Tag Archives: TSP

3 Mistakes TSP Investors Make

Investment Corner, , , , ,

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.

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