This year the stock market has gone down a little over 25% which can make anyone feel a little uncomfortable. But what do future returns look like after the market has fallen 25%? Knowing this should give investors some context and an idea of future expectations.
No, there is never a guarantee when you are investing in stocks but if you look at the history of the stock market, future returns look a lot better after a 25% drawdown. This video provides some context of what the stock market has done in the past after dropping 25% or more.
However, every time the stock market goes down, a lot of TSP participants unfortunately choose the wrong action. There is a reason that transfers to the G fund hit record highs when the stock market is falling – way too many investors let their emotions drive their investment decisions.
There are several actions that can be taken in a down market, but moving to the G fund out of fear is not at the top of that list. In the first half of 2009 I did a lot of seminars for federal employees and you wouldn’t believe how many people told me they just moved all of their TSP to the G fund. As it turned out, that was the absolute worst time to do that.
Any change to your allocation should be well-thought-out prior to making the change. Outside of your portfolio allocation, you could have some possible actions to take for tax purposes that could potentially save you money now and in the future.
If you’re looking to make some changes in this down market and want to know what changes you can make that will be beneficial, this video provides some information for you.
In case you missed them, here are two videos covering more information on the above topics.
Brad Bobb, CFP® is the owner of Bobb Financial Inc, and an expert in retirement planning for federal employees.