How long is your timeframe? Are you planning on retiring or drawing on your TSP funds anytime soon?
If your timeframe is long enough, there's very little reason (except your own comfort with your asset allocation) to have any significant amount of money in anything other than equities. Also, if you are planning on staying with the federal government long enough to have a pension, as far as I'm concerned, a federal pension is much like holding inflation protected government bonds (although the current administration has made proposals to cut retirement benefits, including COLAs).
My timeframe is actually fairly distant. I'm planning on retiring in 5 or 6 years, but don't plan on drawing on my TSP funds until at least 15 or 20 years from now (will rely on pension plus possible 2nd career until then). Does that timeframe strengthen the case for equities in my portfolio?
I would certainly consider 15 years to be a long-term timeframe. I'm in a fairly similar position as a recent (youngish) Fed retiree. The real question to ask yourself is if you have willpower to hold a portfolio very high in equities during the inevitable downturns. When I was working, it was easy to view downturns as buying opportunities. After I retired, that was more difficult, but my attitude has been evolving.
That's a good way to frame it. With a steady paycheck coming in, this downtown doesn't seem like such an emergency. As a young Fed retiree, do you still maintain a high-equities position in TSP?
I've also added a poll to this post to tally answers.
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At the moment, I am not in a high-equity position, but as I mentioned before, my position has been evolving.
I retired about 3-1/2 years ago. All the time I was working, I put 100% of my TSP holdings in C, S, and I funds (with the exception of the very early days when TSP actually required you to hold the G fund). At the time of my retirement I was quite happy with the result. In the months following my retirement, I wanted to rethink my asset allocation. In 2017, I shifted about 65% of my portfolio to the G fund with the idea that I wanted to be in a very conservative position while I thought things out. Looking back, I think subconsciously I was very concerned about sequence-of-returns risk since I was no longer contributing to my TSP funds. And I also think I was probably subconsciously engaging in a bit of market timing since we were well into a long bull market. As the market continued to rise, I then made a conscious decision that I believed the market was overvalued and I decided to stay out until there was a correction. This was not subconscious, and was indeed me engaging in the dreaded market timing. Over the next couple of years, I missed out on a lot of market gain. Of course, I also missed out on most of the drop of the last month or so. In the end, I am just about even with where I would have been if I had been fully invested.
I am now looking to start shifting out of the G fund and back into C, S, and I. It is possible that I will come out slightly ahead, but it is equally possible that I will come out slightly behind. And if I come out ahead, I can only call it dumb luck.
Obviously, everyone's situation is different, but with a few years of experience as a retiree under my belt, here are my takeaways:
--I let myself get too concerned about sequence of returns risk given my relatively long timeframe. Even now, I can't draw down my TSP for almost six years, and I probably won't do so even at that point.
--I let myself get hung up on the idea that my asset allocation was "100% equities" which sounded too risky. I have since come to the conclusion that I should factor my pension and paid off house into the equation. With the house paid off, I can live off my pension income alone.
--Given the two points above, I've come to the conclusion that I can be much more aggressive with my TSP funds, and my intent is to shift to 100% equities. I don't think I will have to think about changing my asset allocation (except for rebalancing among C, S, and I annually) until I am ready to start drawing on funds. It took me three years to reach a point where I could internalize all this. I am glad that this lesson hasn't turned out to be very expensive.