the business cycle! Up until this year I’ve been 50%C, 25%S, and 25%I consistently since 2005 on the advice of a financial advisor, but I’m trying to better understand how my retirment investments work now that they’re over 6 figures.

    I got a little nervous yesterday and bailed to the F fund, despite my knowing better that I can’t time the market. Feeling today like that was a mistake.

    How disastrous do you think it would it be to jump back into S tomorrow (too late today)? In the long run my sense is that it probably won’t matter that much, just accept it as an expensive lesson and try to remember it for next time, but would there be any sense in waiting?

    #2307

    TS Paul
    Keymaster

    I definitely contemplated doing what you did (although I would have gone into the TSP G Fund rather than the F Fund – you should read my post on why the F Fund is so bad in a rising interest rate environment when you get a minute) and could easily be in the same position as you find yourself in. That was unfortunate timing – after Speaker Boehner’s press conference in which he announced the GOP’s plan to do a short term extension of the debt ceiling the market had its best day since December 2011. But I wouldn’t stay out and hope for it to come back down to you. I think the momentum is really there for a deal so they can put this behind them now if they can just come up with some face saving accomplishment and the market will react similarly again, so I am pretty comfortable being 100% in the TSP S Fund right now.

    The TSP Allocation Guide www.TSPallocation.com

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