TSP
The Thrift Savings Plan or TSP is a "defined contribution plan" for federal employees, both current employees and those that are retired. When you think of the TSP, think of a 401(k) but for federal government workers. The Federal Retirement Thrift Investment Board runs the TSP.
How Does TSP Work?
Federal employees are eligible immediately to start contributing to the plan. Some wisely do so. Others may have other obligations like credit cards bills and student loan payments. Nonetheless, it is wise to begin contributing as soon as possible.
Usually there is an office manager or benefits administrator that will make the arrangements for you. Once you have filled out the paperwork and are signed up, the contributions are automatically deducted from your paycheck. I recommend that you contribute at least 10% of your salary, if at all possible. Those dollars start to add over time. I think I had six figures in my TSP account within a decade. That's not bad. Plus the contributions are tax-free and the federal government provides a matching contribution.
Core Principles
There are three core principles we follow in this club.
Number 1, try to contribute as soon as you can and as much as you can. Savings is the true path to long-term prosperity.
Number 2, allocate 100% of your contributions to the G Fund when the market is dropping. Why? You cannot lose money in the G Fund. It is the safest place to be in a market crash. Even if you are only making 3% or 5% on your money, that is far better than losing 7% or 17% of your retirement funds in one month! Be ultra-safe when the storm clouds are overhead (Barbara knows/smile).
Number 3, when the market is going up, then you allocate 100% of your contributions to the C Fund. The C Fund is a rough proxy for a broad portfolio of stock holdings. Do not be shy when the market is going up! That is your opportunity to make money! The club profited from the best September in 79 years because we had maximum exposure to stocks on August 25, 2010.
Similar State, City, or County Investment Plans
Most governmental entities have investment plans comparable to the TSP. The same investment principles apply. Contribute as early and as often as you can. 10% of your gross salary is a solid goal. There is a season to take risk and there is a season to be safe. Act accordingly. Diversification will slow your rate of wealth appreciation. Put all of your eggs in the safest basket possible when the market is dropping. Put all of your eggs in the strongest growth stocks when the market is going up.
The ABCs of Investing
Each decade provides you with a road map for investment success. We are in the year 2010. History reaches us that between now and October 2012, we should anticipate that the market will be bottoming. But there will be times when the market does rise. How do you know when to be in the G Fund and when to be in the C Fund?
1. Buy When Prices are Low - There are ways to tell when the market is at a low point. You always want to buy low because prices will rise over time. This blog will discuss the ways to know when the market is low.
2. Sell When Prices are High - When prices are bumping up against a high level, then you sell your C Fund holdings and move into the G Fund. Why? Because high prices are followed by low prices. Think of the market as a roller coaster, up and down and up and down. Once you have that idea in your mind, you will not get greedy and expect prices to keep going higher forever. They don't.
3. Buy in October, Go Away in May -
There is an old Wall Street adage that you should basically forget about the market during the summer. The real money is made in the Fall and Winter. I have seen this happen enough times to know that the seasons do matter. Always consider the time of the year before moving into the C Fund. Here's a hint--The best times to go into the C Fund are usually August and October.
Conclusion.
I hope Barbara doesn't mind that I kept referring to her. She is, however, a great example of someone who is learning and getting up to speed over time. Her insights are terrific. And I thank her for the idea of this post.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
No comments:
Post a Comment