Your TSP account: Life raft or punching bag?

Last Friday was the third worst day of the year for the US stock market — so far.

Reading the financial news these days isn’t fun, particularly if a big chunk of your retirement nest egg is invested in the stock market. Thanks to the ups and downs (mostly downs of late) in the global markets, some of the 37,612 feds who were Thrift Savings Plan millionaires at the end of June may be back to six-figure balances. It’s not a bad place to be, but frightening to those who realize that the design of the Federal Employees Retirement System means that anywhere from one-third to as much as one-half of their retirement income might come from their TSP accounts.

Or not.

Watching the stock market on an hourly or daily basis is difficult for some people, as in upsetting, because the market changes daily. Last Friday the US stock market ended the week down -443.69 points or 1.5%. So what?

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According to the Wilshire 5000 Total market Index Friday’s action or lack thereof represented a paper loss of $475 billion. Wilshire Factoid said that tied the longest weekly losing streak of 2019 and “the longest string of negative weeks since May 31, 2019, also concluded four negative weeks in a row.”

For the month, as of last Friday, the Wilshire 5000 (which represents almost the entire U.S. stock market) index is (or was) down $1.6 trillion for the month, down $1.2 trillion for the quarter but up 13.22% or $3.6 trillion for the year.

Meaning … who knows?

What we do know is that on “average” the stock market has a major correction of 20% or more every three-and-a-half years. We came close last December but it didn’t happen. In fact the current bull market is more than 10 years old, the longest in history.

Will there be a major correction? Almost certainly. But is it imminent. Who knows? Should you get out of the stock indexed C, S and I funds and retreat to the safety of the treasury-backed G or F bond funds, then come back when the market is better? Note that some investors who left the stock funds in 2008-2009 still remain in them. They missed out on the biggest increase in history. The problem with long haul investing is that you are moving forward but looking backward.

So we reached back to March 1 — happier times — when we passed on this email from Steve, a long-time fed who is happily retired. At least he was then. He wanted to share his story of how he became one of the TSP’s did-it-the-hard-way millionaires:

“I know you get lots of these stories, but I thought I’d toss mine in. I started at ‘zero,’ about age 35, having endured the Reagan cuts, extensive unemployment, and a return to school. Totally broke, I was fortunate enough to get a decent job with the federal government. It was right after FERS became mandatory for all new hires, and I took full advantage.

“I put the lion’s share into the C fund as soon as it became available, and added the S and I funds when they became available. I put in the maximum contribution in every paycheck, and when the ‘catch up’ rules allowed older workers to add more, I did.

“My account dropped quite a bit in 2008 and early 2009. A coworker said, ‘You should get your money out [of the C fund] while you still have any left.’ I said, ‘I rode it down and I’ll ride it back up’ and stayed the course, continuing to invest in C, S and I funds.

“In 2014, at age 62, after 27 years of service, I retired. The ongoing budget and political fights had rendered my work unsatisfying and I had family issues to attend to. Thanks to good savings habits and frugality I have not had to withdraw anything from my TSP yet. I checked my balance yesterday, and it was about $1,225,000.

“So, even a late start can lead to success with the right approach.”

Nearly Useless Factoid

By Amelia Brust

Long before the “Homeward Bound” series of family films, Bobbie the Wonder Dog, a Scotch Collie-English Shepherd mix, crossed the country to reunite with his family. In August 1923, the Brazier family of Silverton, Oregon, were visiting relatives in Wolcott, Indiana, when Bobbie was attacked by three other dogs. He ran away and his family could not find him. But six months later in February 1924, the scrawny, exhausted pup with worn-down toenails arrived back at home, by most estimates having walked the majority of the 2,551 miles. His story drew national attention and even inspired a movie in which Bobbie played himself. People who had fed and sheltered Bobbie on his journey wrote the family to tell about their time with him.

Source: Wikipedia

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