Brand new to TSP- or just starting...

[James48843]

If you are a new federal employee, Welcome Aboard.

Or if you are a federal employee who has been around for a while, but have never really thought much about saving for retirement, Welcome to you too!

You probably have a lot of questions about how TSP works, how much to put aside, where to put it, etc. etc. etc. You may not even have a lot of history owning stocks, or managing money for your future.

Here are a few hints before you do anything else. This will get you started off right at your Agency, and give you the tools you need to begin planning for the future. These are things you may or may not have been told in the great rush of "orientation breifings" at your new job. If you already know this- great. If not, listen to these tips before doing anything else.

HOW TO START:

PAY YOURSELF FIRST. BEFORE ANY OTHER BILLS ANYWHERE, PAY YOURSELF FIRST.


1. Begin now. You begin by authorizing a deduction from your pay into the TSP account. If you don't know how, ask someone TODAY. Not next week, not next month. TODAY. Here's why: There's "free money" waiting for you to claim it. Civilian employees get MATCHING FUNDS. And some select military people too, but not most, at least not yet. This is written with the civilian employee in mind.

2. Even if you are not sure yet how all your bills are going to even out to your initial federal paycheck- begin by socking away AT LEAST enough, every pay period, to get the federal matching funds available to you.

FERs employees receive matching funds on the first 5% they save from their own paychecks. If you are not contributing at least 5% of your pay every payday to TSP, you are losing money that you are entitled to. Here's how it works:

As a FERS employee, you can receive 2 types of agency contributions to your TSP account, which together can equal as much as 5 percent of your basic pay.

A. Agency Automatic (1%) Contributions. Your agency automatically deposits into your TSP account an amount equal to 1% of your basic pay each pay period, even if you do not contribute your own money. After 3 years of Federal civilian service (or 2 years in some cases), you are vested in these contributions and their earnings.

B. Agency Matching Contributions. Your agency will match the first 3% of basic pay you contribute each pay period dollar for dollar. Each dollar of the next 2% of basic pay will be matched 50 cents on the dollar. You are immediately vested in the matching contributions.

It's that simple to start. If you ask no other questions during your first two or three weeks at your job, ask for help in getting started in putting money into the TSP. There should be no other priority higher for a brand-new employee.

If you've been working a while and you are not yet contributing at least 5% of your pay into TSP, STOP WHATVER ELSE YOU ARE DOING, ASK FOR HELP, AND GET STARTED GETTING YOUR MATCHING FUNDS.

There will be time in a few weeks or a few months to figure out if you need to make adjustments in your household budget, or make adjustments in other deductions. But waiting to decide what to contribute to TSP initially is missing out on "free money". You work for it, you are entitled to it. So start there first, and THEN you can look at it in a few weeks or months and begin to make adjustments.

That's the first word of advice to any new employee, or new TSP investor. Start today.


Next- where do you put it?

 

[James48843]

Ok, so you're convinced that your going to take my advice and start TSP in AT LEAST THE MINIMUM AMOUNT TO OBTAIN YOUR MATCHING FUNDS.

That means you are filling out the forms to get at least 5% of your pay deducted for TSP savings.

Good man.

(Or woman).


But where do you put it? Which fund to start?

First, bookmark this link: http://www.tsp.gov

You'll be learning about stock funds, bond funds, and the "G" fund soon. If you are already a savy stock investor- you may already know what you want to do. Great. You can skip this intro and move past go, collect $200. Or more.

If you are not sure, then, while you are educating yourself, I would strongly suggest you begin by putting all of your contributions into one of the "L" funds.

Currently, the default fund, if no other fund is chosen, is the "G" fund. It's safe. You cannot lose in the "G" fund. It pays about one cent gain every six days. But that is not a lot. That's about the same as what you would earn in a savings account in a bank. Yes, it's safe. But for a 20 or 25 year old just starting, that rate probably won't get you to be a millionaire by the time you retire. Don't just settle for putting everything in "G" because you don't know anything at all about investing. If you are choosing "G" because you know what you are doing, and what you want, that's fine. But there are better ways to invest your retirement nest egg starter while you are learning.


In 2005, the TSP introduced "L" funds. These are "life cycle" funds, meaning they automatically rebalance themselves across stocks, bonds and the "G" fund, so that young investors begin with an agressive mix, and then rebalance over time to a more conservate preservation mix. They seem to work very well.

If you are a new employee and are not sure where to put your money, try the "L" fund appropriate to your expected retirement date as a "holding cell" to begin your savings.

If you are hired in 2006, and expect to be 30 years until retirement, by all means take advantage of the L2040 fund. That is designed to be big in stocks from the get go. Likewise, if you are already 50 years old, and only plan to work 10 more years, then the L2020 fund may be more to your needs, while you learn more. It's a relatively safer investment vehicle than the L2040, but still has some possibilty of good market gains. Use it.

The designers of the "L" funds seemed to set them up very well. My advice is to pick an age appropriate "L" fund for your first fund investment style while you are learning more about how the TSP operates. In the meantime, you'll still get pretty good returns. It's well worth the investment.

Contribute today. Begin today. Pay yourself first today.

To learn more about the "L" funds, visit this website:
https://www.tsp.gov/investmentfunds/lfundsheet/fundPerformance_L.shtml

 

[James48843]

OK- now you've filled out the forms for getting at least the minimum for all the matching funds you can get, and you've decided to put them in the L2040 fund (or L2020 fund). What next?

Pat yourself on the back. Because you are already ahead of many employees.
Yes, it's true that most federal employees make contributions to the TSP. But you are now ahead of most, because you haven't lost any time in geting those matching funds. I cannot stress enough how important those are to your future.

Now, it's time to learn more about your choices. There are two choices to start thinking about now.

Choice one: How much do I put into my TSP account every payday, and
Choice two: Which funds should I be in for the future?

Let's begin by talking about choice one.

Simpy put, you should put the maximum you can comfortably afford. Why? Simple. Time is on your side. Time equates to building your retirement nest egg.

If you are newly married and have a baby on the way, and a new house, and a new job, then money is going to be tight. But you should plan for the future, and put in what you think you can afford.

In a month or two, take a look at your income, and your outflow (spending). People often have to make changed in their level of spending when they are new to a job or have other life changes. You'll have the opportunity to make adjustments down the road. But for right now, put into TSP the most you feel comfortable putting in. Many employees start with 5, 7 or 10% of their income. Live slightly below your income means. If you can save 10% of your income right off the bat, and continue to do that comfortably, you are WAY AHEAD of many Americans. Remember, time is on your side. The earlier you get started, the better off you will be 20, 30 or 40 years from now.

But what if you can't afford putting in 10%? That's ok. Start with 5%, and work your way up.

One way federal employees cope with raising their TSP allocation, is to start with 5% (remember the matching funds? ), and then add to the amount every time they get a pay raise.

I've seen "GS" employees raise thier contirbution amount every January when they get a pay raise, and again when they get a "step increase". If you are a "GS" employee, you'll get to know about those soon. If you are in another pay plan, keep in mind when you get a raise, to put at least SOME of the raise towards increasing your TSP deduction. That's a great way to start planning for the future. It keeps the pain to a minimum. Get a raise? Put it towards TSP! Make it a habit, and you'll be among the better off in the old folks home someday.

Now you've solved question number one. Add to the amount every time you can afford to. You don't have to go without bread and milk, but the 50 inch HD TV can wait until next Christmas. Remember to pay yourself first.

Now, question number 2. Where do I put the money?

If you are in a L fund, and think you have learned enought to become a more active investor in your accounts, begin by learning all you can about the composition of the various TSP funds, and what they are used for.

A good place to start is, of course, here at TSPTALK.COM.

A better place to learn factural information about the funds themselves is at the TSP website.

See: https://www.tsp.gov/investmentfunds/fundsoverview/fundManagement.shtml



There you will find a lot of information about the different funds, what they invest in, and where the money goes.

One word of caution- Here on TSPTALK you'll see a lot of people moving money from one fund to another on a regular basis. THIS IS NOT FOR NEWBIES. Sometimes it works. Other times it does not. I've seen people make 20% plus returns in a year, and others actually lose ground. Trading is NOT for beginners.

The "L" funds are a great place if you are not sure of your own investment strategy. But in the individual funds, trading around on a regular basis can cost you a lot. You could end up losing your money, or making some bad choices.

In fact, over the last year and a half, I've seen a lot of people trying to beat the "L" funds with their returns.

We've not had a big downturn in the market since the "L" funds have become available, so the track record is not real clear. However, only about 20 or 25% of the regular "traders" here have been able to beat a "buy and hold L funds" strategy. Even by studying funds every day, and watching the market carefully, you are not assured of being able to get out on the down cycles, and back in on the up cycles.

My opinion (and that's all it is), is to stick to a good, diversified "L" fund, and then only dabble in making moves at first. While you are learning, keep the bulk of your nest egg out of the high risk trading area.

Theories:

There are those who say a well diversified account, meaning 20% in each of the five funds (C, S, I, F, G) is the best way to buy, hold, and build wealth.

Others say to stick with a division of stocks- "C", "S" and "I", and concentrate there.

Still others will tell you to focus on a single fund, and just hold tight.

All are theories, and all produce some kind of results. You are going to have to learn what works best for you. What is your own "risk tolerance", and reward expectation?

There is some merit in each of those approaches. But learn as much as you can, and take an active interest in what your money is doing for you. Learn by visiting here, the TSPTALK website, the TSP official government website, and the other sites around that offer TSP opinions. It's up to you to educate yourself.



Good luck, and happy investing.

 

[James48843]

How much will I have when I retire?

Everybody wants to know that. But you can't know. No one here has a crystal ball.

One thing is true. The more you save early in your career, the better off you will be in the long run.

Another truth: You can become a millionaire.

How? That's the trick question. You have to start early, invest as much as you can, stay in the TSP for a lot of years, and control your losses.

Here is a TSP calculator to figure out what to expect:

Look at the lower right of this page, where you will find various calculators that can give you a good idea of where you'll end up:

https://www.tsp.gov/planningtools/planningTools.shtml


You'll find that a new federal employee, earning $35,000 a year, putting away 10% of their earnings into TSP, and working for 35 years, and earning about 8% per year over that time frame, will have a balance of $1,005,371 at retirement. Congratulations, you're a millionaire!

But if you only work 30 years instead of 35, you end up with just $653,200. That's the power of time. Extra time gives you extra cash. This is why it is so important to start EARLY.


Go out today, and boost your TSP savings, and let the power of time start getting to get your money to work for you.

 

[mailmanusa]

Great info James. I am always encouraging my fellow employees to contribute as much and as soon as possible. Its amazing how many dont do it and arent taking advantage of the matching contibutions. They say," I just cant afford it right now". My comment to them is, "you cant afford not to".

 

[FUTURESTRADER]

nice job James. #1) 5% is a must, then #2)non-deductible interest charging payments increased, (credit card, car payment, etc. higher interest rates first), then #3)Roth or conventional IRA, then #4)back to TSP with remainder.
1st 5% is a MUST, the later options should be considered.

 

[James48843]

nice job James. #1) 5% is a must, then #2)non-deductible interest charging payments increased, (credit card, car payment, etc. higher interest rates first), then #3)Roth or conventional IRA, then #4)back to TSP with remainder.
1st 5% is a MUST, the later options should be considered.

Yep- that first "5%" is a MUST. It's the "FREE MONEY" that the guy in the weird jacket is talking about on late night TV. It's yours, waiting for you to claim, simply by clicking on the TSP website for the amount of your TSP contribution.

One reminder- You can either sign up for a fixed amount per pay period in "number of dollars", or in a percentage of income. If you click the number of dollars equal to five percent, and then get a raise, you'll miss out on the free money of the future. Simply put in the amount in a percentage--- 5%-- if that is all you can afford, so that it changes every time you get a pay adjustment.

Remember- the "free money" first 5% of your income matching funds is yours, you paid for it, so you have to claim it to get it.

 

[James48843]

Is this you?

"I've got a balance in my TSP account, but I've always just put in in "G" fund. I don't know much about stocks, and I see people here in TSPTALK putting all their eggs in "C", or "I", or "S". How do I know when to pull out, or move it around? Should I just leave it in one stock fund or another? "


If you find yourself asking that question- the first thing I would say is STOP whatever you are doing. You are not quite yet ready to take the risks you are about to take!

The "L" funds are designed for people who don't want to watch their accounts on a daily basis, or who feel they just don't yet know how they want to start exercising their new found legs to move their money. By investing in an age appriopriate "L" fund, you have a good balance between risk and reward, and it gives you time to learn more about finding an invesment strategy you are comfortable with.

In "Up" markets, you might do better in a single fund. But then the downside risk of sole-fund investing is much greater too. Put it this way- if you would be unconfortable losing 5 percent of your fund balance in a single day, then putting all of your money in stocks right off the bat is probably not the place to start.

The right "L" fund for your age is a good place to hold your funds for now. If you're 30 years from retirement, try the L2040, if you are five years from retirement, the L2020 might be more your style.

Then, you can watch TSPTALK's posters, and watch how they make decisions, listen to why people are trying the things they are trying, and find a set of invesment styles that you'd like to try.

Caution: Investing in stocks can allow you to lose money. It happens from time to time. Sometimes people bite off more than they are banking on, and take a hit early on. It happens. If you are not comfortable with that risk, then by all means, talk with a financial planner and find what level of risk you ARE comfortable with.

I joke with my wife about it- Yes, I have a nice, growing fund balance now. But I'm still two decades away from retirement, and I tell my wife it's not REAL money until I get there. I usually am in stocks, and yes, I've had days where I lost $5,000 in a single day. But I tell my wife it's not REAL money until I turn age 62, and then I'll start to take less risk with it. I've also had 5K UP days as well. I like them better. But that is MY risk tolerance. YOUR milage may vary.

OK- HOW DO YOU START?

When you feel you are ready, I recommend you take a small amount of your account, and begin developing your trading style with that, while the rest of your money sits in an L fund. Maybe put 80% in an L-2040 fund, and the other 20% becomes your "starter dough." Start an excel sheet so you can see your results, and then begin to use that as your tracking tool, to see what works for you.


When you are more comfortable with your decisions, you can develop and stick with a plan, and begin to reap bigger rewards with the risk level you are comfortable with. When you are comfortable with your own abilities, increase the amount you want to use as your working capital. Put your money to work for you when you think you can beat the L2040. It may be a while. That's ok. You earn while you learn.


Different investing styles?

1. Buy and hold. This is simply picking a fund, and continuing to put more money in it. During up times, you earn more. During down times, you earn less, or lose money. But over the history of the stock market, you come out ahead of the "G" fund's performance. Sometimes it can be a roller coaster, so just be aware.

2. Multi-fund diversified: You contribute to each of several different funds, but pretty much just leave them there.

3. Mutil-fund swing trade: You may move the proportion of different funds based on what you believe the market may do. Higher stock content when you think the market is going up, and then moving to higher "G" or "F" when you think the market is going down.

4. Single-fund swing trade: You move into a single fund, and either hold it there until things change on a long-term basis (move a few times a year) or you might move on a more frequent basis- like every week, or even every few days. This one is pretty dog gone risky. If you pick wrong, you can lose a lot.

5. Day swing trading: Moving almost every day. Some people, with LOTS of experience, have been sucessful with this. Many more have NOT, and have lost money.

My advice- don't try to be a day swing trader unless you are prepared to lose a lot of money, and you really know what you are doing. Risk is risky.

There will be plenty of time in the months and years ahead to develop your investment style- start with something simple that you are comfortable with.

Easiest place to start? With an age appropriate "L" fund, and then take it from there when you are ready. When YOU are ready, know the risk, and are comfortable with the level of risk you are engaging in.

 

[RPM]

One word of caution- Here on TSPTALK you'll see a lot of people moving money from one fund to another on a regular basis. THIS IS NOT FOR NEWBIES. Sometimes it works. Other times it does not. I've seen people make 20% plus retuns in a year, and others actually lose ground. Trading is NOT for beginners.

Thank you very much. I wish I had seen this a few months ago when I found this site

Almost 4 months on the board, and I am still finding new great threads!!

 

[Berimbauone]

One word of caution- Here on TSPTALK you'll see a lot of people moving money from one fund to another on a regular basis. THIS IS NOT FOR NEWBIES. Sometimes it works. Other times it does not. I've seen people make 20% plus returns in a year, and others actually lose ground. Trading is NOT for beginners.

Just an observation: Although TSPTalk and many of the seasoned and knowledgeable commenters are very good at pointing this out; it also seems that this type of trading is encouraged as we see people doing the daily tracking, prizes for the leaders, etc. On the other hand, this is one of the best forums to learn about the risks of this and all topics related to the TSP, so, as in everywhere else, those who do their homework will be informed.

 

[dragonsoldier]

Very good information and very helpful to me. Thank you for posting it. I am switching from a gfund to a L Fund 2040 as of Monday.

 

[Bullitt]

Excellent information James. If only the gov't gave employees this kind of information on day 1. Remember TSPers, it's a long term program. Don't get too caught up in the short term gyrations of the market. Most important, TSPtalk is a great place to learn and enhance your future, no matter what your investing skill level.

 

[khunk]

Great info James. What you have written is one of, if not THE BEST explaination of how the TSP works.

 

[James48843]

Bump-

If you are new to the TSP, be sure to read this thread from the beginning for a fresh perspective on things.

thanks- and good luck.

 

[The HalfBreed]

Excellent Advice James, and one that everyone NEEDS to hear, and DO !!!

Case in point.....

There are 2 guys that work with me, both came in around the same time. I begged and pleaded with them to put in AT LEAST what would give them the max gov't contribution. Well, one guy listened, and the other went for almost 6 years with the agency just putting in 1%.

I just spoke with the second guy last week, and he complained about how he WISHED he had listened to me. The guy who put in and got the MAX gov't contribution has over 200K, and the 2nd guy has about 56K.

Like I told them, it'd difficult to make up the money, and IMPOSSIBLE to make up the time.

He figures he'll have to work an additional 5 or more years now.

 

[James48843]

Bump up a notch to the top of the stack--

If you are new around here, and have not yet read this thread, please go back to the first post in this thread and settle in for a warm welcome, and a tip or two on how to become a millionaire.

Here's the tip - it takes TIME, and it takes EFFORT. You have to put your money in to win, and you have to be willing to leave in in there for while. Anyway- that's the tip of the day- go to the first post in this thread and read all about it. Welcome aboard new TSPTALKERS. Enjoy.

 

[James48843]

It's been about five months since this was last bumped up.

But if you are a newer federal employee, please take a moment to read the first post in this thread. You may find it useful.

Thanks

 

[James48843]

Bump.

If you are new to this board in the last five months, or a newer federal employee, I encourage you to go to the first post in this thread, and start reading there. Lots of good information for newer TSP investors.

Thanks, and good luck.

 

[James48843]

Bump.

We seem to be getting a lot of fresh faces this week, so...if you are new around here, welcome aboard.

Please take five minutes, go to the start of this thread, and read the first few messages. It's good information for those who are now examining the TSP as an investment vehicle- new employees especially.

 

[Zender67]

Message reviewed and received, James... I thank you.