FERS & TSP Investment Strategies

Investing strategies

You might receive plenty of investment guidance from loved ones or perhaps even consult with a qualified financial advisor, which is excellent! It's important to approach all financial advice with due diligence. Typically, the most valuable guidance centers around the principles of early and consistent savings.

The optimal route to reach your retirement objectives involves adhering to your financial plan and acquiring the skills to navigate risk in order to optimize your returns. You don't need to be an expert in every aspect of investing to initiate your journey, and we'll provide you with the necessary tools and resources to ensure your success along the way.

Commence your savings journey early and maintain a consistent contribution pattern. You've probably heard the adage: "Time in the market outperforms timing the market." For TSP participants, this sage advice emphasizes the importance of initiating contributions to your TSP account as soon as possible and sticking to a regular contribution schedule, as opposed to waiting for opportune moments to make investment decisions. The effectiveness of this strategy stems from two key factors: compound earnings and dollar-cost averaging.

Compound earnings

As your TSP account accrues earnings, those earnings, in turn, begin to generate more earnings—a phenomenon known as "compounding." The larger your savings balance, the greater the potential for substantial earnings.

The snowball effect of early investing

Imagine your TSP account as a snowball rolling down a towering hill. The summit represents the start of your working life, while the base symbolizes your desired savings and investment goals. During each rotation downhill, the snowball accumulates enough snow to cover all the existing snow within it, whether it was part of the original snowball or added during the descent. With each turn, the snowball grows in size.

Contributing to your TSP account early is akin to launching your snowball from the hill's peak, affording it the maximum time to accumulate more as it journeys downhill. Conversely, waiting until you're halfway down the hill to begin forming your snowball will likely result in a much smaller snowball at the end.

Certainly, there may be patches on the hill devoid of snow, and occasionally, conditions might cause your snowball to shrink. However, initiating your snowball's journey from the hill's summit provides you with a significantly better chance of achieving your financial objectives.

Stick to your game plan

Once you've established your retirement goals and crafted an investment strategy tailored to your needs, the best results typically arise from unwavering commitment to your plan. Resist distractions and exercise caution when contemplating adjustments to your strategy.

It's wise to periodically assess whether your retirement portfolio aligns with your capacity for and willingness to take on risk. However, if you are confident in your risk tolerance, avoid allowing short-term market fluctuations to divert you from your chosen path.

For instance, imagine you have many years left until retirement and have determined that investing in TSP's stock funds aligns with your long-term return objectives. If you shift your funds out of these stock holdings during a market downturn, you risk missing out on potential rebounds.

Pursuing a strategy of chasing returns or attempting to "time the market" requires flawless timing both when exiting and re-entering a specific asset class. Most investment experts concur that achieving such precision over extended periods is highly improbable. Keep in mind that your investment performance is primarily influenced by your asset allocation, not by predicting which market sector will be favored at a particular time.

Risk management over time

Investing always carries inherent risks. However, these risks should not deter you from formulating and maintaining an investment strategy throughout your working years. Your allocation among the TSP funds should reflect both your time horizon (when you anticipate needing retirement income) and your risk tolerance.

If you seek an investment option that automatically adjusts to manage risk as you progress towards your financial goals, consider the Lifecycle Funds (L Funds). They rebalance daily to maintain an appropriate investment mix and gradually reallocate over time to reduce risk as your need for your invested funds approaches.

Early in your career

With many years ahead in your career, embracing some level of risk is often advisable. Consider allocating a larger portion of your investments to our stock funds (C, S, and I) rather than the more conservative G and F Funds at this career stage. Stocks carry greater risk but also offer the potential for higher returns over the long term.

Mid-Career

If you haven't commenced saving for retirement yet, don't worry—it's not too late. Begin contributing now. For those who have been consistently saving, keep up the good work.

At this career juncture, your time horizon is shorter compared to when you first started working. It might be prudent to review your investment allocation to evaluate the level of risk in your TSP account. If you are heavily invested in TSP stock funds or solely rely on the G Fund, ensure that your allocation aligns with your other retirement resources.

Approaching retirement

As retirement draws near, your time horizon becomes shorter, prompting a shift in focus from growth and accumulation to safety and preservation. Even if you have a high tolerance for risk, you may not have sufficient time to recover from significant market downturns if a substantial portion of your account is invested in stock funds. If you anticipate needing your funds soon and the stock markets experience a decline, you might be compelled to sell your investments at lower prices, a situation best avoided.

After you have retired

Retirement often spans many years, making it crucial to ensure your financial security throughout this period. Develop a withdrawal strategy that provides the necessary retirement income while allowing the remainder of your savings to continue growing at a pace surpassing inflation.

Remember - You have help!

FERS employees have a very helpful resource in the many capable and helpful Federal Retirement Consultants (FRC) that have been trained to assist them. The vast majority of FRCs do not charge for their services. Legacy Retirement agents are FRCs, if you would like to schedule a free consultation to get a Full Benefits Analysis, click below!

FERS & TSP Investment Strategies