3 Mistakes TSP Investors Make

Let’s face it–investing isn’t easy.  Every day you hear conflicting reports from the financial world.  Friends, co-workers and experts recommend completely different investing approaches.

In this day of information overload, clear thinking is in short supply.  As a result, it’s easy to be indecisive.  It’s also easy to make a lot of poor decisions.

When it comes to the TSP, we often see three particular mistakes:  

  • Keeping a large permanent allocation in the G Fund
  • Avoiding certain TSP funds, even when they perform well
  • Following an adviser or strategy based on short-term results

In future posts, we’ll cover each mistake in detail.  For now, let’s go over the main points.

G Fund overload

A recent audit by the Federal Retirement Thrift Investment Board revealed that almost 45% of TSP assets were in the G Fund.  What’s worse, young people like the G Fund more than baby boomers.

Is it always wrong to put your money in the G Fund?  Certainly not.  In a bear market, it’s a smart move.  But stocks have moved up sharply since early 2009.  The C and S Funds have more than doubled their values since then.

Choose your funds wisely

While the G Fund is adored, other funds are shunned.  The F and I Funds are the least popular.  Maybe you’ve avoided them yourself? 

Hopefully not.  From 2004 to 2007, the I Fund was the strongest performer–by a large margin.  The F Fund had the best returns in 2008 and 2011. By contrast, the G Fund hasn’t been the top performer since 1994. 

What have you done for me lately….or what have you done for me long-term?

Chasing short-term performance is the last major mistake.  Imagine you can choose between two investing strategies:  

  • Strategy 1 has done very well for the last 15 years.  It’s been mediocre for the last three months, however.  
  • Strategy 2 has doubled the stock market’s return for the last three months.  But it only has a 2-year track record, and didn’t perform well until recently.  

Which sounds better to you?

The logical response is Strategy 1. Short-term results are just noise in the long-term picture. Yet some people choose a strategy/adviser based on the last 3 to 12 months of performance. It’s tempting to focus on recent activity, but years of performance is what matters.

Everyone makes mistakes. Now you’re armed with knowledge to prevent them. Don’t fall for common myths. Instead, let data and sound reasoning drive your decisions. For more specific guidance, sign up today for our service.