What’s your TSP investment style: Roller coaster or merry-go-round?

If you’ve been a TSP investor for awhile you know that its C, S and I funds — linked to the U.S. and overseas stock markets — go up.

And down.

But mostly up.

At least so far.

But being humans and survivors the declines, however brief, tend to take on more importance in the investor/survivor part of our brains. And nearly everybody’s heard that while past performance is no indicator of the future, lots of people get very nervous very quickly when a downturn lasts for awhile. Merry-go-rounds are less stressful than roller coasters. That’s called being human. And while there is no guarantee it will continue, most of the 100,000-plus TSP millionaires have one thing in common: the ability to buckle up, knowing that the ride at times will be very bumpy.

The self-made millionaire group includes people of all ages, backgrounds, education and jobs. But most have one thing in common: They invested exclusively or heavily in the stock indexed funds, for an average of 29 years. And most stuck with the C, S and I funds during hard times, like the 2008-9 Great Recession, which caused many TSP investors to head for the ‘safe’ harbor of the Treasury securities G-fund. And to stay there, even though the market has been mostly up for record periods of time. People who continued to buy C and S funds particularly during the downturns did well. Shares they bought on sale are now worth lots more. Some TSP investors have racked up $2-3 million accounts. Not by making the big bucks, but by investing for the long-haul. One of them, Abraham Grungold, just retired. He’s now a full-time financial coach. Some of his clients are TSP millionaires. Others want to be. So did he take his own advice? We asked him about riding the TSP roller coaster. And this is what he replied:

TSP 2022: What kind of investor are you?

“The Thrift Savings Plan at the end of December 2021 was at its all-time high. In January and February of 2022, it plummeted into a nosedive. It reminds me of the Jurassic Park ride at Universal Studios which takes a severe plunge straight down into the water. Those who are watching at the bottom make their decision immediately, to either get on the ride or avoid it.

So if you are in the TSP what kind of investor are you? There are two kinds of TSP investors. First, the roller coaster riders who understand that the stock market will have its ups and downs, twists and turns and know there is uncertainty when that will happen. They know the ride during the year can be bumpy, but they understand that the TSP bounces back and continues to grow over time. They are contributing to their TSP for 25 to 30 years and ignore any down turns in the market. They do not sell when the market is down, they continue to buy. The roller coaster riders will likely become the TSP millionaires, because with no risk there is no reward.

Second, there are the TSP investors who are the merry-go-round riders. They do not wish to take any risk in the market or experience any stress. They are the ones who invest in the G Fund their entire federal careers. They love the smooth easy ride and listening to the music. There is nothing wrong with the merry-go-round rider strategy. I have many friends who take this conservative investing approach. They sleep great at night knowing that their account will not fluctuate. However, they cannot hope to achieve a million dollars in their TSP account.

We are still in a bear market. Just as many companies are starting to recover from the pandemic, we are faced with another crisis: the Russian invasion of Ukraine. And this has added to the pressure of the financial markets trying to recover. When will there be an upturn or a bull market? Half the experts say no upturn, and the other half say soon, possibly in the third or fourth quarter of this year.

Even though this year has brought a downward trend in the market, I see it as a buying opportunity. I continue to make purchases both in my TSP and in my personal IRA and I invested aggressively. As of March 1, I retired from federal service and I made my last contribution to the TSP. When will the TSP return to its all-time high? I do not know that answer, but as soon as businesses return to full production and the pandemic has dissipated, the markets will accelerate even higher than before. The war with Russia and Ukraine will certainly have an effect on the international markets. U.S. consumers will feel the pain of the price of oil and gas.

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Last year, I had clients contacting me about their TSP and asking if the federal debt ceiling and the pandemic supply shortage will cause their TSP to drop even further. Now they are worried about the war in Ukraine. There is no crystal ball to tell you when the financial markets will turn around. As a roller coaster rider you need to just hang on for the ride and be optimistic. Weathering the difficult moments in the market will lead to a recovery and you will end up doing better than you were before the financial crisis started.

My clients have many questions regarding their FERS retirement and TSP. I have many clients who are TSP millionaires and many who want to be TSP millionaires. I discuss their contributions, investment risk and strategies regarding the TSP. Each person has their own individual needs and fears. Don’t be afraid; just enjoy the ride regardless of which type of investor you maybe.

Any questions or comments please contact me at Abraham Grungold – AG Financial Services or my Facebook page at FERS Federal Employees

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