Stocks Drop: Is This the Time to Sell Your TSP Stock Funds?

By on June 25, 2016 in Retirement with 16 Comments

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With voters in the United Kingdom (UK) voting to leave the European Union, the U.S. stock market fell sharply. Stocks in the Dow Jones Industrial Average (DJIA) fell 610 points on Friday ending up in the red for the year so far.

The C fund in the Thrift Savings Plan (TSP) closed on Friday at about $27.78. On June 1st, it was at $28.59 and on December 31, 2015 it closed at $27.56—still a few cents higher than it was at the end of 2015.

The international stock fund (the I fund), closed Friday at $22.66. On June 1st it closed at $23.95 and on December 31, 2015, it closed at about $24.10. So, this fund has lost money so far in 2016.

The TSP sent out a message on Friday to investors in the plan and offered this advice:

Once you’ve established your retirement goals and a savings strategy that fits your needs, you’ll have the best results if you stick to your plan. Don’t get sidelined by distractions. Make adjustments to your strategy only after careful consideration.

The post did not mention the election in the UK and its departure from the European Union but the connection to the election and the drop in stock prices is obvious. The TSP posting included this advice for TSP investors, presumably to prevent some investors from acting too quickly:

It’s always a good idea to periodically ask yourself whether your retirement portfolio properly reflects your willingness and ability to take risk. But if you are certain about the amount of risk you can tolerate, don’t allow short-term market movements to steer you off course.

Here is a rough translation of what the TSP is advising investors in the TSP funds.

There are short term fluctuations in the stock market. These fluctuations can occur suddenly and unexpectedly. If you are going to panic and sell your stock funds when prices drop, which they occasionally do, you will hurt your future retirement.

No doubt, some investors in the TSP stock funds sold some or even all of their stock funds when these funds dropped. That is not a good idea. As noted in the TSP posting: “If you move your money out of your TSP stock funds when the market starts to dip, you may miss out when it bounces back.”

There is a good chance that the market will bounce back and at least some of the drop in stock market prices will bounce back in the near future. Those that sold stocks just as the stock market dropped will have locked in their losses and will not have realized any profit from increasing stock prices when the market bounces back.

The advice from the TSP is very sound for stock market investors. Those that try to time the market are unsuccessful more often than they are successful. “An investment strategy of chasing returns or trying to ‘time the market’ means you have to be consistently correct two times: exactly when to get out of a particular asset class and exactly when to get back in. Most investment experts agree that such success is highly unlikely over long periods.”

How much risk are you willing to take as a stock market investor? Some who are retired or close to retirement and have a federal retirement income that is sufficient to live comfortably may not want to take any risk with their TSP funds. For these investors, investing in the G fund makes sense. For others who want to see their investments grow over time, investing in the TSP stock funds makes sense. But, those investors who panic and sell when  prices are low and still declining will generally harm their future retirement income.

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources.

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