While Thrift Savings Plans (TSPs) are typically meant to be long-term investments, the constant stream of breaking news, market commentary, and conflicting opinions has left many Feds feeling the need to take action. Information bias can lead to common mistakes such as overtrading, abandoning solid strategies without cause, or making emotional moves that could potentially derail your long-term plans.
While every situation is different, establishing a simple, rules-based process may help keep your TSP on plan, without relying on market predictions. Consider these five tips.
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Filter Your Decisions Through a One-page IPS
Your investment policy statement (IPS) acts as a one-page “decision filter” that helps protect you from reactive moves. Use this document to define your:
- Investment goals
- Time horizon
- Risk-tolerance
- Target allocation
- Rebalancing rules
Add a final commitment: “I will not react to headlines. I will only adjust my IPS if my goals change.”
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Choose an L Fund or Structured DIY Strategy
Avoid making reactive moves by committing to either an L Fund or a structured DIY strategy. If using an L Fund, choose the date closest to your retirement or withdrawal horizon and let the glide path manage allocation shifts for you. Review your plan annually to make sure your selection still matches your timeline.
If you prefer to manage your own funds, consider building a mix of three to four funds, using C, S, and I Funds for growth and F and G Funds for stability. Assign your target percentages and set drift bands (for example, +/- 5%). In this example, if a target is 40%, you would rebalance when it falls below 35% or above 45%.
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Stick to a Rebalance Cadence and Set Guardrails
Following a structured TSP rebalancing strategy helps prevent unnecessary tinkering or reactionary moves. Determine whether you’ll rebalance based on a specific time frame (for example, quarterly) or when predetermined drift bands are breached.
Make note of the TSP interfund transfer limits. You can currently make two unrestricted moves between funds each month. Additional transfers during the month can only go into the G Fund.
Finally, make sure your contribution allocation stays aligned with your target, so deposits don’t cause unintended drift.
Learn more about your retirement benefits at our No-Cost webinars, featuring Ed Zurndorfer -
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Plan Ahead to Reduce Forced Decisions
Proactive planning may help you avoid selling equities during a downturn. Consider maintaining a six to 24-month cash or bond reserve in the G or F fund to cover known expenses. When possible, schedule big expenses or purchases in lower-income years when your tax bracket may be lower, and you’re not forced to liquidate growth positions.
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Focus on Information Quality Over Quantity
Remember that more information doesn’t necessarily mean better decisions. Stay informed, but be selective. Focus on high-quality sources such as official TSP updates or academic data. Avoid opinion-based predictions, “hot takes,” or anything stressing urgent moves.
Implement a 24-hour rule before making changes to your portfolio. After thinking the information through, write down one strong reason to make the change and one strong counter-argument. If you can’t confidently do both, consider holding off.
Information Checklist to Consider from a CFP® Professional
- Draft your one-page IPSwith a target mix and rules.
- Choose your allocation method: Select an L Fund or custom mix with drift bands.
- Set your contribution allocation and target bands. Put rebalance dates on the calendar.
- Document interfund transfer limits and keep the details handy.
- Build or check your cash/bond bufferfor planned withdrawals.
- Create a decision log to document any future portfolio changes.
Following these steps may help you sidestep information bias and keep your TSP aligned with your goals, regardless of market moves.
For help reviewing your approach or creating an IPS that fits your goals, reach out to the team at Serving Those Who Serve at [email protected].
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you're eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.
