While you may feel a year like the past one has devastated your retirement plan, that is not likely the case. The success of your investment strategy should be judged by its ability to support your goals. By its definition, your Thrift Savings Plan investment goal is to support an adequate income stream during your lifetime. While it’s never pleasant to endure losses, they are an inevitable part of any strategy that aims to do much more than keep pace with inflation. There is more to investment success than the results you achieve this week, month or even this year. In fact, there will be a series of returns and losses over the course of your lifetime that will determine whether your retirement investment plan has succeeded or failed, in the end.

If you’re not yet retired and don’t plan to begin drawing income from your TSP account for at least a couple of years, then the recent collapse in stock prices can’t yet have devastated your retirement plan. During the time between now and when you begin withdrawals, the markets that have taken so much from you recently may just as easily solve most or all of any problems. If you’re making regular contributions to your TSP account, today’s lower prices are helping you buy what you would have anyway, at a discounted price.

I never heard anyone complain when their contributions were buying shares of the C Fund in mid-2007, when prices had nearly doubled over the previous 4½ years. That was the time to question the wisdom of buying new shares, and a prudent rebalancing strategy would have told you so. If you are retired and drawing income from your TSP account, big losses in your account can conspire with your withdrawals to cause problems. The extent of the damage will depend on the specific circumstances you face, but it’s unlikely that you can accurately predict a catastrophic failure in your plan based on one or two years’ worth of losses. It’s possible – in fact, likely – that a sequence of strong returns sometime in the future will save the day.

The phenomenon is somewhat like predicting that you’ll never see the horizon again every time your boat falls between swells during an ocean voyage. You’re bound to encounter a variety of conditions on your way to the horizon so it’s not realistic to judge the entire journey based on your current view. Of course, it’s reasonable to be concerned by the current investment environment. Every financial plan is more vulnerable to failure after its investment portfolio has lost significant value. But, that doesn’t necessarily mean that it’s doomed to fail. If you set your expectations based on the value of your stock portfolio at the end of 1999 or in mid-2007, you may ultimately have to lower those expectations some to keep things on track.

Compromise is always a possibility when it comes to personal finance. A realistic investor accepts this and understands that retirement planning is not an all-or-nothing exercise. Many times small adjustments to one or more of your goals can yield big results: Plan to work a few months longer, shave a few hundred dollars off your planned annual retirement spending allowance, tweak the asset allocation a little, and your plan is again likely to succeed.

The trick is to catch the problems early, when they’re easy to fix without too much sacrifice. Many times, the markets will recover everything they took away and enable you to take back the compromises you made when things were at their worst.


  • You should subject yourself to investment risk only for a reason – because you need the potential return it can bring to achieve your goals. While there is no guarantee that it will deliver what you expect, it’s your only chance.
  • As stock prices fall, the potential for future returns rises. In other words, the worse things seem today, the better things look for tomorrow.

Written by Mike Miles
For the Federal Times
Publication December 1, 2008