What’s your TSP plan when the stock market crashes?

Federal Report

What’s your TSP plan when the stock market crashes?

Good news: Stock market is at an all-time high. Bad news: The market is long overdue for a major correction. Senior Correspondent Mike Causey asks, do you have a...

Mike Causey@mcauseyWFED

June 21, 2017 12:05 am

3 min read

Do you remember what you did when the stock market crashed in 2008? The one we now call the Great Recession? Or the time before that? Or before that?

That big one lasted a long time and it did a number on a lot of investors.

If you had a Thrift Savings Plan account, did you ride out the panic? Did you continue to buy the C, S and I stock index funds while they were “on sale?” Or, like many investors, did you head for the super-safe treasury securities G fund? Did you decide to “wait” until the market came back to return to stocks? It’s now at record-high levels. Are you still waiting?

Feds who stayed put — who remained with the stock funds and especially those who continued to buy when share prices were low — did very, very well. It took several years, but in many cases, the value of their accounts doubled or tripled. The number of TSP millionaires also jumped dramatically.

So what about the next time? We don’t know when it will be, but most experts agree the market is long overdue for a “correction.” So what’s your plan? Do something? Nothing? What?

I asked financial planner Arthur Stein about the long-overdue correction. He is my guest on today’s Your Turn radio show (10 a.m. at FederalNewsRadio.com, or 1500 AM in the Washington area).

He sent us in this guest column:

Everything old is new again

By Arthur Stein

Usually, I never predict the stock market. But I will predict that a major U.S. stock market correction (a greater-than-20-percent decline or “bear” market) is going to occur at some point in the future. And U.S. stocks mean the C and S funds in the TSP.

This has been a good year for the U.S. stock market, and therefore the C and S funds. So far this year, the C fund is up 8.7 percent and the S fund 5 percent.

Longer-term returns are equally impressive.

Average Annual Returns (as of December 2016):

This is the second longest “bull market” (an extended period of rising prices) in history, according to an article in Investopedia.

Read more: Federal Report

Why am I predicting a major decline if stocks are doing so well? It’s because stock market corrections are always coming. There has never been a time when a market correction wasn’t in our future. I don’t know when it will happen, just that it will.

On average, the stock market, as measured by the S&P 500 Index, declined:
• 5 percent, more than three times a year,
• 10 percent, about once a year,
• 20 percent, about every 3.5 years.

The stock markets (C and S funds) haven’t declined 20 percent or more since the Great Recession of 2007 – 2009. That is almost eight years ago. So we are overdue for a major decline.