Many smart people self sabotage because they try to make investing more complicated than it needs to be. Image: beeboys/Shutterstock.com
Success in the TSP is not magic or accidental.
It only happens when federal employees follow a few key principles.
Don’t worry. You don’t have to be the smartest person in your office to get the best results.
You simply have to know the fundamentals and stick to it.
Fundamentals
This is the question that will determine the best TSP strategy for you: When do you need the money?
If you don’t need the money for a long time then you are going to want to invest in long-term investments (like the C, S and I funds) that will help you beat inflation and build wealth.
If you need the money soon then you want to invest in things that won’t bounce around a lot. AKA the more conservative funds (like the G and F funds).
Summary: If you are far from retirement, invest aggressively. As you approach retirement (and in retirement) we need to be more conservative but not overly conservative.
Let’s Execute
Now that we understand the basic principle of investing we have to put it into practice.
To keep things relatively simple, we’ll break up your career into 3 sections:
● 10+ Away from retirement: Full Blast
● Less than 10 years from retirement: Tap the break
● Less than 5 years from retirement: Retirement Strategy
Note: These principles that I am going to discuss in this article are tried and true and help countless people build wealth over time. But like always, don’t follow my advice blindly. Educate yourself until you are comfortable enough to own your decisions.
10+ Years
If you are 10+ years from retirement then we need to be investing primarily in the C, S, and I funds.
These funds tend to be more volatile over time but will experience much more growth over time.
And if we have time then we need to be taking advantage of this.
This growth is important for you to build wealth as well as to beat inflation over time.
If you aren’t primarily in the C, S, and I funds then your TSP contributions will be lucky to keep up with inflation over time.
Invest for the long term and forget about it. Don’t check it every day. The daily noise of the markets will only distract you from your progress that is measured in years not days.
If you do this you will thank yourself for decades to come.
Within 10 Years
With 10 years until retirement you still have some time but this is typically when it makes sense to introduce some G and F funds.
You should still have most of your money in the C, S, and I but having some G and F fund will provide some stability as you approach retirement.
Within 5 Years (or in retirement)
With less than 5 years left of your career it is time to get really serious about knowing what your retirement is going to look like.
Most people will want to introduce even more G and F funds but you want to be careful to not go overboard.
Going 100% G fund near retirement is a really bad idea for 99% of people.
Being too aggressive is bad but being too conservative is bad too.
If you retire at age 60 then you are hoping that your money will provide income and beat inflation for the next 25-35 years. 100% G fund will not do that for you.
The average financial planner would recommend a 60/40 portfolio in retirement.
This means 60% in stocks (C, S, and I) and 40% in bonds (G and F).
And while a stereotypical 60/40 portfolio doesn’t make sense for everyone, hopefully this example makes it clear that even in retirement you need growth to sustain a healthy retirement.
In retirement your G and F fund provide a base for stable withdrawals while your C, S, and I fund provide the inflation-beating growth you need over time.
Don’t Die In Between
You don’t have to be smart to build wealth in the TSP.
Many smart people self sabotage because they try to make it more complicated than it is.
Find an investment plan that is right for you and stick with it.
Don’t let your coworkers, the news, or your lizard brain convince you to change your plans.
Those that try to jump around are those with small TSP accounts.
Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him atHaws Federal Advisors.
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