With the recent meltdown which included the biggest point drop in stock market history and the fastest 10% correction, what do I do now with my TSP and other investment funds?
For much of the last 2 years at Dobbins, I have been insistent that we are in the late stages of this current economic cycle, which has featured the longest, if not the greatest bull market in U.S. history. I have said repeatedly, err on the side of caution right now. Think of this stock market as a fourth quarter in a football game, ninth inning in a baseball game or the last laps around the Daytona 500. It’s time for a pit stop. Time to gas up and change the tires. And let the market behave as it has for the last 100 years. As of March 1, 2020, the S&P 500 has fallen 12%, technically a correction so it may be time to tweak the tires or allocations. I am not allowed through our contract to recommend any product, asset class, advisor, etc. Remember, also that monthly contributions are being invested or dollar-cost averaged at a lower cost per share which also smooths out the ups and down of a volatile market. Even so, market prognosticators who forecast through a crystal ball, eat glass anyway so it also pays to avoid the headlines in your local paper. If it bleeds, it leads is a good strategy for a newspaper or website but not a good investment strategy for your retirement. It does pay dividends, however, to know what one’s risk tolerance is but just as important to know if the market is fairly valued. After 40 years serving in the financial services industry, however, I am profoundly aware of the folly of “just letting it ride” “Let it Ride” was the first Bachman Turner Overdrive hit in 1970 and these words were followed by “and would you cry it if I told you that I lied” so let me be crystal clear in emphasizing that market corrections and bear markets provide a terrific opportunity to get to know thyself and self-awareness about risk tolerance. To ignore, what you weigh in the scale in the morning, is to deny the need to diet. The same is true when the markets are overvalued and subject to a selloff, whether it is because of an unknown black swan (like a mortgage crisis or Corona virus) or a normal bear market. Black swans are market events that come out of nowhere and are difficult to measure or anticipate. Our Blackrock asset allocation tool utilizes Monte Carlo simulation, which helps mitigate the risk of Black Swans. For these reasons, ALL enlistees, regardless of rank and branch should ask themselves now:
- What is my time horizon before I have to take money out of my retirement? If you are in the retirement red zone (ten years out) you cannot afford to expose yourself to the risk of systematic withdrawal or sequence risk which is the misery of simply drawing income right before a bear market at retirement.
- Despite what the pundits say, you have not lost any money, except on a piece of paper or a screen called a TSP statement. You lose money when you sell or transfer shares in a down market. Right now you are buying shares or dollar cost averaging into a market that features the lowest prices in a year. Your TSP is on sale!
- Recessions or earnings declines are not subject to some regulated schedule. If so, the Australians would not have gone 28 years without a recession or bear market. Do not let emotions get the best of your financial behavior ever!
- Don’t think the L funds are some magical actively managed funds that withstand market corrections, bear markets or crashes. As TSP investors learned in 2008-09 and the TSP manager, Blackrock points out, they are designed as a convenient prepackaged collection of the other
Individual funds tailored to your retirement age, not as a fail- safe solution Since both stocks and bonds are still near all-time highs, stop by the Family readiness office and have stress test done on your portfolio to see if is suited to your goals and objectives for the long term. It is imperative to have plan that you are comfortable with to meet your long range dreams not short term profits.
- Election years are very kind to the stock market as the Federal Reserve continues to be very accommodative with monetary policy and does not tamper with elections for obvious political reasons.
Investors thought author James Glassman was crazy when he wrote the best-selling book “Dow 36000” in 1999 right before two of the great downturns in stock market history including the “tech-wreck” and “mortgage meltdown.” Yet, as of the beginning of this year, just 20 years later we found ourselves only 14% short of this grandiose goal. One of the greatest portfolio managers and a mentor, Sir John Templeton said it would happen, even with the turbulence of the time.
Dow 36000 will happen sooner rather than later and TSP investors and airmen both young and old want to have money in stocks when it happens. So what do you call a grizzly bear caught in small rain shower? A drizzly bear! Stay invested airmen.
Kevin Startt is a personal financial counselor in the Airman and Family Readiness Office at Dobbins.