Unless you’ve been living in a cave for the last 6 months, you know that 2022 has not been a pretty year for the TSP (Thrift Savings Plan).
The market (C and S funds) has gone down significantly which has made even the calmest investors nervous.
And in times like these, I always get questions like, “The TSP isn’t doing well right now, should I…
- Move everything to the G fund?
- Take money out to pay off my house?
- Take money out to pay off miscellaneous debt and loose ends before retirement?
And on the surface, these questions make a ton of sense. After all, if the TSP is not performing right now, why don’t we put our money to work somewhere else?
But before you do, be extremely careful. Because this can be the quickest way to kill your TSP.
The Quickest Way to Kill TSP
To illustrate my point, I’ll start with a non-TSP example.
Let’s say that your house was worth $500k yesterday, but real estate values dropped today so your house is now worth only $350k.
Is now the best time to sell your house? After all, your house hasn’t been doing well so might as well put your money to better use, right?
Most people would hate selling their house after it just lost $150k in value, and most would prefer to wait until home prices came back up first.
In order to have the best retirement possible, we have to implement this same thinking with your TSP.
You Haven’t Lost Anything Yet
Whenever the stock market goes down, we have to remember that we haven’t lost anything yet. We still own the same amount of shares as before. The only differences is that those shares are worth less right now.
The only way to lock in your losses is by selling your shares, and when you remove money from the stock-based funds (C, S, and I), your losses are locked in.
That is why I get nervous when people want to make big moves when the market is down.
No one will stop you from moving to the G Fund or taking a large sum out to pay off your mortgage, but whenever possible, I would wait until the market has recovered before making these sort of moves.
That way you can sell way fewer shares to get the same amount of money that you need.
But I Need the Money Now!
But what about those people that are retired and need money now to fund their lifestyle? Is there anything these people can do to not sell when the market is down?
Yes! Every good retirement investment strategy should allow you to buy low and sell high through your entire retirement.
The Bucket Strategy is one great way to never have to sell when the market is down without sacrificing your retirement lifestyle. You can find a step-by-step guide on the bucket strategy here.