When it comes to investing for the long haul, timing the stock market is not the best route for most people. Timing the market is more art than science. Yet some federal Thrift Savings Plan investors keep doing it with their all-important retirement accounts.
There may be somebody in your office, or car pool, who says he or she successfully times the market. But successful big-bucks money-men like John Bogle (Vanguard) and Warren Buffett (Berkshire Hathaway) say they can’t time the market and don’t know anybody who can.
Playing it too safe can also be a high-risk long-term investment strategy. Especially if you plan to live a long time in retirement. Having all of or too much of your retirement nest-egg in a low-yield fund, like the Treasury securities G Fund, can in fact be risky over the long run. The risk is that inflation will outpace your yield from that fund. Think back to what your salary was, or what a car or cup of coffee cost, when you started work and compare it to today. That’s true inflation!
During the 1990s, many investors checked their 401(k) accounts daily. At least. It was fun. Many were disappointed if their monthly returns were less than 20 percent. Some “experts” predicted the boom would never end. A decade later, real estate seemed like a totally solid investment. There were demands that the TSP setup a REIT (real estate) fund. Real estate, especially commercial real estate, has nowhere to go but up, they said! Wrong! Although real estate seemed like a guaranteed good investment, the housing bubble burst, Wall Street was on its knees and bailouts became the name of the game. Oil-prices spiked and along came the recession. The worst and longest in a long time.
Many federal TSP investors stayed the course, even as the stock market went into freefall. Some continued to buy into the C, S and I Funds as they continued to fall. It turns out, as of now anyhow, they were smart. They bought low — over a period of years — and now their C, S and I Fund shares are more valuable.
But many feds, especially those nearing retirement, couldn’t take the market plunge. Those who checked their account balances saw share prices drop every day. Many figured things would get worse before they got better (if ever) , and moved most or all of their investments into the super-safe, super-dull, G Fund.
Whatever the recession did to your TSP balance you might want to take another look at the stock index funds. For the last 12 months the C,S and I Funds have done very well. The C Fund (S&P 500 index) was up 20.53 percent, the small-cap S Fund is at 21.75 percent, and the international stock index I Fund is up 13.68 despite the slower recovery in most of Europe.
Past performance is no guarantee of what a fund will do in the future. But by the same token, looking at short-term results — daily, weekly or monthly ups and downs — the year-to-date figures (January through April) tell another story. The C Fund is up 2.59 percent, the S Fund up 0.17 percent and the I Fund up 2.29 percent.
Your retirement plan, to some extent, determines how cautious or aggressive an investor you can be.
The CSRS retirement program offers a more generous annuity than FERS. And CSRS retirees get full cost-of-living adjustments each year, compared to the diet-COLA formula for FERS retirees.
Many CSRS workers actually don’t need the TSP to fund their retirement. Most could get by on their guaranteed annuities which are guaranteed for life, and are fully-indexed to inflation. The TSP is great, but not a must.
But for FERS workers, the TSP is a must. A no-brainer. The generous government match of up to 5 percent is the equivalent of a tax-deferred 5 percent pay raise. When FERS was created, its designers estimated it would provide about 1/3 of the money people have to spend in retirement. Provided they invested wisely. And that includes not trying to time the market.
Arthur Stein, a financial planner in Bethesda, Md., says:
Anyone who believes they can successfully time the stock market might as well believe in Santa Claus and the Tooth Fairy. These are pleasant myths but where’s the evidence?
Surveys by financial research firm Dalbar and various other studies show the opposite — market timing hurts returns for the average investor.
A better strategy is to invest regularly in a well-diversified portfolio and continue buying when stocks are down.
That’s what a lot of people did at the bottom of the market. People who bailed out of the TSP’s stock funds wound up selling low and waiting for the markets to come back in order to get back in. An easy, understandable and costly mistake to make.
Uttering “unintelligible or nonsense sounds” when it’s your turn to spell will get you disqualified from the Scripps Howard National Spelling Bee, according to official rules. Although with recent winning words like “guetapens” and “knaidel” — it may be hard to tell!
OPM Director Katherine Archuleta on phased retirement, boosting morale and diversity The Office of Personnel Management hopes to complete final regulations for phased retirement by October, OPM Director Katherine Archuleta said during an exclusive online chat with Federal News Radio. Archuleta also joined Your Turn with Mike Causey, where she discussed employee morale and engagement and strengthening federal diversity initiatives.