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How to maximize your investment portfolio
Wednesday - 5/19/2010, 11:00am EDT
Note: The following show originially aired April 20, 2010. This week, we bring you an encore presentation
By Dorothy Ramienski
Federal News Radio
Where should you be investing your money in order to have a comfortable retirement? What benefits legislation has a chance of passing?
Senior Correspondent Mike Causey tackled those questions, and others, on today's Your Turn.
How to Become a TSP Millionaire
Can you become a millionaire by simply investing in your Thrift Savings Plan account?
Allan Roth, investment guru and author of the CBS blog Irrational Investor answered that question when he talked with Senior Correspondent Mike Causey.
"If you contribute $16,500 a year and get a $3,000 match, and it only grows at five percent annually, it will take about 25 years to become a millionaire. . . . I used a salary of $60,000 a year in this calculation."
Obviously, these numbers can fluctuate greatly, but Roth demonstrated that it can be done. He said it might even be possible to do this while investing only in the G fund; though he doesn't personally recommend it, people do tend to invest based on positive past performance.
"The G fund and the F fund have performed spectacularly over the last 10 years, but I looked at the funds flow of the TSP and, guess what, federal employees are no different than other people. They tend to put their funds in what has done well in the past. That [could] delay that millionaire status."
For example, when the market crashed in September 2008, many people moved money out of the TSP's stock funds -- the C,S, and I -- and into the G fund. While what they did wasn't wrong, but they were selling low. Those who stayed in the stock market did lose a lot, but some are starting to see really positive returns.
"It was human instinct. I did a calculation on something very similar to the TSP funds -- [the] Vanguard Funds -- a 60 percent equity fund that was rebalanced once a year, as of yesterday's close, was higher than when the market closed at the end of 2007 -- before the crash. That took a lot of nerve to be able to put more money into the stock market after it crashed."
Roth said a good choice for many might be the L funds, because they are comprised of both stocks and bonds and often re-balance without much needed help.
Investing, ultimately, is all about what you're comfortable with.
"It's a combination of willingness and the need to take risk. First of all, you have to have a willingness to take risk, otherwise you're going to panic and sell at the wrong time and you would be much better off in the F or the G fund. . . . But some people have already met their goals and need to take risk. There is a chance we could have a market catastrophe. . . . Some people have already built up a plan to live the rest of their lives, and my plans don't have clients taking the money with them, so there are times to be more conservative when you don't have to take the risk."
Legislation About Your Pay & Benefits
Randy Erwin is legislative director at the National Federation of Federal Employees.
He said his organization supports a number of bills regarding federal employee benefits, one being a paid parental leave law.
"People think that federal employees have really great benefits and, to a certain extent, that's true, but 75 percent of Fortune 100 companies have this benefit, but federal employees don't. So, it's not as generous as a lot of people think. . . . The Family Medical Leave Act says you've got to give [an employee] the ability to take leave, but they've got to use their annual and their sick leave. There's no paid parental leave benefit in the United States that's guaranteed."
Erwin said NFFE is working on it. A bill has passed twice in the House, but failed both times in the Senate.
NFFE also supports a bill recently introduced regarding the rollover of annual leave into one's Thrift Savings Plan account upon retirement. Erwin said, despite the fact that it's a fairly new bill, Congress is acting relatively quickly on it.
"We've got really good bipartisan support for the bill. It's already gone through the Oversight and Government Reform Committee in the House. . . . Now we've got to get a companion bill in the Senate and get it moving over there. But this is one that I think is really realistic to get done. Obviously, we're going to make it happen."