The Ultimate TSP Investing Guide

Hello, World!

Hello everyone! A few months ago, I teased about my Thrift Savings Plan investment strategy. If you did not read my post, please go back and read it because it explains why TSP is the best way for military members and DOD employees to start investing. I also gave a little background about the TSP in the post.  

Today, I want to give you all a detailed run down of my TSP strategy, so you can start ASAP! 

Step 1

If you haven't already, go into your MyPay account, scroll down to TSP and put your Roth TSP percentage to at least 5%. For the record, I put 15% of my pay check into TSP. I believe 5% should be the minimum to take advantage of full employee match.  

Doing this will kick start your TSP process. You will receive all your paperwork in the mail with your login information.  

Step 2

If you are already in TSP or you have received all your login information it is time to allocate your funds into the different account. 

There are 5 different funds and a few Life cycle accounts. I never put money in the life cycle funds. I'll explain why later. The other funds are the G, F, C, S and I. 

Photo by Sreedhar Yedlapati/Hemera / Getty Images

The G Fund

This is your government bond fund. This is the fund you will use to protect your earnings when the stock market starts to turn south. This fund is considered safe because it is backed the Government. In return for the safeness you won't get much rerun and you will barely keep up with the inflation rate.  

The F Fund

This is the corporate bond fund. Companies offer the public bonds to help stimulate their business operations. When the Federal Reserve lowers their bond rates corporate bonds become more attractive. If they raise their rates, then corporate bonds can be less attractive.  

To stay competitive with government bonds, business will offer higher corporate bond rates to the public. As you can see, the corporate bonds and the government bonds have a delicate balance between each other. 

The C Fund

This is the Large Cap stock fund. Basically, when you put money into this fund you are buying stocks of the large companies. Companies like McDonald's or Wal-Mart, for example.  

The S Fund

This is the Small Cap fund. Smaller, lesser known companies make up this fund. Investing in smaller companies has risk, but it could also provide the largest return. 

The I Fund

The international fund. If you have already guessed, this fund is made up of international companies. I will tell you right now that I put zero dollars in this fund because I simply don't know anything about international companies. That terrain is to wide and vast for me to understand. With that said, it breaks my number one rule, don't invest in something you don't understand.  

Step 3

This step is learning how to allocate your percentages. There are 4 different stages the stock market goes through.  

1. Recession/Depression/All-time lows/Correction

Trust me you will know when this is happening. The news won't let you go a minute without reminding you.  

What should you do with your TSP during those times? You should do contrary to what the public is saying. Stocks are at an all-time low. That means they are cheap. When things are cheap you need to buy. Here is an example of what my TSP would look like:

G - 5% 

F - 5% 

C - 30% 

S - 60% 

I would only change the contribution allocations. I would not move the money around that is already built up in each fund. That come later.  

2. Stock market recovery/Bull Markets

This is when the market has shown a consistent upswing after hitting lows. Now that the market has started a swing now I start moving my money and changing my allocations. 

G - 5% contributions; 5% of total TSP account allocated in fund

F - 5% contributions; 5% allocated

C - 60% contributions; 60% allocated

S - 30% contributions; 30% allocated.   

I hope you noticed how I changed my allocation as the stock market recovers. The reason why I start to put less in small companies and more in big companies is because small companies usually peak out faster than big companies. While the stock market is rising, I want to make sure that I have the most money in the companies that will rise the longest.  

3. All-time highs/Record Bull run

This is when the market has reached points that it has never achieved before. News flash, that is going on right now. This is good, but could mean stocks are too expensive and could be "correcting" to the right price soon. Here is what my allocation and contributions looks like here. 

G - contributions 20%; total allocation remains the same as upswing market

F - contributions 20%; allocations remain the same

C - contributions 50%; allocations remain the same

S - contributions 10%; allocations remain the same

I do not want to move my money around in my TSP yet because I am not sure that the stock market is done rising. I do, however, want to stop spending money on cheap stocks. So, instead, I buy more bonds and essentially save my money for better days when stocks are cheaper.  

4. Market downswing/bear market

The market has made a run of consecutive weeks of decline. The market is starting to correct itself. Here is what my portfolio does during this situation:  

G - 25% contributions; 40% total allocated  

I - 25% contributions; 20% total allocated  

C - 40% contributions; 30% total allocated  

S - 10% contributions; 10% total allocated. 

You just experienced a bull run and all-time highs so you want to protect the earnings you made. You start moving your newly made money into safe bonds. You also stopped expensive stocks. All you should do is patiently wait until people start thinking the big bad bear that has pulled the market down has hit a record low. Then you just change your allocation again.   

Going forward...

This is a more active way to manage your TSP, but it isn't as exhausting as analyzing individual stocks. If done right, you should only be changing your TSP two or three times a year.  

Please contact me if you have any questions.