How to Optimize Your Thrift Savings Plan (TSP) in a Volatile Market

Most of the Feds we talk with at Serving Those Who Serve consider their Thrift Savings Plan (TSP) to be a critical component of their retirement planning. Recent numbers from the Federal Retirement Thrift Investment Board (FRTIB) certainly bear this out.

According to the FRTIB, total TSP fund assets were $895 billion as of March 2024. With a participation rate of 95.7%, the overwhelming majority of Federal Employee Retirement System (FERS) employees contribute to the plan. 

FERS participants had an average TSP balance of $184,691. The average balance for Civil Service Retirement System (CSRS) participants was $207,698.

With so much financial security riding on TSPs, it’s no wonder federal employees worry about the impact of market volatility on their retirement savings. In this article, we’ll discuss several TSP investment strategies to help optimize your account in a volatile market. But first, let’s do a quick recap of the funds you can invest in through your TSP.

Understanding the Basics of the Thrift Savings Plan (TSP)

A TSP allows Feds to make pre-tax retirement contributions with a government matching option. The TSP, Social Security, and the FERS pension combine to provide you with three sources of retirement income.

You can invest your money in one or more of the following TSP funds:

• G-Fund: The G-Fund (for “government”) has its return tied to U.S. Treasury rates. Its low return rates are offset by its guarantee to never return a negative rate.
• F-Fund: The F-Fund (for “fixed income”) invests only in domestic investment-grade bonds.
• C-Fund: The C-Fund (for “common stock”) invests in companies included in the S&P 500 index. 
• S-Fund: The S-Fund (for “small company stocks”) invests in companies smaller than those found in the C-Fund. The S-Fund can include companies with medium to large market capitalizations.
• I-Fund: As of July 31, 2024, the I-Fund (for “international stocks”) tracks the performance of the MSCI ACWI IMI ex USA ex China ex Hong Kong Index. Previously, the fund tracked the MSCI EAFE index. The new benchmark index represents 5,000+ stocks in over 40 developed and emerging market companies (excluding the U.S., China, and Hong Kong).
• L-Funds: There are 11 L-Funds (for “lifecycle”) that consist of a diversified mix of the individual G, F, C, S, and I funds. The purpose of the L-funds is to provide an investment option that automatically adjusts its asset allocation over time, typically corresponding to the investor’s projected retirement date. 
• Mutual Fund Window: The mutual fund window allows Feds to select investments from over 5,000 mutual funds from 300 fund families. Be aware there are rules, restrictions, and costs you should consider before investing in this option.

Learn more about your retirement benefits at our No-Cost webinars, featuring Ed Zurndorfer –

Assessing Your Current TSP Allocation

Understanding your risk tolerance is crucial for successful TSP investing during turbulent markets. The risk associated with each of the TSP funds differs. 

For example, with the G-fund you have no risk of losing your money during a market downturn because the U.S. government guarantees payment of principal and interest. If you’re averse to losing any money (perhaps you’re getting close to retirement), then you might allocate more of your money into a G-fund. The tradeoff is your return rate may be significantly lower than with other funds.

If you’re a young investor with decades to go before retirement, you might decide you have a higher risk tolerance. Your timeframe is longer, allowing you to recover from market volatility. For this reason, you might decide to allocate some of your money to funds with a higher risk, higher reward potential. 

While age and time horizon play an important role in your TSP investment strategy, these aren’t the only factors you should consider. Each investor is unique, and you might benefit from a more customized allocation plan. 

If you’re interested in creating a plan that meets your specific retirement goals, then register here for our FREE TSP Planning Webinar. Federal employee benefits expert Ed Zurndorfer reveals his blueprint for maximizing your TSP. You’ll learn about the five TSP funds (G, F, C, S, & I) and the Lifecycle (“L” Funds), plus tips for creating an investment strategy that matches your time horizon and risk tolerance. 

3 TSP Investment Strategies for Managing Risk in a Volatile Market

Strategy #1: Diversification

By diversifying your TSP portfolio, you’ll be reducing risk by spreading your investments across various asset classes (stocks, bonds, treasuries, etc.). By not relying on a single investment, you’ll help mitigate losses during the inevitable ups and downs of the market. 

Strategy #2: Portfolio Rebalancing

When you rebalance your portfolio, you adjust your asset allocations based on your desired risk level. This not only ensures your portfolio stays aligned with your retirement goals but also helps reduce risk during unstable markets. We recommend rebalancing your TSP at least once a year and no more than quarterly. 

Strategy #3: Don’t Panic During Market Downturns

Even investors with nerves of steel can be tempted to panic when the markets decline rapidly. However, the key to weathering a downturn is to NOT overreact and move everything into the G-fund. 

It’s important to understand good days happen in bad markets. Some of the market’s best days happen during a bear market, not just a bull market. Your returns would have been cut by an extraordinary 83% by missing the market’s 30 best days over the past 30 years.

Long-Term Focus: Staying the Course 

At Serving Those Who Serve, we specialize in helping Feds maintain the long-term focus needed to ensure a prosperous retirement. That’s why we offer a free TSP planning webinar, which you can register for here. 

You can also reach out to the team 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. **