Today we have the privilege of hosting another guest writer, Major John Goodell whose blog Meet Me on the High Ground features financial planning topics from investing and retirement planning to estate planning. John’s vast experience includes a recent role advising more than 5,000 clients on tax, estate, and retirement considerations. His piece today was written prior to the S&P 500’s near-record climb this past week — when markets were at their lows of last Friday. His message today is applicable in any market — as last week’s bounce could reflect a recovery or we could soon visit the lows of two weeks ago. John is bullish on America in the long run!
In addition to an unparalleled time in modern history, the last six weeks have been some of the craziest in the stock market’s history with only two declines more pronounced and greater than the current one. If you are a government employee and investing in your Thrift Savings Plan (TSP), I encourage you to use the current stock market swoon to your advantage. If you are government employee (including those of us in uniform), you very likely have the benefit of job security. A lot of our fellow Americans don’t have that luxury.
In good and bad times, our fellow Americans pay taxes that in turn help pay our wages and our retirements. They’ve thanked us for our service and bought us meals anonymously. It is our turn to return the favor and profit by doing so.
Here are my top nine concepts every government employee should consider doing in light of our nation’s war on an invisible killer:
- Buy stocks. If you are investing in your TSP, the C Fund, which mirrors the S&P 500, and the S fund, which accounts for the smaller publicly traded companies, are trading at steep discounts to what they were just a few weeks ago. America will rebound and by helping put capital back in the system, you will capitalize from her rebound. I can’t imagine why they call our system “capitalism.”
- Move out of the G fund. If you are still working and do not plan to retire in the next five years, you do not need your TSP parked in assets that return less than inflation. Time is on your side, so use it. If you think that five years is not enough of a cushion for a recovery when you are in a bear market, you could be right, but history definitively says it will be.
- Open a TSP/IRA/401k etc. If you have not done so, there is no time like the present. Your future self will thank you. It’s sort of hard to buy stocks in a retirement account if you don’t have one.
- Rebalance your stock and bond allocation in accordance with whatever ratio you prefer. If you normally own 60% stocks and 40% bonds, the number may have effectively flip-flopped in the market’s panic, so switch it back. Some investors do this annually, but it makes more sense to do it in a non-taxable account like an IRA or TSP when you have significant movements in either direction.
- Do nothing if you own TSP lifecycle funds (except continue to add money to them). As an allocation based on your projected retirement date that changes with time not market conditions, they rebalance themselves. The same is very likely true in target date funds in a brokerage account, but I recommend you confirm with your broker.
- Do not panic and sell. It kind of goes without saying since my advice is to buy stocks. If you’re having trouble sleeping and are fixating on your retirement account, you have too much exposure to equities for your risk tolerance. There is a time to fix that allocation, but down 30%-40% is not that time. Go for a walk (safe social distances!), turn on some Enya, whatever it takes, but turn off the financial news. They make money by making entertainment, and nothing sells advertisements like viewership during a panic (with red lights flashing on the screen and constant doom and gloom predictions).
- Harvest capital losses intelligently in your taxable accounts. If you own a stock you don’t like in your taxable account, now is the time to ditch it and swap for one you do like. Unlike the TSP or an IRA, you must be weary of the wash sale rule, which prevents you from buying a substantially similar equity in 30 days and being able to count the loss incurred on your taxes. Still, there are ways you can lock in a loss and buy an acceptable replacement without incurring the ire of the IRS. I plan to write an article on that soon, but a general guide is available here.
- Front load your contributions. When a store announces a 35% off sale, people do not run for the exits. Instead, they load their shopping baskets to the brim; that same thinking does not apply to human brains when it comes to investing because we are hard-wired to protect our nest eggs – occasionally engaging in self-destructive behavior in the process. Fight your lizard brain and splash the cash smartly. The TSP makes it a little cumbersome to make an immediate contribution change, so you have to do a little forward planning.
- Take advantage of the government match. My point in #6 about front-loading contributions to your retirement accounts notwithstanding, always take advantage of the match offered in the Federal Employees Retirement System (FERS) and the Blended Retirement System (BRS) each month – no matter what. As I pointed out at the end of my 2020 TSP contribution guide, the government match is a 100% return on investment.
If you’ve deployed to a combat zone, like many of us have, you know that “this too shall pass.” Our country will reemerge from this pandemic, and this experience will be a blip on a stock chart. Right now will not be the bottom. I don’t know when that will be – no one does.
This virus and the economic effects could get a lot worse or they might not. The market may anticipate the turn far before the headlines support such a conclusion, which is usually what happens. It’s easy to say you will wait until prices get cheaper; the problem is that people do not pull the trigger. Then, they get left behind.
Take advantage of the opportunity presented while you can. In creating a profit for our future selves, we will give back to all those Americans we serve and who support us in good and bad times. $
Major John Goodell is a Judge Advocate in the United States Army. He previously ran the Department of Defense’s largest client services office at Fort Hood, Texas where he supervised 18 attorneys and 10 paralegals who worked on tax, estate planning and retirement considerations for more than 5,000 clients. John was then selected to teach these areas of law to military and civilian attorneys at the federal government’s only law school accredited by the American Bar Association (The Judge Advocate General’s Legal Center and School in Charlottesville, Virginia). He earned his B.A. from Vanderbilt University and his J.D. from the University of Wisconsin.
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