How to Almost Never Lose Money in The TSP

hello hello good morning federal employees my name is dallin hawes and welcome back to another episode of plan your federal benefits i am privileged to work with federal employees all the time as a financial planner helping them get prepared for retirement or transition into retirement the most out of their benefits and really be set and confident about the future so if you are thinking about retirement if you are trying to get the most of your furs federal benefits please consider joining this incredible community of incredible federal employees that are trying and pushing to get the most out of what they have and to make sure that they are set up for success and taken care of their families that is the type of people that we have here and so welcome welcome welcome to another great episode today we're talking about your tsp and how to almost never lose money in your tsp so let's jump right in without further ado so there's two strategies that i'm going to talk about today when it comes to a way to not lose money in your tsp but while i am going to be talking about too there is only one of these strategies that i actually want you to do that i actually recommend okay so let's jump right in let's start with the not so smart strategy or the strategy that has many many downsides and that is the strategy taken by many people not just federal employees many people where maybe they dabble into investing maybe they start putting money in the tsp and ira something they start and then the market goes down something happens or it scares them they say hey wow there's a lot of risk here i want to save for retirement a way that's safe that i want to know that my money is going to be there when i retire and so consequently they end up putting their money in a savings account or maybe in the tsp meeting that g fund things that are very very conservative right so that that is kind of one strategy hey i'm going to just be so conservative that it's impossible for me to lose value right the g fund is set up where it's not going to lose value that's kind of the main idea of the g fund right it'll grow some but it won't lose value right that is the idea and the word of caution that i always give and if you're a regular here at the town you'll know my thoughts on this is that there is risk whenever you invest there is risk but one thing that is not talked about near as much is the risk of not investing right if you invest let's say in the g fund or in a savings account your return over time is going to be relatively very very low right and what happens is inflation over the last hundred or so years inflation's been about three percent right so if your account is growing less than three percent a year your money the dollar amount in your account may increase a little bit or may stay the same but the purchasing power of your money over the course of your career and your retirement is going to go down if it is not growing as much as inflation right now when people are going to start drawing money out of their tsp then they want their tsp to be growing with inflation as well as growing enough to allow them to take out the sort of distributions out of their accounts so that they can live the way they want it often that requires you to invest a lot more than just the g fund right the g fund is a great tool but it shouldn't be the only tool in our arsenal right we should be diversified in a way that makes sense for you so that's the first strategy that some people take to say hey i don't want to lose a dollar in my tsp so i'm going to be so conservative that i can't it's impossible too and the downside of course is growth over time and you're going to suffer in retirement because you didn't have the growth that you needed over time and even once you're in retirement it is almost never wise to be 100 g fund because retirement can be long if you retire let's say late 50s or early 60s people are living a long time your retirement can be 30 40 50 years right it could be a long time and you want to make sure you have a strategy that will work regardless of how how long you live regardless of what the market does so the next strategy that i'm going to talk about i'm going to first introduce it by talking about your home your house right so if you are a homeowner let me ask you this question when was the last time that your home lost significant value right and how much value did it lose right think about that and if you're like most homeowners you may know that you know over the years maybe in 2008 your home value dipped down and right now of course cross country home values typically depending on your area are very very high right so there's some trends across the united states but when it comes to exactly year by year what your home's worth and how much value it loses or gains it's hard to know right it's hard to know and consequently people often think that home values never go down some people think that where over time they just slowly go up and home values never go down and if we look at the data however home values fluctuate quite a bit quite a bit but we often just don't see it because to know what your home is worth first you gotta either put it on the market get an appraisal it takes money and often work to make sure this has happened happening right if you want to check the value of your tsp it's simple you just log in and boom there it is and so you can see every time it goes up and down and that can be stressful right so the moral of the story is that we should deal with our investments which our home is is a type of investment we should deal with our tsp our retirement savings in similar way that we deal with our homes but because our homes we don't really check the value very often we assume it is slowly goes up but actually i wrote an article on this so if you go to my blog if you're on the podcast it'll be in the description youtube it'll be in the description you go to my blog and you find the article that it was right along with this topic you'll find a chart that i found that showed the sales price of homes in the northeast of the united states and how they fluctuated over the last 20 years right and if you look at that chart the fluctuations year to year can be close to a hundred thousand dollars if not more year to year meaning the fluctuations and home values can be huge huge but people don't really know because if you're only checking your home value let's say every 10 years when you move or when you get an appraisal or you can refinance then oftentimes over 10 years it will be higher than it was when you purchased it right but there'll be tons of fluctuations in between but for you as a homeowner what matters is when you sell right that's what matters we all know that we don't want to sell our home when the markets weigh down when we can't get a good price order when we can't get what we put into we know naturally that we shouldn't sell right naturally we want to sell when the market's really high right and obviously if you are selling a home then buying a home there's a whole other nuance of well if you're selling a home and buying a home in the same market then it won't matter as much because the market is high no matter what right so that's a whole different conversation but the reason i bring up your house is because when you think of our tsp it's a lot more emotional than our home tends to be right and so if we handle our tsp and say hey i know it's going to fluctuate quite a bit but but honestly what i care about is how it grows over time and if you check your csp constantly then you're going to see the daily the weekly the monthly whatever fluctuations where over time those fluctuations don't really matter because what matters is when you buy and when you sell where that's what matters and that determines how much money you actually make because regardless if the market is super high right now guess what it actually isn't real for you because you haven't sold anything right that's how investments work right if you buy it ten dollars and it jumps up to twenty well that twenty dollars is not in your pocket because you haven't sold it right when it when you sell it is when it matters so if it drops you haven't lost any money yet it just so happens at that moment if you were to sell that would be the price right and so you have to have a long term strategy to say hey i know the market's emotional i know that in the short term there's going to be fluctuations there's going to be things i can't control but if i have a long-term strategy i just won't sell when the market's down right because the only way or one of the only ways to lose money in investing is to sell when the market's down right so when people get scared especially when they get close to retirement which is totally natural right it gets emotional it gets scary we're tempted to sell when the market's down right now the market's very high and so oftentimes it's easy to say hey it's going to go up forever but it's not it's not i'm not trying to scare you i'm just trying to say hey the market's going to go up and down constantly and we can't control that what we can control is how we choose to allocate it over time and how we choose to react when these things happen and when you stick to a long-term plan that makes sense for your situation now and then into retirement it's a game changer it changes the game and obviously it's a lot less stressful because you're not checking it every day because you trust in your long-term plan right that's the confidence that comes by having a long term plan right and if you have that long-term plan then you're not going to sell the c fund the s fund these stock-based funds when the market drops right because then that is how you lose money right and now at this point in the conversation whenever i talk about this many people say hey well that's dandy while you're in your career because you don't need the money right you can't just let things right you don't have to sell that's great but what about in retirement right when actually you're going to need those retirement savings because that's why you saved it up all these years you're going to need those retirement savings to live off of right so you're going to be forced to sell something to live off of right so what is the strategy once you get into retirement and that's a great question one thing to think about is that even in retirement like i said retirements can be long it rarely makes sense to be so conservative like a savings account energy fund because for over 30 years inflation can take a huge hit and if you're not growing some then as you're withdrawing money can make a huge huge difference of how long your money lasts right so you definitely want some growth the question is what's the best strategy to get some growth but also not selling the markets down and one strategy and there's lots of strategies for this but one strategy that is often pretty simple is to have about three to five years of cash or close to cash right of expenses after your pension after your social security of expenses in a cash bucket i call it where that money is in things like the g fund or things that are similar to it where they grow some but they're not going to lose value and you can liquidate them really really quickly that's the most important part and the the purpose of this bucket is first to just be a bucket where as you need money as you spend this is where you take it from right that's the purpose of this bucket and also there's three to five years of crash in this bucket because guess what your other investments that are maybe in the stock-based funds that are going to fluctuate more over time when the market's down you don't want to have to sell those right you need a bucket of reserves hey i got three to five years to write this out it's gonna come back up it's gonna recover and i don't have to sell when it's down right so that is one strategy to use and like i said there's lots of strategies the most important thing is to find a investment strategy that works during your career as well as in your retirement that makes sense to you that's relatively simple and that you can execute on and actually do time and time again and that will give you the confidence to write things out right that is the most important thing first to just sleep good at night right that is huge as well as to get the best retirement outcomes that you can that is our goal so i hope today was helpful i hope it gave some perspective on how similar your tsp can be to your home value or over time it's going to fluctuate but you have to remember the long term game and if you do then over time you're not going to lose money because over time the market's going to increase and you're going to be able to sell when things are high so i hope that myself will have a great rest of your day and i'll see you next time

Channel: Haws Federal Advisors

Views: 24,946

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Id: iOFlxU93bUs

Length: 13min 15sec (795 seconds)

Published: Tue Mar 02 2021