Nobel Prize-winning psychologist Daniel Kahneman: “The correct lesson to learn from surprises is that the world is surprising.” Rather than resist the uncertainty, expect it. Build a strategy around it. Volatility is not a bug in the system — it is the system. Image: Bigc Studio/Shutterstock.com
Yes, the S&P 500 is down roughly 10% year-to-date. Does it matter? If your TSP and other investments are properly allocated based on your risk tolerance and time horizon, it shouldn’t. Whether you’re early in your federal career or already enjoying retirement, your asset allocation should act as your shock absorber when the markets hit a rough patch.
For Federal Employees Still in the Accumulation Phase
If you’re 10+ years away from needing to tap your TSP, consider this: you’re bi-weekly contribution is scooping up more shares than it did a few months ago.
Investing is really just a game of share collection. Every pay period, your TSP contributions are buying you more ownership in companies across the globe. I genuinely wish TSP accounts showed your total number of shares, not just a dollar value. If they did, you’d probably feel a lot better about what’s happening in the market. Because no matter what’s happening day-to-day, those regular payroll deductions are steadily increasing your share count.
For Feds Nearing or in Retirement
I am by no means dismissing your concerns. Market drops feel different when you’re withdrawing from your portfolio instead of adding to it. Retirement isn’t just a new phase — it’s a completely different financial experience, and nobody can appreciate that until they’re in it.
If the recent volatility has you questioning your withdrawal strategy or your overall financial plan, take a deep breath and go back to square one: your asset allocation. If it’s no longer aligned with your current income needs or comfort level, it’s worth reevaluating. Just remember that panic-driven changes rarely lead to better outcomes.
It may be time to increase how many years of spending you keep in less volatile assets like cash and bonds. The last thing you want to be doing is selling stocks while prices are down, especially in the years immediately surrounding retirement. Sequence of returns risk, or more importantly, “sequence of distribution risk” is the danger your portfolio faces when the years immediately surrounding retirement are the worst. This is why many financial planners will suggest creating a cash cushion or bond buffer to avoid having to sell stocks if you find yourself entering retirement during volatile markets.
“This Time Is Different,” Right?
Okay — every time is different. That’s the nature of markets. Yes, we’ve never seen this exact combination of interest rates, inflation data, political tensions, and economic headlines. But we’ve seen many versions of uncertainty before. And each time, markets have found a way to recover.
One of my favorite quotes comes from Nobel Prize-winning psychologist Daniel Kahneman: “The correct lesson to learn from surprises is that the world is surprising.” Rather than resist the uncertainty, expect it. Build a strategy around it. Volatility is not a bug in the system — it is the system.
Past “Unprecedented” Events That Didn’t Break the Market
1974: Oil embargo, high inflation, bad return / S&P 500 return: -26.5% / 5-year Return: +101%
1987: Black Monday / S&P 500 return: +5.3% / 5-year return: +84%
2000: Dot-com bubble bursts / S&P 500 return: -9.1% / 5-year return: -7%
2008: Global financial crisis / S&P 500 return: -37% / 5-year return: +54%
2020: COVID crash / S&P 500 return: +18.4% / 5-year return: +130%
Yes, 2000–2005 was rough, but even including that, the average 5-year return after major drops was +72%.
What About Intra-Year Drops?
A common misconception is that if the market is volatile, the year is doomed. Not true. Check out these examples:
2020: -34% decline, finished +16%
2009: -28% decline, finished +23%
1998: -19% decline, finished +27%
From 1980 to 2023, the average intra-year drop was -14.2%, yet 75% of those years ended positive.
Bear Markets Don’t Last Forever
According to YCharts, every bear market since 1950 has lasted an average of 13.8 months. The returns after hitting bottom?
+14.8% after 1 month
+21% after 3 months
+43.5% after 1 year
+62.5% after 2 years
If you’re trying to time the bottom, you’re likely to miss the recovery. Are you confident you’ll get back in at the right moment?
TSP Market Timing = Trouble
Market timing often looks smart in the moment — especially when you move to the G Fund just before a drop. But getting back in? That’s the part people forget. And unfortunately, it’s often the most expensive mistake.
Many highly paid fund managers, with full teams and access to every economic model imaginable still can’t consistently beat a basic index. Here are the numbers from Morningstar’s Active/Passive Barometer (2024). Only 8.2% of large-cap growth managers beat the S&P 500 over the last 5 years. Over a 20-year span? Just 1.1%. The diversified TSP C, S, & I stock funds are tracking broad indexes that many pros fail to outperform over time. What’s worse? These indexes outperform at a fraction of the cost.
The Best and Worst Days are Old Friends
One of the biggest arguments against market timing: the best days and worst days happen close together.
According to J.P. Morgan:
7 of the 10 best days in the last 20 years occurred within 15 days of the worst ones.
Miss the 10 best days? Your return gets cut almost in half.
Miss the 30 best days? You’re nearly flat.
TSP investors who panicked during the COVID crash in March 2020 and moved into the G Fund missed a massive bounce. The 2nd worst day of the year (March 12, -9.5%) was immediately followed by one of the best (March 13, +9.3%). 2020 ended with the C Fund up +18.31%.
So, What Should You Focus On?
Markets will do what markets do. Instead of reacting to noise, dial into what you can control:
5 Things That Matter More Than Market Headlines:
(1) Take care of your health (physical and mental)
(2) Update beneficiary designations (don’t let the state decide where your assets go)
(3) Have a debt paydown plan and know your interest rates
(4) Maintain an adequate emergency fund (this is not for returns – keep it boring)
(5) Know your numbers (at a minimum: household income, expenses, assets, & liabilities)
These basics form the foundation — whether you’re building your TSP or drawing from it.
To Sum it Up
Markets fall. Markets recover. TSP share prices drop. TSP share prices climb. The federal career path is already full of complexities. Your investment strategy doesn’t need to be. As Warren Buffett put it: “The stock market is designed to transfer money from the active to the patient.” Be the patient one.
Tyler Weerden, CFE is a financial planner and the owner of Layered Financial, a Registered Investment Advisory firm. In addition to being a financial planner, Tyler is a full-time federal agent with 15 years of law enforcement experience on the local, state, and federal level. He has served in both domestic and overseas Foreign Service assignments. Tyler has experience with local, state, and federal pension systems, 457(b) Deferred Compensation, the federal Thrift Savings Plan (TSP), Individual Retirement Arrangements (IRAs), Health Savings Accounts (HSAs), and invests in rental real estate. He holds a Bachelor of Science degree, a Master of Science degree, passed the Series 65 exam, and is a Certified Fraud Examiner (CFE).
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