All About FERS- TSP and Volatility

Hi, my name is Mike Lanway, I'm a financial planner. I'm an expert in federal employee benefits, and I'm here to help you decide what you need to do to make best use of those benefits to your advantage. 

Everybody wants to know about TSP. What do I do about TSP? It's so easy when the markets doing good, right? I mean, everyone's making money, you can put your money anywhere and make money, and it just feels good. Then, you walk out in the hallway while you're at work and someone starts talking about their TSP account, starts bragging a little bit about TSP, and you start wondering, 'am I doing the right thing? I'm not doing what he's/she's doing. Maybe I should change.' 

As people start to get confused about what's the right path for them to take to use TSP to build their financial future. So it seems like it's easy, and then it seems like it's hard, and then the market goes down and it seems really scary all of a sudden. The whole point about Thrift Savings Plan, about your TSP account, it's really there to provide security. It's funny how these securities actually produce insecurity in us when the market goes bad. 

Here's what I want you to think about: TSP is a decision to contribute your money to save or invest for retirement. That's the official language, I've said that before in another video. Let me say it differently: TSP is a decision to spend your money and buy shares of mutual funds that you believe will grow in value over your lifetime so that when you get to retirement, you can cash out those mutual fund shares and use it for retirement. 

That's a different thought, right? It's a different thought from saying I'm going to put money in, I'm going to save it. It's in some drawer somewhere, or it's in some vault somewhere. I got money saved somewhere. Oh, the market went down. They came in and got money out of my drawer, they came in and got money out of my vault. I don't like that feeling, it scares me. Of course it would, it would be scary if that's how it really was. But it's not.

What we're really doing when we make a contribution of TSP is we're telling TSP, "please take my money, I want to buy these shares of these fund: The G, F, C, S, & I Fund. We want to buy shares of these funds, or the L2025, or the L2035, or the L2050. We want to buy shares of those funds." So, they actually take your money and they spend it, and they give you a piece of property in return. Now we have a piece of property, just like your home. If you think about it as a piece of property, then you can also apply this analogy that I think will help you calm down when the markets been turbulent. 

Here's how to think about it: you own home and you believe that home is worth $200,000, and someone knocks on your door and says, 

"I'd like to buy your home." 

You'd say, "well, why did you even knock on my door. I don't have a for sale sign out. I'm not interested in selling my house." 

"I know," they said, "but I like your home and I want to buy it now. If you move out tonight, I'll give you $175,000." 

"I think my house is worth 200,000."

"I know you think that, but I don't think that. I think it's worth 175. I'll give you 175 if you move out today."

Imagine that happened. What would you do? Would you actually panic and go, "Oh my gosh, that person thinks it's worth 175 and I thought it was worth 200. What happened to my house?" Or would you think, "That person's nuts. I'm not even selling my house, I don't even care what he thinks about my house, and certainly I'm not taking his low offer and I'm going to just close the door."

That's the way to think about TSP. TSP is where you own property and other people are looking at it. They're called investors, they're called TSP participants, they're all looking at your property and they're thinking it's worth this; 'no I think it's worth that;' 'no I think it's worth this;' and they go back and forth. They're fickle. They don't know what it's worth. They're just guessing, and when they're guessing, their guesses will make the value of your property go up and down. That's called volatility. 

The volatility isn't based on the fact, most of the time, that some company, all of a sudden, turned into a terrible investment. It's typically happening because people are fickle and they change their mind about how much they want to offer you. Of course, people always want to offer you the lowest price. They don't want to spend as much money as they need to. They want to spend as little money as they have to. So think about that when you take a look at your TSP account and see it going up and down. It's not money that you put in at all. It's about money that's in a drawer, and then someone comes and takes out some money because your balance went down. 

It's just a piece of property that you own, and now someone changed their mind about what they want to offer you, and they put that as a balance. What they should call it is an offer. You see the word 'balance,' think the word 'offer.' They're offering me that much money to sell out. I'm not selling out. Are you? I don't think so. We'll hold onto our our shares, and we'll wait for the market straighten out, and we're not gonna panic. We'll be OK because we know people are fickle.

We hope you enjoyed our video series on the different components of your retirement and your benefits. If you want to see more, learn more at your own pace, use our annual benefit statement. You'll see the link at the bottom and within the description. Go there, take a look at it, we think you'll be happy with what you see and and that it's going to help you.