Your TSP account is always distributed, or allocated, among some combination of the C, S, I, G and F Funds. The C, S and I Funds are stock index funds, the F Fund is a bond index funds, and the G Fund is equivalent to cash. So, at their heart, TSP investment decisions are a choice between stocks, bonds and cash. The percentages invested in these basic asset classes is far more important in determining your account’s performance than how you distribute your account among the three stock funds. This means that you should focus most of your effort in managing your account on determining and maintaining the right stock-to-bond-to-cash balance.

Determining the right balance of these assets can be difficult and requires a thorough understanding and analysis of your financial goals. Too much or too little risk can lead to plan failure later-on, when it’s beyond repair. Unfortunately, there is no easy way to figure this out and it is beyond the capability of most investors. If you can’t do it yourself, or find someone who can, you’ll be left to guessing. I suggest that if you’re going to guess, you consider investing your entire account in the L Fund that most closely matches your life expectancy. There is no guarantee that this will work, but it should help to maximize the standard of living that you can extract from your account over your lifetime.

In any case, whether you determine the correct allocation for your account, or settle for guessing, you will be well-served to forget your feelings, as you proceed. Emotions are a lousy basis for investment decisions. Make the best rational decision you can for distributing your account among the available five funds and then rebalance to this allocation regularly – maybe once or twice per year, but no more than every three months. Only deviate from this approach when a rational assessment leads you to change your selected allocation target, which should only happen infrequently and never solely in response to fear or greed.

Emotional decision making will lead you to do irrational, illogical things, like increasing your exposure to a fund because its price has risen or reducing your exposure to a fund because its price has fallen. Without any other reason, both of these decisions are irrational and will hurt, rather than help, your account’s ability to support maximum lifetime income.

Written by Mike Miles
For the Federal Times
Publication February 2018