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How to control your stomach during investment roller coasters
"If you want to be a TSP millionaire, you have to learn how to ride the TSP rollercoaster," Abe Grungold said.
Your Thrift Savings Plan investments, like the stock market itself, have shown volatility lately. It recovered from its early-August swoon, but who knows? Longtime TSP participant and multi-millionaire Abe Grungold joined the Federal Drive with Tom Temin with his advice for coping.
Interview transcript:
Abe Grungold Yes, Tom, thank you for having me on. Lately, the TSP reached an all time high July 15, and then in the first week of August, it took a drop of 8%. And then turned towards the end of August, it came back to near all time high numbers again. So I’ve been a TSP investor for 37 years Tom. If you want to be a TSP millionaire, you have to learn how to ride the TSP rollercoaster. And volatility is always going to be in the stock market. It will happen from time to time, and I have experienced over 6 or 8 of these volatility moments in history, and you have to learn how to ride the roller coaster.
Tom Temin And it’s exaggerated or magnified or the urgency of it, especially in the era of cable TV, because when the market is really volatile, they run crawlers showing the Dow Jones Industrial Average second by second dropping, dropping, up a little bit, dropping, dropping. So they kind of induce panic in people.
Abe Grungold Yes, exactly. Unfortunately during these up and down moments and especially the downward moment, people tend to panic. They say the sky is falling, and they want to immediately get out of any one of their funds that they’re investing in, and move their money into the G fund. Now, if you do this, it is a recipe for disaster. The best thing that you can do is just weather these downward trends and be patient. The market will always come back and it has. In recent years during COVID, during the Ukrainian crisis, both of those very big downward trends, the market came back.
Tom Temin Yes. Even after the collapse following the financial crisis of 2008. And the Dow Jones Industrial Average in 1932 with the crash was like 100 or something or 127. Now it’s 40,000. So, yeah, the stock market does come back. You can benefit in some ways during a downward trend. More to the point.
Abe Grungold Yes, during these downward moments, these are ideal opportunities to buy cheaper shares when the market goes down. Cheaper shares and the funds that you are investing in the TSP, it is called dollar cost average investing. And these are ideal opportunities for you to buy cheaper shares and you buy them with your payroll contributions. And then when the market goes up, the value of those shares go up. So you should never look as a downward trend, as a negative thing. Look at it as a buying opportunity.
Tom Temin And I guess you have to trust the fund managers that they are going to stick with those funds that have basic intrinsic value. That is to say, yes, you want a dollar cost average in the TSP. You’re not buying individual stocks, though, you’re buying index funds. But those funds are in places where there’s real value. In other words, it’s not a bunch of Bitcoin companies or speculative investments. These are companies that have real assets, real sales, real cash flow, real market prospect.
Abe Grungold Yes, each fund is really a pooled fund of hundreds and hundreds of individual companies, such as the C fund or the I fund or the S fund. You’re not just buying 1 or 2 companies. There are hundreds and hundreds of companies in each of those funds. So they are diversified, those particular funds. And you just have to rely on those fund managers, and certainly, the TSP has a 37 year history. Go back and look at the fund performance of each of the funds that you’re investing in and see what are the rates of return over the last 5 or 10 years, historically. And you’ll see which ones you want to invest in.
Tom Temin We’re speaking with retired federal manager Abe Grundgold of AG financial services. And by the way, can you see those five and ten year trends at the TSP website these days?
Abe Grungold Yes, you certainly can. And you can go basically all the way back historically to see how the TSP has done. And each one of those funds, they do even have the share price. And what’s important is to know that you are investing long term. This is not a quick in and out situation. You have a 20 to 30 years of a federal career and you need to look at the long term picture. It’s not a short term investment, so you’re always going to be buying shares at different prices. When it’s high, when it’s low, that’s fine. Focus on your federal career, and if you continue to invest as a federal retiree focus on your retirement life. Do not watch the financial markets and do not take the advice of strangers and Facebook forums.
Tom Temin Time your career and not your timing of stock buys. And you mentioned people that might have pulled out when things were dropping and put their money in the G fund. What happened to that type of activity? What was the result?
Abe Grungold Yes. So let’s take an individual who had $100,000 of a balance in their TSP, and they pulled out the first week in August when there was an 8% drop. So when you pull out, you recognize a loss to your TSP account. And if you had $100,000, you lost up to 8% of your account, which is $8,000. If you’re fortunate to be a TSP millionaire, and you did the same type of transaction, you lost $80,000. Now, in both of these situations, if the person had done absolutely nothing, the end of the month, their account would have returned back to near all time high balances. So it’s a recipe for disaster. If you are thinking you are going to time the market or exit from the market when it’s tending to go downward or anything, this is a terrible mistake. Just leave it alone. And if you’re going to pull out of any of your funds, do it when it’s an all time high, not when it’s on the dropping act.
Tom Temin Yeah, you want to sell high and buy low, not sell low and buy high.
Abe Grungold Exactly. Buying high and sell it. Oh, it’s just a recipe for disaster in your account. It’s just going to not look good.
Tom Temin Yes. Sell low, buy high, buy high, sell low. I think like I need a ukulele to say that line along with me. Well, what’s your general advice then? I think I know where we’re headed with this.
Abe Grungold So the same advice for my clients as it is for myself, I stay calm. I do not watch the financial markets during these times. I do not watch the balance of my account day to day, and I basically just focus on the day to day things. Sure, it’s okay to look at it maybe once a week or once a month. And when I was a federal employee, I didn’t look at my balance at all. There’d would be months and months that would go by when I would look at the balance of my account. But today, where everything is instant information, we are tempted to look at our accounts. And a watch pot never boils. You need to stay calm and you need to focus on what it is you’re doing, whether it’s your federal career or your federal retirement.
Tom Temin Right? Don’t look at it like your TikTok feed.
Abe Grungold Yes. I don’t watch TikTok at all. I don’t have even the patience to watch those things.
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Tom Temin
Tom Temin is host of the Federal Drive and has been providing insight on federal technology and management issues for more than 30 years.
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