The stock market is up, way up, from its bottom in 2008. Are you worried about losing money in your TSP due to a pullback? One financial expert has some advice you may find comforting.
Personal money management expert and national radio personality Dave Ramsey received a call on his radio show from a TSP investor recently who was worried about how high the stock market has risen and was afraid he might lose money if it pulls back.
“With the stock market being the way that it is (right now), I’m just scared to heck that it’s going to go down. I’m in the 60/20/20 (60% C fund, 20% S fund, 20% I fund), and I’ve done really well, but I’m just starting to have a little panic here,” said the caller.
“It’s going to go down,” said Ramsey. “And it’s going to go up.”
The caller chuckled skeptically. But Ramsey exclaimed in response, “It is! Always has!”
He then stated his reasoning:
I’m not a bit panicked. I’m completely invested in all of my IRAs personally. They are involved in good growth stock type mutual funds, just like we teach you to do in the Thrift Savings Plan. You’ve done the right allocation with the C, S and I.
There’s no guarantee what the stock market is going to do, but just because it’s at 16,000 doesn’t mean that it has to go down. It’s based on the profitability of those companies (in the market). And really, those companies have become fairly profitable in a fairly lackluster, sucky economy. If the economy actually got zoom-zoom again, you might see it bust up over 20 (thousand) again pretty quickly. That’s kind of weird to think about; I remember when we didn’t think it would ever break 10, but it did!
After the exchange, the caller sounded convinced and much more assured about staying the course in his TSP investments.
The message Ramsey had though was a simple one: stay the course, and over the long haul, you will come out ahead invested in stocks versus if you try to time the market and jump in and out of your investments.
How is this possible? The S&P 500 index, which the C fund tracks, has averaged an annual return of about 10% from 1926 – 2011, so over a long period of time, such as a 20 or 30 year career with the government, one can expect to see a lifetime average return of somewhere in the 7-10% range from the C fund alone. Had an investor sold his position in the C fund in 2008, it would have been a disaster as he would have locked in potential losses when the market was at a low point, only to see the market rebound again the next year.
But what if you sell now? Would you lock in gains? Maybe, maybe not. Nobody knows what the market will do. That was Ramsey’s point. As he said, the market will go up, and it will go down, but statistically it has always come out ahead over the course of time. The only way to come out on top with it is to be invested for the long haul and ride the ups and downs.