The 7 Steps to Choosing a TSP Investment Strategy

How do you decide where to invest your TSP contributions?

Everyone has a different idea on investing.

Some think no matter what your age you should put all of your money into the G Fund.

Others think you would be doing yourself an absolute disservice by achieving the rate of return that the G Fund produces and thus, should put all of your contributions into something much more risky like the C, S, or I Funds.

Here’s something you may not have thought of yet:

ALL OF THOSE PEOPLE ARE WRONG

Why?

Because investing is so personal, taking somebody’s advice simply based on what they do is a recipe for disaster.

Let’s go through the 7 steps to choosing a TSP Investment Strategy:

1st Step: Determine your Risk Tolerance

This is the absolute first thing you should determine before investing in any of the TSP Funds.

A risk tolerance analysis will, through a series of questions determine how much risk you can afford to take.

A real simple way of telling your risk tolerance is answering this question:

On a scale of 1 to 10, a 1 being I never want to lose any money ever and a 10 being I would take my retirement funds to Vegas and gamble them all away. Where do you lie?

This can give you a quick snapshot of how you feel about risk, but does not tell you the whole story. Many people may be comfortable with taking risk, however when you take a deep look at their debt, future needs, expenses, and so on, you begin to see that they can’t afford to take much risk.

So, if you don’t know where you lie on the risk specturm, figure it out before deciding where to put your hard earned dollars.

2nd Step: Determine your Time Frame For Investing

When do you plan to retire?

This seems like an easy question, but it always trips people up when I ask it.

It’s hard to figure out when to retire. And most of the time, it isn’t when you want to.

To determine when to retire, there’s a whole myriad of things that must be figured out, such as when you plan to file for social security, how much is going to be in your pension, what quality of life do you want to live, and so much more.

Not only do you need to have an estimated retirement date, but you should also determine an estimate on when you would like to begin taking withdrawals.

Coming up with these numbers is more difficult the farther you are away from them. However, they are important goal markers and will help you decide how far you are out from using the money you’re investing.

3rd Step: Determine Your Investment Objectives

Why are you investing money into your TSP in the first place?

Are you simply saving for retirement or something else like a child’s college education?

If you’re saving for retirement and you plan on using the money in your Thrift Savings Plan for retirement income, then taking a lot of risk may not be the best course of action.

Just because you can take risk, doesn’t always mean you should.

4th Step: Determine Investment Experience

How long have you been investing for?

What types of investments have you made?

Did you lose any of the money you invested? If so, how did it affect you?

It’s most prudent when setting out on new ventures to approach with a certain amount of caution. Get some experience investing before trying to capture the highest performance possible.

5th Step: Research

Now that you’ve determined your risk tolerance, goals, objectives, experience, etc it is time to research.

The first 4 steps are simply building your foundation from which to grow. The next step is researching the various composition of the funds, what the market is expected to do, what companies you feel confident in, how fast is earnings season approaching, etc.

If this sounds difficult, that’s because it is!

There’s a reason there’s people who help people with their investments for a living. Like me (shameless plug.)

But, even if you use a financial advisor, it’s helpful to know what you’re going to invest in. So, do yourself a favor and read up using quality, factual sources. Not just the talking heads on the television.

If you’d rather not research and just want to passively invest which is what the majority of federal employees do, I would suggest researching the L-Funds and see how they line up with your goals and objectives. The L-Funds are a composition of the 5 funds within the TSP and are invested based on your planned retiremet date.

Or, if you don’t want any risk AND aren’t concerned with your return, then do some research on the G-Fund.

There’s also many experts outside myself that have weighed on the options within the TSP, including the popular talk show host Dave Ramsey.

No matter what you choose, do your due diligence. Your future self will thank you!

6th Step: Choose

The final step is the to choose what fund(s) to invest in.

If you’ve followed the previous steps, this will not be very difficult. Especially because you really only have 5 options, plus the L-Funds.

It must also be noted that this isn’t a FINAL decision. This can be changed through the use of an Interfund Transfer (IFT,) however there are some limitations as stated on TSP.Gov:

  • The first two IFTs of any calendar month may redistribute money in your account among any or all of the TSP funds, including moving your entire balance into the Government Securities Investment (G) Fund.
  • Subsequent IFTs in the same calendar month can only move money into the Government Securities Investment (G) Fund.

These limitations do prevent you from daytrading your account, but for the majority of federal employees this is a mute point.

7th Step: Monitor

After you’ve chosen what strategy to follow, that doesn’t mean you’re done.

In fact, it means you’ve only just begun. You should now monitor to see how the strategy is performing and what changes, if any, need to be made.

Final Thoughts

Choosing where to invest your Thrift Savings Plan contributions should be something that is thought out and planned.

Unfortunately, the majority of people, not just federal employees I speak with spend more time worrying about things that are ultimately inconsequential to their future retirement.

I also want to make it clear that it’s never too late or too early to begin planning. So, start today!

Is there a TSP Investment Strategy that you’ve employed which has helped you? Let us know in the comment section below!

– Cooper Mitchell

Author Cooper Mitchell

Hello, I'm Cooper. I am the President of and an Investment Advisor Representative for Dane Financial, LLC. I specialize in helping Federal Employees better understand their benefits and prepare for retirement through Comprehensive Financial Planning and Investment Management. When I'm not helping federal employees, you can find me focusing on other entrepreneurial pursuits, spending time with my beautiful Wife, worshipping Christ, blogging, lifting (somewhat) heavy weights, and reading non-fiction.

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