New High in the Stock Market: What Should TSP Investors Do?

The stock market has reached a new all time high with a leading index hitting 20,000 this week. How should TSP investors react?

The Dow Jones Industrial Average has crossed the 20,000 threshold. What does this mean and what, if anything, should Thrift Savings Plan (TSP) participants do with their investments now?

It is not possible to provide advice to a wide range of people in different situations. This article will outline some considerations to guide you in handling your TSP investments.

Most TSP investors probably do not spend time each day watching the performance of the stock market. In fact, doing so is probably not good for your financial or mental health.

TSP investors are usually relying on the TSP for future retirement income. Day trading TSP funds to take advantage of momentary swings in the stock market is not practical or even possible with restrictions on trading TSP funds.

Reaching 20,000 on the Dow Jones Industrial Average

So what is the Dow average, and does achieving a new high have significance for TSP investors?

There is not a TSP stock fund that follows the Dow Jones Industrial Average (DJIA). The C fund tracks the S&P 500 index. 120 years after its creation, the DJIA does a good job projecting what is going on in the U.S. stock market. It only consists of 30 stocks. Individual investors and funds, including the TSP, usually track the S&P 500 which has a much broader range of stocks.

The 20,000 mark on the DJIA is still significant. To put it into perspective, according to the Wall Street Journal, it took about 103 years for this index to reach 10,000. That was in March 1999. Reaching the 20,000 figure took almost 18 more years.

The rally in the stock market after the election of Donald Trump sent the index up about 9.5% since November 8th.

Throw Caution to the Winds?

With the DJIA hitting 20,000 and this stock market index up more than 9% just since the election results came in, what action should TSP investors take?

Is this the time to put all of your investments into the TSP stock funds and the C fund in particular? Should investors cash out of stocks and put all of the money into the G fund?

Acting too fast based on recent events without having an overall investment plan can result in disaster. The circumstances for each investor are often very different.

Are you retired or about to retire? Are you just starting out in your federal career? Do you have an emergency fund to help out when Murphy’s law enters your life and you need money for unexpected events? Are you a person who will panic when recent stock market gains evaporate and the market drops 20% or more?

What Is Your Investment Plan?

For many readers, the answer will be to ignore the daily gains and losses and go on with your life. If you have an investment plan with diversified investments with which you are satisfied, ignore the daily headlines on stocks.

With the gains in the stock market, you may find that your investments are now much more heavily invested in stocks than in bonds. If you want to have a broadly diversified portfolio that includes a predetermined mixture of stocks and bonds, this may be a good time to rebalance your TSP investments.

The C fund is up almost 8% since the presidential election. The S fund is up 13% since the election. These are big gains in a short time. Enjoy the ride!

Some investors who are close to retirement and have a more short term focus may sell some of their stock funds out of caution if they will be relying on investment income from the TSP in the next few months.

Politics Is Not An Investment Guideline

No one can accurately predict with the market will do in the near future. Perhaps you love (or hate) Barack Obama. Perhaps you love (or hate) Donald Trump. Political opinions are not a good basis for making investment decisions for your future retirement.

Some investors will invest in stocks based on their political reaction to the presidential election. They may dump stocks only to see the market continue to go up substantially in the next year. Or, on the opposite side, they may throw caution to the winds and sell all of their bond funds to invest in the C fund or the S fund.

If the stock market does drop substantially in the short term, some of these “investors” will sell when they panic after seeing their investment assets drop faster than they went up.

A good financial advisor, or a savvy individual investor who has experienced market fluctuations, will develop a financial plan. Use it for emotional comfort. When the market soars, look at your plan and see if you need to make adjustments. When the market drops dramatically, and it will do so again, take a deep breath and look at your plan again instead of responding to what may be a short term fear or lack of confidence.

If you do not have a clue how to allocate your money in the TSP, look for a financial advisor with a knowledge of the TSP program. Or select the appropriate lifecycle fund and let the TSP make the decision for you as to how to allocate your money. Not investing in the TSP because you feel ignorant about investing will result in less money available upon retirement. You are also giving away “free money” as the government will match your contributions up to a point. You will not get this free money if you stay out of the TSP.

Enjoying the Ride and Making Money in the TSP

In 2008, the C fund dropped about 37% in that one year. On December 30, 2008, a share of stock in the C fund was worth $10.43.

The S fund dropped about 38% in 2008. Many investors could not take the stress and sold as the market was dropping. Some investors sold at the lowest point of the market. A share of the S fund had a value of $12.21 on December 31, 2008.

If you owned 1,000 shares of the C fund on December 31, 2008, your asset had a value of $10,430. If you left that 1,000 shares in the C fund, as of January 26, 2017, your fund had a value of $31,700,

In that same time, your S fund went from a value of $12,210 to a value of $42,430.

In other words, in this hypothetical example, your retirement fund was worth $74,130 instead of $22,640—an increase of $51,490 in less than eight years. Of course, many investors were adding new money into these accounts every pay period so their TSP fund would be worth considerably more than the $74,130.

Regular investing is how investors in the Thrift Savings Plan may become a member of the TSP millionaire’s club as a federal employee over a long federal career. (See How to Be a TSP Millionaire)

Your TSP investments have been growing. Celebrate the DJIA hitting 20,000.

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. Follow Ralph on Twitter: @RalphSmith47