Volatility in the TSP Funds

With the stock market dropping, have you started to panic? The recent volatility has left many federal employees worried about their Thrift Savings Plan holdings. The author explains what causes market volatility and what federal employees should consider doing when the stock market heads south as it has done recently.

Whenever there is volatility within the TSP funds, people panic.

This isn’t exclusive to the TSP, but rather just the stock market in general. It’s what I like to call, “The Sky is Falling Effect.”

But, the reason people panic is often for a good reason. They have all of this money they’ve worked hard for and invested into the TSP so that they will have extra money in retirement or to pass to their heirs. And then suddenly a meteor has come and placed a massive crater in their account.

This happened most notably, and recently, in 2008.

I could recap in heavy detail the losses that were seen not only by the public, but specifically to those invested in the TSP, but I will only show the final results because many reading this actually lived it.

The performance of the TSP Funds in 2008 were as follows:

Fund % Change
G – Fund 3.75%
F -Fund 5.45%
C – Fund – 36.99%
S – Fund – 38.32%
I – Fund -42.43%

Now, something to be aware of is the market did bounce back in subsequent years as is often the case.

However, you need to remember one thing that people say, BUT in my experience, rarely comprehend:


To illustrate; if you have $200,000 and you lose 20% of the value of the account, you are down to $160,000. Then, if it recovers 20% you are only back to $192,000 . You still haven’t gotten back to your original amount before the market correction. If you were to compound this over a longer time period with even larger losses, it would be even more dramatic.

I’m a visual learner and I know many others are as well, so here’s a simple graph to illustrate:

Image showing chart of TSP performance

What causes volatility in the market?

When mean ol’ Mr. Market (a phrase taken from Warren Buffett’s mentor Benjamin Graham) corrects himself, everybody has a reason as to why it happened.

The most lethal force that contributes to the market being volatile is human emotion.

When people are experiencing gains/increases in their portfolio, dopamine is triggered in their brain and they experience satisfaction. Then, when people start to lose money and see red in their account, fear begins to set in. This giant swing of emotions can cause accelerated buying or selling depending on the circumstance leading to increased volatility.

Earning Reports can also lead to volatility.

Before the earnings of a company are announced, many people are already speculating on what will happen. And then, when the report officially comes out, people react based upon what happened, whether that news was good or bad.

Changes in national economic policy plays a large part in the up and down of the market as well. Changes in the monetary policy of the Fed often causes sharp movement in the market; when the Fed eases monetary policy the market often moves up, and when the Fed tightens monetary policy the market often moves downward. I made this simple teeter totter drawing to illustrate:

Monetary Policy Teeter Totter

A few other reasons for volatility include downgrades from rating firms, crises in foreign markets, political policy, as well as many others.

I like to think of the market as a herd of deer. It’s very skiddish, and with one wrong move, the deer are running.

What should be done when things are going south?

Go turn on your TV and similar to the flipping of a coin, each channel you change to will have a different opinion.

Be aware though, at times of increased volatility there will be many doomsayers attempting to gain notoriety by predicting a future crash. If they’re right, everybody will praise them. If they’re wrong, most people will forget. It happens every year.

So, my first suggestion is to be careful of where you get your news. Make sure it’s fact based and has opinions from multiple sides.

The bottom line and something to remember: stocks DO NOT go up in a straight line. Volatile markets can create opportunity, however the closer you get to retirement the less you can weather storms. Why is that so? Various reasons, but mainly because you have less time to make your money back.

These questions on what to invest in, and what to do during times of increased ups and downs are something you should speak with a qualified advisor about.

And, if you already have one, this is where your plan comes in.

If you’ve been intentional about your investing and have a plan for the future, then it’s much easier to  stick to the plan and weather whatever storms come your way.

Unfortunately, too often I find that many federal employees have no plan and nobody with the knowledge to help them, and thus are tossed by whatever wind and waves present themselves. Sometimes, those wind and waves are caused by Dave “the stock market guru” at the water cooler; other times it’s in their own head.

Just be careful who you listen to.

Be attentive to what’s happening, and if the tumult of the market is too much for you, adjust accordingly. There’s no sense in losing sleep and quality of life for the chance of earning a bit of a higher return.

And that’s coming from someone who does this for a living!

About the Author

Cooper Mitchell is a financial advisor dedicated to helping federal employees take control of their retirement. You can find out more about him and his company at his website, fedretirementplanning.com.