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The Best TSP Investment Strategy | Fed Retirement Planning

Far and away, the question I get most often is, “Cooper, what is the best investment strategy for my TSP?”

Seriously, I get it nearly every day. Go to my YouTube Channel, and you’ll see the comments littered with questions just like this:

I get so many of these (especially through email) that I am in the process of writing a book dealing with the subject (let me know in the comments what types of information you’d like to see.) The problem though, and something I’ve tried to avoid since beginning this blog is making blanket suggestions.

There are an abundance of financial “experts” who will suggest everyone watching/listening/reading should do something very specific.

“Everyone should transfer their TSP to an IRA!”

“FEGLI should always be replaced!”

“Never choose the Survivor Annuity Plan, EVER!”

If you’re looking for broad advice like this, I’m probably not your guru. The problem for me is EVERYONE IS DIFFERENT. Every one of you reading this is distinct from the next person, aside from some very broad categories like your gender and who you work for (the US Federal Government.) Knowing this is the case, I would never feel right suggesting you all invest one way- I simply care for you too much to do something like that 🙂

But, you came here because you’re interested in the best TSP investment strategy. So, let’s get into it.

Why are people so interested in perfecting the investment strategy?

Before I get into the details of things I suggest to clients, I think it’s first important to understand the psychological reasons behind desiring the perfect investment strategy.

When I started this blog, I had to ask myself why the same questions kept coming up. Why was everyone asking me about choosing this fund verse that fund or is the “X Fund” really as good as people say? I figured I’d get some questions dealing with this topic, but in reality, I expected more people to be looking for help in paying down debt, planning for retirement, and other things that are involved in my day-to-day life as a financial planner.

Don’t get me wrong, I love talking about investing issues and how best to maximize TSP contributions. But I want to make it clear, an investment allocation is only one part of the story.

I fully believe this, if federal employees focused half as much energy as they do on choosing the BEST Thrift Savings Plan investment strategy, and instead put that towards the millions of other things involved in their financial lives, they would be much better off.

How do I know this? Because nearly every time I get a request on what the best TSP investment strategy is, I ask what are the goals of the person asking? Their response is either silence or that they haven’t come up with any specific ones yet. This may be a bit harsh, but why are you investing in the TSP if you don’t know what the purpose of the money is. Sure, you want to use it for retirement, but when do you want to retire? How much are you going to need from the TSP to meet your living expenses?

Sure, you likely want to use it for retirement, but when do you want to retire? How much are you going to need from the TSP to meet your living expenses? What rate of return do you need to meet your goals?

These are the things you need to think about when determining how much to invest in the TSP and other retirement accounts as well as how to allocate your TSP.

So why are people so interested in perfecting the investment strategy? My answer is pretty simple: it takes a whole lot less effort and time to choose what percentage of your contributions to put in the G, F, C, S, and I Funds then it does to determine the myriad of other issues you need to focus on.

My advice: let’s not let the good things like a proper investment strategy take the place of great things like having a plan for retirement.

So… with that said, what’s the best TSP investment strategy?

Alright, alright I get it. You just want to know what the best TSP investment strategy is. The problem though, and I hate to burst your bubble, is there isn’t ONE investment strategy that is the best.

Let me explain:

One time when I was much younger, I went to the doctor’s office for some poison ivy. I’m the type of person that gets poison ivy simply by smelling it (sarcasm) and being someone who enjoys the outdoors in Missouri, I’m around it quite a bit.

I ABSOLUTELY hate it! So, anytime I get it, I rush to the Urgent Care to receive some medicine.

Well, as a young lad, little Cooper didn’t know a whole lot about the human body. So, with my mother in tow, we went to the Urgent Care, met with a doctor, at which time I pleaded for him to give me the absolute “best” medicine he had. “Please!” I said, “I have to get rid of this itch!”

With a sly look on his face, the Dr. said, “well son, there is no ‘best’ medicine; it all depends on your condition.”

Ahh, now there’s a life lesson.

You see, in the same way, there is no “best” medicine for every ailment; there’s also no “best” investment strategy for every investor or problem. Most people who are seeking the best investment strategy are actually just seeking the one that has the highest potential returns.

But, despite what you may have heard, high returns do NOT equate to something equaling the best.




For instance, I once had a lady walk into my office unsatisfied with her returns that another advisor had helped her with. We sat down, and after doing an in-depth risk tolerance analysis (something I suggest everyone do), we came to the conclusion that she neither needed to take risk to meet her goals or was she mentally suited for it.

She explained how even a short-term decrease in her investments causes her blood pressure levels to rise faster than a husband who’s just heard the dinner bell (maybe that’s just me.) So, I explained to her that although her investments weren’t performing as well as she would like, the strategy was in all reality within alignment of her risk tolerance.

My point is, everyone is different and therefore requires a different allocation that suits their needs.

But, while I have you, I’ll give you some data that could help you come up with a strategy. I also have an article on the 7 Steps to Developing a TSP Investment Strategy here.

First off, if you are simply looking for the absolute highest returns with no worry for volatility, based on the 10-year average, the best performing fund is the S-Fund. The S-Fund has earned an average of 10.59% over the past decade. Compared to the runner-up, which is the C-Fund, that’s a great return as it has averaged 8.82%.

On a longer timeline, looking at since the inception of the S-Fund which was in 2001, the S-Fund has outperformed the TSP by over 3%.

So, if you want the absolute best performing investment strategy, throwing volatility to the wind, then based on historicals, putting 100% in the S-Fund would satisfy this goal.

Many of you though understand that diversification, volatility, and a whole lot of other factors play into how an investment strategy should be created. Tools like bonds and international stocks can round out a portfolio to provide less exposure to various risks. Risks like the U.S Economy performing poorly while countries elsewhere are thriving or bonds performing well while stocks are not.

Although I can’t give you an exact strategy due to their being too many personal factors involved, I can show you an example of a strategy.

Let’s create a hypothetical scenario:

Meet Jane.

Janet is 55 years old and plans to retire at age 60. Through a series of tests and conversations, I’m able to determine her risk tolerance to be a 65 on a scale of 0 to 100 (0 being most risk averse, 100 being most aggressive.)

Janet’s goals are to retire without debt, go on one family vacation a year, and continue her current lifestyle in retirement.

For Janet, although there would be many conversations back and forth on her thoughts surrounding various current events and future possibilities, I would likely suggest an allocation composed primarily of the C-Fund, with some of the F-Fund and S-Fund mixed in. Should she want some International exposure, I may suggest a percent allocated to the I-Fund.

But, this strategy is created entirely surrounding Jane and her goals. See what I mean when I say there is no best strategy?

The best TSP investment strategy is the one that allows you to meet your goals with the least amount of risk. That’s the best strategy.

Final Thoughts

Developing a specific strategy takes work; It’s also unique to each individual investor. My goal in this article is to get you thinking. Too many choose an investment strategy based on what they’ve heard at the water cooler and have done little to judge their own temperament and what it’s going to take to reach their goals.

Why invest so aggressively if you only need to invest moderately to meet your goals in retirement?

This is what I help clients do. Match up their dollars with their dreams. Too many people are going into retirement without any idea of what faces them. Create a plan, develop an investment strategy, and work hard.

If you do this, good things are sure to come.

– 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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