How To Build A Profitable TSP Account
The Thrift Savings Plan (TSP) of the US government is a unique retirement plan that provides significant benefits to people who enroll and use it wisely to manage their retirement accounts and ensure their future.
While some may see its simplicity as a drawback, it makes managing one’s retirement quite simple for the average person.
The TSP’s difficulty is that it only employs five critical proprietary funds. Yes, there are just five primary funds to pick from, which means you aren’t able to invest in your favorite company, no matter how much you enjoy Apple, Disney, Ford, or any of the thousands of other companies. Investing just in energy or retail mutual funds is also not possible.
On the other hand, you don’t have to think about or evaluate dozens of funds, ETFs, or thousands of equities.
Because you may only select from five funds, the inference is that it’s simple to invest and save for retirement. Unfortunately, the government doesn’t make things as simple as they appear.
The government intends to deposit your automatic contributions in the TSP G Fund. Unless you withdraw your money from the G Fund, it won’t grow. That’s a bond fund that is designed to match inflation. Yes, it will keep up with inflation so that you won’t lose money, but you won’t be building a retirement account to support you in your retirement years.
So, what are your TSP options?
The other four funds are as follows:
F Fund – similar to the G Fund, but with higher gains, so your money grows significantly more.
C Fund – is intended to replicate the core of the S&P500 market index of the top companies in this group of 500.
S Fund – aims to replicate the largest US corporations that compose the Dow Jones group of US companies.
I Fund – a collection of foreign funds.
L Funds are supplementary lifecycle funds. Depending on when you retire, these funds will switch between the five principal funds. The issue with these funds is that the government administrators assume that everyone is the same and that everyone will have the same financial needs, objectives, and challenges throughout both their investment years and in retirement.
Using a customized investing program allows you to expand your account to satisfy your preferences and goals. While an investing software cannot assess and make judgments using the government TSP funds since the government does not share daily data, a few mutual funds and ETFs accurately imitate the TSP funds. By putting these funds into a program and developing back-tested strategies, you can know when to move your money from one fund to another or even create a portfolio with your money split amongst the various funds to deliver the best return, the best bang for your buck, based on your personal preferences.
Implementing an effective TSP management plan necessitates a few precautions and an overall strategy:
The TSP trading rule – other than into the G Fund, only two (2) trades (transfers) can be made monthly. Payroll contributions are ideally designed to be put into the F Fund and then re-distributed (trade/transfer) the following month.
Personal investment management software can help you decide when and where to shift your money among the many TSP funds.
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