Nest egg blueprint: Measure twice, cut once

Friday - 1/11/2013, 2:00am EST

Thousands of TSP investors bailed out of the stock market (C, S and I) Funds during the first years (2007 through 2009) of the current recession. The super-safe Treasury securities G Fund became the safe harbor of choice. Now that the markets have roared back, many are wondering when, and if, to reinvest in the American and international stock markets via the federal 401(k) plan. And if so, should they just take the plunge or slowly edge back into the rising market?

The G Fund rate of return is 1.47 percent compared to 18.62 percent for the international stock I Fund; 18.57 percent for the U.S. stock market small cap (S Fund); and 16.07 percent for the C Fund which tracks the S&P 500 index.

Since the market bottomed out in early March 2009, the G Fund is up 9.58 percent, the C fund is up 135 percent, the S Fund is up 177 percent and the I Fund is up 105 percent. So people who held tight and continued to buy have done very well. But if you didn't, what do you do? Getting out of the stock market is much easier (psychologically) when it's going down than it is to buy your way back in when prices are up. Financial planner Arthur Stein says one way to start is to consider allocating future contributions to the C, S and I Fund. You can keep what you' ve got in the super-safe G Fund but start buying into the higher risk, higher reward stock funds.

For some been-there-done-that stories from real TSP investors, like you, check out these emails:

  • "I watched as my coworkers jumped ship in a panic in 2007 and 2008 when the TSP was tanking. I closed my eyes, and I did not look at my TSP account for many months. After reading your article, I checked what my TSP balance was back on March 9, 2009 and it was at $88,880. I had ridden this roller coaster before and knew if I could just hang on, it would head back up.

    "I just checked my TSP balance this morning, and it is sitting at $221,632 and this is after I took out a general loan two years ago to help buy a house. I am investing 80 percent of my funds into the C, S & I funds, and I invest at least 10 percent of my pay into the TSP. I am about six years out from retirement and may begin to move some of my funds into the G Fund." — Somewhere In South Dakota

  • "Interesting column today. I venture to guess that for most investors the greatest source of investment angst remains the President and Congress (BTW, whatever happened to the European debt crisis, a continuing and far greater issue with respect to investing)? Unless and until the President stops acting like a monarch of the worst sort (You want negotiations — I was re-elected. Here's some negotiating for you: It's my way or the highway!) and our democratically elected representatives start acting like, well, uh ...democratically elected representatives and not junkyard dogs, there is just too much uncertainty for the average investor. Conventional investing wisdom is great over the long haul in conventional times. I suspect many investors do not perceive these as conventional times. As such, many are willing to sacrifice some potential gain for some real peace of mind. The "long haul" does not always pay off. It depends on the parameters of the time period in focus. You can find investment horizons in which the conventional wisdom paid off. And you can similar investment horizons in which it did not. The typical investor acts according to what she perceives as her best interests. And the potential gain of conventional wisdom is only one factor taken into consideration when making investment decisions. For some, given the current state of the state, it simply does not have enough weight to carry the day." — Kris of the IRS

  • "If you are looking for a poster child for a story on panic and market-timing, I am your (59-year old) boy. After enjoying the hell out of those double-digit returns in the 1990s TSP, I panicked when the housing bubble burst and Wall Street appeared about to go under. Most of my TSP account was in the S, I and C Funds, in that order. I had made out like a bandit. Then I got very nervous and switched it all to the G Fund. This included future contributions for which I could kick myself.