Risky business – what can go wrong in your TSP?

Ann Vanderslice, founder, Federal Benefits Training Network

wfedstaff | June 3, 2015 11:12 pm

By Ann Vanderslice
Federal Benefits Training Network

With all of the current volatility in not only the stock markets, but in our economy, more and more Thrift Savings Plan (TSP) participants are wondering how they can protect their hard-saved money from the dangers of the market. And what exactly are those dangers? A short history lesson can help us understand why so many people are saying, “This time is different – and not in a good way.”

In the beginning…there was the G Fund. Shortly thereafter, July 1998, TSP added the F and C Funds. If you recall the late ‘80s and early ‘90s, you remember that these were the best of times. Baby boomers were in their peak spending years, which drove the economy and stock market to ever-increasing heights.

The advice most TSP participants received during this time was to put all your funds in the C Fund and let it ride until you were within a year or two of retirement and then consider becoming more conservative in the G Fund. That advice worked amazingly well during the boom years of the ‘90s. In fact, the average annual return in the C Fund from inception through 1999 was 19.41 percent!


You were lulled into complacency because you were such a fabulous investor. You didn’t have to pay attention – the double-digit returns just kept coming and you were sure to be able to retire in comfort and luxury. Until, of course, the dreadful decade of the 2000s hit. The two recessions and major downturns in the stock market may have left you wondering what exactly happened and what you should be doing about it.

The “buy-and-hold” method that worked famously for the first 12 years of TSP’s existence has left you holding the bag for the last 11. And with hindsight being what it is – so 20/20 – what can you do for the next 10 years to maximize your TSP?

One of the things that cause investors trouble is identifying and managing risk. For all the simplicity of the five funds available within the Thrift Savings Plan, there isn’t an easy way to identify the underlying risk of each of the funds. For these risks, it can be important to understand where we are in the overall market cycles.

Wall Street repeats the mantra to be a long-term investor. Over the last 114 years, the stock market has rewarded investors with long-term growth. But for most investors, a realistic time horizon is 10 to 20 years — not more than a century. History shows that the equity market enters long periods of high returns followed by lengthy periods of lower ones. These periods are called secular trends. There are two kinds of secular trends:

  • A secular bull market, or upward-trending market, occurs when each successive high point is higher than the previous one. In the past 114 years, there have been four secular bull markets, highlighted by the latest one from 1982 – 1999. Compared with previous long-term bull markets, it turns out that it was probably not the norm but an anomaly. Bull markets, on average, do not last 17 years, and they certainly don’t have a cumulative return of over 1,000 percent!
  • A secular bear market, or downward-trending market, occurs when a trend does not rise above the previous high. There have also been four secular bear markets in the past 114 years, although they tended to last longer than the average secular bull market. If history is any guide, the end of the current secular bear could be a few years from being over.

An important lesson from this historical review is that the investing methods that work in one market (e.g., “buy and hold” during secular bull markets) do not necessarily work in another market. A more active method may be required to not only generate reasonable returns but also to protect your account from losses that require extended timeframes in order to recover.

Having a thorough understanding of these trends and the current market environment may help you change your strategy and better prepare for managing your TSP in volatile markets.

Ann Vanderslice is the founder of Federal Benefits Training Network, which provides programs on federal benefits to agencies throughout the country. She has been conducting retirement classes for federal agencies since 2005 and has trained over 10,000 federal employees in person and numerous others have attended via webinars and conference calls. Email Ann or visit her website for more information.