Have you rebalanced your investments to keep desired risk and reward ratios as certain markets have performed especially well or especially poorly? Image: Pisit.Sj/Shutterstock.com
By: FEDweek StaffThe Thrift Savings Plan’s lifecycle, or L, funds have been growing steady in popularity since their introduction in 2005. As of year-end 2022, 51 percent of account holders have at least some money in one or more of those funds and 34 percent had all of their money in them.
In part that growth is because those who have been newly hired (and newly enlisted/commissioned in the military) in recent years have been automatically enrolled in the L fund appropriate for their age through default investing. They can change those allocations at any time, but in practice many don’t.
Whether to invest in the L fund presents some unique questions, related largely to the unique design of that approach among the TSP options.
First, decide whether you therefore might benefit from the type of discipline that lifecycle fund investing imposes. Only you can answer this, of course. Painful as it may be, do an honest assessment. Have you been one of those investors who buys high and sells low, following the herd? Look at any interfund transfers you have made over time, plus the points at which you have changed the allocations of your ongoing investments.
For example, if you switched money from stocks (C, S and I funds) to bonds (G and F funds) at one point, did you do so because you needed to take out a loan for some reason and had to protect your account from losses? Or because stocks had suffered a rough stretch and you reacted emotionally?
Similarly, if you jumped from bonds to stocks at some point, was it because the stock market had been doing well at that time, or was it because you found yourself in a position where you were more able to take on risk in your portfolio—for example, you had finished paying off a major obligation such as a child’s college education, had come into an inheritance, or you or your spouse had gotten a substantial raise or bonus.
Have you rebalanced your investments to keep desired risk and reward ratios as certain markets have performed especially well or especially poorly? Or do you just let your investments ride no matter what, with the result that the ratios get out of whack, exposing you to greater losses if the stock markets turn south after a period of strong performance? For that matter, have you even decided what a proper allocation should be for you, and how that should change over time?
Next decide if you like or dislike being an active investor. Do you enjoy following economic news and anticipating areas of strength or weakness in various markets? Do you like spotting trends, acting on your conclusions, and experiencing the thrill of finding out if you were right or wrong? If so, an automatic pilot program such as the L fund might not be for you.
Of course, if you like being an active investor but are not very good at it, you could well be better off letting the L fund’s formulas direct your investments.
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See also,
Legal: How to Challenge a Federal Reduction in Force (RIF) in 2025
How to Handle Taxes Owed on TSP Roth Conversions? Use a Ladder
The Best Ages for Federal Employees to Retire
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