First of all, I know that this isn’t very much fun. Right now we are all dealing with a changing current reality in different ways and coming to terms with what the next few months may hold in store for us. Teleworking, kids at home, scary headlines coming across our phones by the hour.
In this new normal (albeit hopefully very temporary) situation, even going to the grocery store has become a challenging experience all across the country. Widespread panic has caused a run on everything from household goods such as toilet paper, to raising cash by liquidating investments right down to the most conservative treasury notes. Thankfully some of the pressure on more conservative investments (and hopefully stocks) will continue to be eased by the Government’s stimulus response.
Anyway, at the moment we know the question on everyone’s mind is what to do with his or her investments. For federal employees, that question is, “What should I do with my TSP?”
There’s no question that watching your retirement funds decrease significantly in value in a very short period of time is stressful, so whether you are in the camp that has already sold out at some point over the past month or you are holding on with discipline, I’ll offer up a few thoughts.
Consider Rebalancing
If you haven’t sold anything, now is not the time to sell, but you might consider rebalancing.
I’m not going to insert a series of charts here, but history is littered with these types of events and market declines. There may be no question that the market will recover; it’s just a matter of how long you have to wait for the recovery.
The Federal Government has announced an unbelievable amount of stimulus ($2 trillion) to support the economic recovery efforts, now we just need the growth rate of this virus to peak. Whether the stimulus has unintended long-term implications is another topic.
Avoid Selling
If you are in need of current income from your investments, I would suggest doing everything in your power not to sell equities and other depressed positions. Consider instead cutting expenses and pulling what you need from other assets like cash accounts.
If you do have to sell some investments for income, try to do so minimally so that you are locking in the fewest amounts of losses possible. Rebalancing may make sense here as well.
Be a Buyer if it Suits Your Situation
If you are someone with an investment time horizon of more than 5-10 years, this is your buying opportunity. Increase your contributions and try to get to the max if you can. You might even consider front-loading contributions over the next few months to take advantage of pricing disruptions. Again, consider rebalancing your account.
If you’ve sold already, come up with a plan to get back in sooner rather than later. Timing the market is impossible; in fact it’s so hard that even the so-called experts are terrible at it.
Don’t wait for the perfect moment; if you have a long-term time horizon as mentioned you need to be in the markets. Come up with a sensible plan and allocation strategy – you might consider dollar cost averaging. The cost of missing the best days in the market can be incredibly high to long-term performance.
Remember this isn’t an overall structural change, it’s a global supply and demand shock caused by a black swan event.
A note on allocation strategy – I believe time horizon is the driving force behind finding the right mix and allocation strategy for your investments. If you are older and have a shorter time horizon, it’s understandable that you may have gotten caught off guard with an overly aggressive/equity-heavy allocation. Moving forward, you might consider allocating in a more balanced approach that will provide flexibility if you need income from your investments.
I hope this is helpful; be well out there.
The content is developed from sources believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
