The stock market has reached repeated new highs in the last several months, with good returns for a lot of people with aggressively invested TSP accounts. Others, however, can be stuck on the sideline and trying to find a way to get back in without exposing themselves to excessive risk if the market cools off.
It is possible to remain out of the stock market a long time, depending on your personality and investing style. There are people who moved to the G fund just before the election, others who have been out of the market since 2008, and many other places in between.
While it may seem difficult, there are some strategies you can employ to get back to an appropriate allocation.
Staying The Course
The first piece of advice is to figure out an appropriate investment allocation for your situation, which is based on an overall income and retirement plan, and stick with that allocation regardless of market moves.
Allocation changes really only need to be made when your situation changes or to adjust as you move farther along on the road to retirement. Because the logic that dictated the allocation in the first place isn’t based on market performance, it also shouldn’t be affected by it. If you are able to maintain this strategy, you don’t need to worry about how to get into or out of the market.
Staying In Your Lane
For those people that do try to make adjustments to their portfolio based on the stock market, is important to try to stay in an appropriate allocation range. You do not need to be either all in or all out, and smaller adjustments can help offset some of the risk.
This strategy was explained in more detail in my previous article, Staying In Your Lane: How To React To Changing Markets In The TSP.
Waiting For A Correction
Most people that get out of the market eventually plan to get back in. The most common response to the timing is that, “I’m waiting for a pullback, and then I’ll re-invest.”
The problem with that strategy is while you are waiting for a 10% correction, the market can go up 20%. Even if you eventually see the pullback you are waiting for, you still may be lagging the return you would have gotten if you had stayed invested.
The simplest response to the question of “when to get back into the market” is to start NOW. Just like you don’t need to move out all at once, you also should remember that you don’t need to get back in all at once either.
An easy method to get back to where you know your allocation should be is to simply start with small chunks. Move 2% or 3% into the C fund immediately, and then look at doing it again soon thereafter. Moving 2% per week, you would be back to a 60/40 overall allocation within 8 months. You could also do 5% per month, and it would take a year.
Your eventual target allocation should be based on your own situation and income plan, but the concept is similar. Moving the funds with this method takes advantage of dollar cost averaging, where you are not facing a large loss if the market pulls back, but instead are able to buy in at a discount.
Using the regular small investment method also leaves you able to move in faster if a correction or buying opportunity does present itself down the road. In the meantime, though, you have at least begun to participate in the rising market along the way.