What should you do with your TSP if the markets become volatile?

“TSP owners should be wary of volatility in the markets and have a plan of action ready to deploy.”- Joe Runza

If you’re one of the nearly 100,000 TSP millionaires who invested for the long term by putting cash in the C, S, or I funds, you’ve probably done very well over the last few years. While the stock market reached record highs in June 2021, it has since been more volatile as investors wait to see how the Federal Reserve will react to inflation and other risks. However, a growing number of investors and financial educators believe that significant market declines are inevitable, possibly in early to mid-2022. These declines, which will impact the value of your current TSP Fund, might be further exacerbated by issues such as changes in the government’s monetary policy, terrorist attacks, climate change, or a resurgence of the COVID-19 virus.

The unpredictability of life means that stock and bond market predictions are, at best, educated guesses and not exceptionally reliable or useful. We do know that, based on history, dramatic market declines are sure to occur at some point. If you have a TSP, you need to have a Plan B to deploy when the market begins to go sideways.

Here are some tactics TSP owners can employ to help them get through a period of market downturns and instability and stay on track with their long-term goals.

Pause, inhale and stay focused. In many cases, avoiding panic and doing nothing at all might be a wise course of action. Market mood swings over short time intervals are normal. Talk to your financial expert to see if a “wait and see” attitude is a good choice.

Keep up with your contributions. When you put money into your TSP during a down period, you are buying stocks on sale. Since the initial 5% of basic pay you contribute gets a 100% match, saving at least 5% makes sense since doing so gives you a de facto immediate return of 100%.

Talk to your advisor about rebalancing your portfolio. Every fund in a TSP is affected differently by a market correction due to their differing investment mixes. In a situation where there is volatility, some funds might move beyond your desired asset allocation. If that happens, a rebalance may be in order.

Ask yourself if it’s time to do a rollover.

Transferring TSP funds into an IRA as a full or partial rollover can make sense for many federal retirees. While it is true that your TSP offers solid investment options to grow your money, it doesn’t provide much in the way of asset diversity, tax efficiency, investment selection, or flexibility. An IRA can give you more variety, flexibility, and a sustainable stream of income throughout retirement. Depending on your unique risk tolerance, certain kinds of annuities might make sense as well. Be sure to consult with a qualified professional to see what options, or combination of options, will work most efficiently in your situation.

Summing it up: TSP investors need to understand that periods of market volatility and financial crises occur regularly. They also, thankfully, end.

Instead of worrying, focus on the things you can control, meet regularly with your advisor, and keep an eye on all your retirement accounts. Diligence and long-term thinking almost always pay off.