Author Topic: Lower TSP (401K) Contributions Until Next Market Correction?  (Read 1603 times)

BigLou

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Lower TSP (401K) Contributions Until Next Market Correction?
« on: January 14, 2018, 09:30:21 AM »
I've been amazed at how well the markets have been doing. Ever since the markets began recovering from the Great Recession, they have been going up and up and up. Just in the last year alone the DOW has shattered several records.

It's been wonderful watching my TSP account (government version of a 401(k)) steadily climbing for such a long time. For quite a few years now I've been contributing the maximum allowable amount to both my TSP account and my Roth IRA. But lately I've been wondering how much longer the market will continue to do well. I think we're long overdue for a market correction, and although I don't have a crystal ball I've been having the feeling that it might happen this year. Even MMM himself has said, and I paraphrase, "I know there's a market crash coming because there's always a market crash coming"

As a result I'm thinking about dropping my TSP contributions all the way down to 5%, which would be just enough to get me the full match. When the markets crash, I would then boost my contributions all the way back up to the maximum. I would continue to fully fund the Roth IRA.

I've been a federal employee for almost 16 years and in almost all of those years contributed the maximum, in good markets and bad. Current TSP value is 367K. Fund allocation is currently a fairly conservative 35% stock, the rest in bonds and treasuries. Looking to retire in a couple years or so, no definite date yet.

In 20 years of investing I've never been a "market timer", as I'm aware of the poor results that habitual market timers inevitably get.  But the way the markets have been skyrocketing so quickly recently, I'm thinking about doing this now.

Advice? Suggestions? How many face punches do I get for thinking this way?
« Last Edit: January 14, 2018, 09:37:52 AM by BigLou »

2Birds1Stone

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #1 on: January 14, 2018, 09:32:21 AM »
This is a very bad idea.

As far as any of us know, the market may NEVER drop below today's values again.

boarder42

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #2 on: January 14, 2018, 09:35:54 AM »
Sounds like a terrible idea. The market could go up 4% the next two years and/or earnings could rise and it will equalize. Or it could run up another 20%. Then be flat for 2 years.

Catbert

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #3 on: January 14, 2018, 10:00:28 AM »
Fools game.  But if you are determined to play, continue to make TSP contributions and put in G fund.

Raenia

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #4 on: January 14, 2018, 10:04:02 AM »
Don't time the market.  The crash could come next week, or it could keep on running up for two or five more years, and then where would you be?  Don't time the market!

SwordGuy

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #5 on: January 14, 2018, 10:32:29 AM »
I've been a federal employee for almost 16 years and in almost all of those years contributed the maximum, in good markets and bad. Current TSP value is 367K. Fund allocation is currently a fairly conservative 35% stock, the rest in bonds and treasuries. Looking to retire in a couple years or so, no definite date yet.

/quote]

(Expletive deleted.)    35% stock?   In your accumulation phase?   Do you have any idea how much money you have pissed away with your "conservative" allocation?   Put your current thoughts about how to invest in the trash can where they belong.

You need to google JL Collins Stock Series.  Read it.  Read it again.  And again.

Please.   For your own sake.

BigLou

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #6 on: January 14, 2018, 10:45:18 AM »
As I mentioned in my post, I'm only a couple years away from retirement, so I'm not really in the accumulation phase anymore. At this point I'm more concerned with preservation of assets. I started out at 80% stocks and have been very gradually reducing my stock allocation as I near retirement.

ysette9

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #7 on: January 14, 2018, 11:54:09 AM »
I recommend lookin into the reverse glide path asset allocation if you are close to retirement. This is a strategy of reducing the risk of sequence of returns early in retirement by having a fewer stocks in your portfolio for the first years of retirement and then slowly ramping back up to more stocks as the years go on. It is really important to have a good chunk of your money in equities, otherwise you will run a very real risk of running out of money. 35% stocks is a very risky position to be in for the long term unless your family is particularly short-lived.

ysette9

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #8 on: January 14, 2018, 11:55:18 AM »
And to pile on with the others: don’t try to time the market. It is a fool’s game.

Do you have international stocks in your portfolio? You might be overly concerned about he market being “overvalued” because you have a US-centric view.

Indexer

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #9 on: January 14, 2018, 04:15:17 PM »
This is two different questions with the same answer.


Should you lower your contributions?  NO. Even if you are determined to stay or get more conservative you shouldn't stop contributing. Contribute to the government bond fund, but keep contributing and getting the tax benefits. If you did stop contributing where would the money go instead? Likely cash, which brings us to question 2.

Should you be more conservative? NO. You are already really conservative at 35% stocks. You are getting close to the curve in the efficient frontier. Once you go past that curve your portfolio becomes inefficient in a bad way; risk goes up as returns go down. Stocks are more risk for more return, bonds are less risky and tend to go up when stocks go down, but bonds still have risk. There is a point where you can be so bond heavy your portfolio moves more with bonds than stocks. The result is that the more bonds you add past that point the more your risk goes up at the same time your expected returns are going down. Higher risk and lower returns. That is likely the opposite of what you want. 

The most drastic thing you should do is keep contributing at your current 35/65 AA. That is too conversative for a retiree, but it's better than getting more conservative. Your best course of action would be to pick an AA you are comfortable with long term, likely a 50/50 or 60/40.

Efficient frontier example:

Fomerly known as something

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #10 on: January 14, 2018, 05:13:27 PM »
Facepunce. Both on your allocation and on your theory of dropping down to 5% are stupid ideas.

From a fellow Fed.

I have not been perfect in my investing but I have the same amount of investing years and way more in TSP than you.  You are even more of an idiot because you can cringe invest 100% new money in the G fund. 

ETA:  Oh yeah and it's easy to reallocate from the G fund to the stock funds.

« Last Edit: January 14, 2018, 05:21:12 PM by neverrun »

Fomerly known as something

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #11 on: January 14, 2018, 05:15:37 PM »
Oh yeah and I'm only a couple of years away from retirement.

kimmarg

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #12 on: January 14, 2018, 07:30:02 PM »
my coworker was sure the same thing would happen when Obama took office. 8 years of G fund later....

boarder42

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #13 on: January 14, 2018, 07:36:15 PM »
Holy cow how did I miss the 35% equities wow. Read jlcollins.

2Birds1Stone

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #14 on: January 14, 2018, 08:29:53 PM »
I missed that too.

All of the FIRE simulation calculators show that you need to be at least 60% stocks/40% bonds/treasuries to sustain a 4% withdrawal rate.

Anything less will be detrimental as stocks provide the growth you require through retirement.

kendallf

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Re: Lower TSP (401K) Contributions Until Next Market Correction?
« Reply #15 on: January 14, 2018, 08:51:49 PM »
Fellow Fed here, about 5 years from retirement.  I'm 100% in stocks and will remain so into retirement.  I assume you're retiring at MRA or later and you'll have an immediate pension; if so, that's your "bond" component for retirement.  You've already got a safe source of income, work on getting the big ticket items right (house, cars, food) and you can probably live on the pension alone.  Leave the TSP money in stocks to assure long term growth if you don't need to burn it down immediately just to put food on the table.  I will assume you do not.