Below are some frequent questions and answers, sent by readers. Questions and answers are paraphrased somewhat for readability/understandability across multiple levels of investing experience:
1. What will this website do for me ?
The purpose of this website is to educate the reader regarding the various TSP plan fund options and the overall stock market in general. By observing Bill Pritchard’s TSP investment choices, this should expand your knowledge and understanding of investments. This site is not an investment advice site.
2. I have heard that “buy and hold” is the best strategy, isn’t that true ?
Buy and Hold only works when the investor has 20+ years of time ahead of them, and can handle market downturns. Even then, buy and hold is not something I recommend. I believe it is better to be “all cash” when the market is in a downtrend, typically called a Bear Market.
3. How exactly are you deciding when to move in and out of the funds ? This all sounds like hocus-pocus. Tell me the secret.
The system combines fundamental analysis and economic concepts with market volume, price performance, technical analysis, and other metrics and this is what is used to determine my trading decisions.
4. My balance is down 15%. No big deal, I just need 15% positive return and all is good. What is all the noise about ?
If your account is down 15%, you now need 17.65%+ return to return to the original account balance. Do the math. 15% loss of 100,000 is 85,000. To return to 100,000, you need 15,000 or 17.65 percent of 85,000.
5. Why are the markets so volatile lately ? I don’t remember them like this before.
You are correct. The market volatility seen today has never been seen before in history. Factors such as computerized, electronic trading (versus humans on the stock exchange floor), in which computers at large hedge funds and mutual funds automatically activiate buy and sell orders, the interlinked trading coupled to worldwide markets such as Europe (thanks to computers and the internet), instant availability of news and information (again due to internet), have all contributed to the market volatility. Make no mistake, every mutual fund manager, hedge fund manager, and professional money manager, has lost sleep and gotten gray hairs in the last few years.
6. What makes a market go up or go down ? I don’t understand what causes these trends.
A “catalyst” is needed. Historically, these are :
– New inventions or revolutionary concepts (internet, jet travel, medical breakthroughs, etc)
– Political change (new President, new economic policy, etc)
– War (World War II and the 2003 Iraq Invasion preempted very strong bull markets)
– Etc
Typically “the bigger the catalyst, the bigger the responding market move”
7. My TSP balance has had some losses, but aren’t these just “paper losses?”
Any “paper loss” is a loss of real money. If your ATM receipt reflected a $1000 lower ATM balance, that is real money, not just a “paper loss.” It is very important to protect your TSP balance at all times.
8. Isn’t the TSP just one component of my retirement ? What about my “high-3”, isn’t that important ?
Under FERS, the TSP is the primary source of retirement income for the FERS retiree. The “high-3” counts also, but mathematically the absolute most important component is the TSP balance and the return you can get. A GS-15 retiring from Little Rock will likely see a lower “high-3” than a GS-13 retiring from Houston, due to locality pay and other factors. The most important thing for every federal employee is monitoring their TSP, not chasing that “high-3” salary or promotion. I have seen trustworthy literature from outside TSP experts who state that everyone’s goal should be a TSP balance of at least 500K by the time they retire.
9. I am a middle class guy, not some rich guy or Warren Buffett. Why should I use this site or secure the services of an expert ?
That is the very reason you should. Most wealthy people got there via a support network and outside experts, such as lawyers, CPA’s, financial advisors, on their team. Most healthy folks are healthy not by magic, but because of annual checkups and a healthy lifestyle and a proactive approach.
10. When you provide your “current allocation”, are you also conducting interfund transfers according to your current allocation percentages, or are you leaving funds in the funds from the prior update and just adjusting future allocations?
An interfund transfer and a contribution allocation both occur, to reflect the new fund choices. An interfund transfer is physically moving your account balance from one fund to another, further discussed here: https://www.tsp.gov/planparticipation/interfund/IFTs.shtml
Contribution allocations are discussed here: https://www.tsp.gov/planparticipation/contributions/contributionAllocations.shtml
When I state that I am “100% S-Fund” (in this example, S-Fund), then I have conducted an interfund transfer of 100% into S-Fund and I have chosen to have 100% of contribution allocations go into the S-Fund.
This is probably my most frequent email question I get, by the way. I personally ask that everyone read the above links and understand how to move your money around, as that is something every TSP participant should have a handle on.
11. In 12 months, I will reach my mandatory retirement age of 57. At that time, I will likely need to make some withdrawls from my TSP account which has hovered at or above $500 K for the past two months. I have been maxed out in L Fund (2020) for some time. I am concerned about how the next six weeks (fiscal cliff negotiations) will affect my account.
I consider the G-Fund as the “safe haven” during times of market instability. There is no “loss” by going to G-Fund except for the chance you may miss some gains, however since my recommendations to move to G-Fund always occur during market turmoil, it is unlikely that any chance of gain will materialize. To explain further, this is akin to getting an umbrella during a rainstorm and then worrying that you may miss the chance to improve your suntan that day.
12. I’m confused about where to be with investments. I recently put 100% into the G fund because of the election. Should I put it back into C, F & I yet or wait a while to see what happens with the market?
Please utilize this site to provide insight as to what fund choices you should make. In summary, G-Fund is the “safe haven” fund used for safety and security but not for gains. The S, C, I, funds are the stock funds and depending on market climate and other factors, one may outperform the other in any given period of time.
13. Is there a place I can check on The Fed Trader’s previous year returns? Do you have a rate of return for your system versus leaving funds in the C Fund, S Fund, I Fund etc?
Unfortunately, I do not have one at this time. Other readers have remarked that their TSP performance routinely exceeds the performance of the SP 500 index. Most all readers, by following information posted on this site, were into G-Fund ahead of the 2008 market crash, thus protecting their balances. I sent an email advisory on 11-09-2007 recommending G-Fund. The market continue to slide downward and had a severe break downward in mid-2008, causing great pain to many TSP participants. Standard disclaimer: I make no performance claims on this site, past performance is not indicative of future results, and this site is entertainment only.
14. I am XX yrs in. I am currently diversified in the L2020 and L2030 and some in S and I. With your model, should I go back and go all in the S or still stay somewhat diversified in the L funds?
This is a very good question. Each Lifecycle fund has exposure to the G, S, I, and C funds. If you are in two lifecyle funds, and also some I-Fund and some S-Fund, you are duplicating efforts. With the strategies I use, I am basically 100% the strongest fund, or 50% strongest, 50% second strongest, when in a healthy market or uptrend, and am 100% G-Fund when the market is in a downturn. How I determine the trend and the top performing fund is via a system developed over many years. Please see “About” section for more info. How you decide to allocate your TSP is your personal decision. There is nothing “wrong” with your current allocations however my opinion is you have too many eggs in too many baskets. I prefer to put most eggs in one basket, and watch that basket very close.
15. This site is a breath of fresh air. I don’t know if you heard of Wayne McLeod and his stuff a few years ago ?
Thank you for the comments. Yes as a matter of fact, I met Wayne personally, in 2005, and presented him with some rather elementary investment questions, to which he was clueless. In addition, he guaranteed returns on investments that he also guaranteed were safe. Big red flag times two. He was “dismissive” of my probing questions and offered vanilla cookie cutter answers. I immediately advised my close friends and co-workers to stay away from him. Of course most of us know what happened a few years later. Please utilize this site, and Mr. Dan Jamison, as trustworthy “go-to” resources. I hope our close knit community does not make another “Wayne McLeod mistake.” We have to be careful who we invite into our house. Thanks for the email.
16. I plan to retire in two years. How aggressive should I be with the TSP ?
Please note that if you are three (3) years or less to retirement, a risk averse approach in my opinion is 50% of your account balance and 50% of your future contributions should be in the G-Fund, probably for the rest of your TSP time. The remaining should be invested in the best performing fund(s) at the time. This is my opinion, and is not hugely different from being in a L-Fund.
The reason behind this is because that close to retirement, while gains are important, it is also important to keep your balance safe from market turbulence. Each individual investor has their own risk tolerance, however as you approach retirement, I would dial-back the aggressiveness somewhat. This is my opinion.
17. In the past, I would distribute my contributions not based on speculations but longevity. When you say 100%-G does that include 100% of moving (interfund transfer) to the G? Doesn’t that give up your buying power, meaning buying low when the market is down? Do you not leave any money in the S fund? Also, does it cost us more money for continually moving the money around? Thank you for helping people like me, who really don’t understand but would like to do well in the market. Also, I gave you my numbers in what was currently in my TSP so you can tell me if I am on track or need to be saving more. I currently have $150,000, I have been in the government since XXXX and I have approx. XX more years. I’m ok, or need to step it up? Thanks Again!
This is answered in FAQ #10 above, somewhat. I am not sure what you mean by “buying power” so I hesitate to try to answer it, but I encourage people to try to understand the importance of being in-sync with market trends and the best fund(s) at the time. A google search will return multiple investing styles, and entire Ivy League business schools have departments dedicated to the topic. At the end of the day, the style that works for you and what allows you to sleep at night is the “correct” one. The style I advocate is one of trend-following and tactical investment management, and I have developed proprietary methodologies which are tools to help my investment decisions. Regarding your TSP balance, please note that the markets crashed hard 2000 to 2003 and again late 2007 to early 2009, which hurt a lot of people. Most of my readers (at the time this site was simply an “email mail-out letter”) at the time were in G-Fund. As far as needing to “step it up”, I can’t tell you what to do, but my opinion is everyone should contribute the maximum to their TSP, and try to learn and educate themselves about the markets. Good Luck
18. What are your plans down the road ?
This site is a “warmup” to a post-retirement career in Investment Management, likely via the creation of my own Registered Investment Advisory (RIA) company, targeting a select clientele who are deserving of trustworthy investment guidance, and who share my investment (and life) philosophy, commitment, and passion.
19. What do you think about the “Sell in May” strategy ?
This is a great question and indicative that you are actively involved in monitoring the markets. Personally, I follow the market’s behavior itself, and react accordingly. My strategy falls into the trend following and tactical investing category- I monitor the market’s behavior and don’t advocate “blanket” strategies. However what works for me may not work for others, and I recommend people find a method they personally are comfortable with. Reading my posts here will reveal details of my self-developed “system” which includes the use of technical and fundamental analysis to make investment decisions, and that is what I use.
20. I am confused about the different annuity options, can you discuss that on your site ?
That falls into the realm of financial planning, which is outside of my fluency and knowledge. I can talk about investments, large cap stocks, SP 500 support levels, falling gold prices, until people go to sleep (typical reaction…) but annuities, life insurance, etc are outside of my expertise. For those matters or similar matters, my colleague and smartest guy in the room for that is Dan Jamison, who can be reached at dan@fersguide.com
21. What exactly is PIP and is the PIP calculated ?
The rate of return earned by your entire account during the 12-month period ending on the date indicated on your annual statement or on your Account Balance page of the TSP website. The PIP is a time-weighted return that has been calculated using a modified-Deitz method (a method used by many financial institutions and an industry standard). The PIP adjusts for the distorting effects of cash flows into or out of your account. It is an estimate; therefore, your PIP may not be the same as the 12-month performance of the TSP funds, which are time-weighted returns.
22. If the market keeps climbing and you advise us to get back in, we will be buying well above the huge dip we “sold” at several weeks ago. I guess if it keeps climbing we can start to make up some of the big chunk we lost during that correction and hopefully get out before the next sell off. Does it ever make sense to wait for a dip or have we been waiting long enough already? Thanks!!
This is an excellent question. Please note that “dips” are only apparent with the benefit of 20/20 hindsight. Without the ability to predict whether a downtrend turns into a cliff (goes down for an extended time period) or a dip (bottoms out and resumes an uptrend), we must take a cautious approach with our TSP balances. It should be noted that the 2000 stock market crash (which started in October, 2000) occurred after the “boom years” of new internet technologies, routers, and a great economy. So when the crash occurred, it took most folks by surprise (and thus one reason that it caused so much damage, as everybody was fully invested versus out on the sidelines). Many were shocked that the “awesome bull market” would crash. With this in mind, my opinion is trying to predict dips and out-think the market is not an effective strategy.
23. I also have one question, when you make a recommended move, do you send that out at the same time you make your Interfund transfer, or have you already done so and then after hours at home send the e-mail. Just trying to track the results so I know if you get in or out a day before me etc…
I appreciate your insight, thanks for a website dedicated to our 401K, seems like since companies can’t manage our money for a fee, they don’t really study our options like you do.
I in almost all cases log into my TSP account and make the change after I have sent an email out / posted an update to this site. It typically takes two business days for the account change to become effective, which is not a big deal because my goal is to capture long periods of uptrends. 48 hours (two days) is not something I am going to loose any sleep over.
24. What was your PIP for year YYYY ? Mine was ABC.
This is somewhat in the “what are your performance numbers” category question, which as stated in FAQ #13, I don’t share those nor imply or try to claim performance. What I can say is that is is very hard to quantify the protection G-Fund provides when a potential bear market is looming. Akin to wearing a seatbelt, but you never crash, the question is then “show me why I should wear my seatbelt”. 2014, the best performing fund was the C-Fund with 13.78% return. The I-Fund was negative 5.27%. Note that most of my postings in 2014 discussed my view that I-Fund was not a place to invest and thus many subscribers to my free site successfully avoided a loss. A TSP investor with a $300,000 balance in the I-Fund in 2014 ended the year $15,810 lower. Now, many investors who followed my free site did not fully realize a 13.78% return either, due to moves to G-Fund. What they did realize was excellent protectional moves prior to possible market crashes. Unfortunately, with my seat belt example as a loose metaphor, it is hard to “put a number” on the protection G-Fund affords us. My PIP in 2008 was positive, due to being in G-Fund, while most non-subscribers were exposed I/C/S-Fund, all of which took -35 to -42% hits that year. My subscriber balances witnessed NO DAMAGE and exited 2008 with full balances to capitalize on the new bull market which occurred in 2009 forward.
25. There are many TSP advice sites out there. Who can I trust ?
Yes, there are plenty. Note that this is not a TSP advice/advisory site. It is a “Here is what I am doing, and why, and my opinions regarding the markets” site. I can’t tell you who to trust, but let your conscience be your guide. Many of the sites advocate rather complicated allocations aka 52% C-Fund, 11% F-Fund, and 37% S-Fund. Just trying to input that as a TSP allocation is ripe for human error and mistakes at the data-entry phase. Of course they don’t explain why 52% C-Fund versus just 50%. Other sites copy and paste the TSP annual returns for YYYY year and then claim that their site had the exact same returns. This is basically impossible to happen, as those folks had to be in the particular fund fully invested prior to January 1, then remain in that fund thru Dec 31, thus capturing the entire year’s gains. This is also known as “buying the at the lowest price at the bottom and having the foresight to sell at the very highest high.” However how is this possible if that site in mention may have advocated different allocations ? Other sites have difficult-to-determine ownership, with PO BOX addresses and no real human owner names located anywhere on the sites. Again, let your conscience be your guide. I sign all my posts with my name, and I am findable via LinkedIn. Many of you have colleagues who know me in person also. As part of transparency, I make no performance claims. The restaurant market has McDonalds, Burger King, Whataburger, Fuddruckers, etc. The customer on his own will ultimately decide where he wants to eat. The multi-thousand subscribership to this site apparently has also made that decision.
DISCLAIMER: Information, commentary, or opinions expressed by The Fed Trader website and/or Bill Pritchard is provided for educational purposes only and does not constitute investment advice nor buy and sell recommendations. Bill Pritchard is not a financial advisor, investment advisor, CPA, CFP, stock broker, or similar person. Bill Pritchard does not have any SEC, federal, or state securities or broker licenses/certifications. Bill Pritchard and/or the The Fed Trader website cannot promise or guarantee any investment returns or make claimed performance.
