How to Manage Your TSP Account Through Coronavirus Turbulence sponsored by Aaron Steele
How to Manage Your TSP Account Through Coronavirus Turbulence sponsored by Aaron Steele
As per Aaron Steele there is no doubt in the fact that the Corona Virus has overwhelmingly affected the markets of the world, and they have fallen a considerable extent. The decline of 5%, 7%, and even 10% has become a matter of the routine. So, these downfalls in the world economy have adverse impacts on the TSP accounts as well. Moreover, this trend of downfall may prevail for a few months, and there are fewer chances that our TSP accounts can perform well soon.
So, it is crucial for you to have the proper idea of dealing with TSP accounts and other annuities in challenging times, as we are facing now. A thorough study of such an event in history might provide you with an idea as per described by Aaron Steele.
Moreover, the case study of TSP Investing Strategies: Building Wealth While Working for Uncle Sam, 2nd edition, can provide you with a better idea for your investing approach in the TSP accounts. It will let you know how you can grow better through your TSP accounts in one to three years.
The 2nd edition that came upon the scene this week would present you with a better idea of how stock markets would perform regarding C fund, G fund, or S fund under such circumstances, as we are in front of now. Therefore, to have a better idea, the data has been collected from 1900 to 2019. Meanwhile, there are extensive studies of the great depression of 1929 and the economic crisis of 2008. As per Aaron Steele in all these economic crises, two funds ended with the same value, while, on most of the things, there were adverse impacts.
The most recent example that can be related in this regard is the great recession of 2008-2009. In the great recession, stock funds dropped by 50%, the value of the stock that was the highest in 2007 was recovered by the end of 2009. On the other hand, people who continued to invest in stocks also got the value of their stocks to rise by the end of 2009. So, those who kept on investing, their funds rose to 25% to 30% by the mid of 2011.
How Did This Happen?
First, the TSP account holders must keep on investing in their accounts as a decline. When it comes to TSP, it is not right to determine the value of the TSP account considering the current situation. TSP has been designed for the long term, so a short economic recession cannot affect it severely. So, don’t be afraid in this regard. It’s the same as if your property value fell due to deteriorated economic conditions, and its value would rise again once the economy was on the right track. So, would you sell your property, fearing that it would go further down? Of course, you would wait for its original value to be recovered. If you do haste, you will be at a loss. Do not transfer your account to some other program fearing deteriorating results out of your TSP accounts.
Secondly, Aaron Steele said if you are holding a TSP account, you must not stop investing in your account. This can be better explained using an example: if you bought something for $50 in the past, and you are now buying the same item for $30, you should buy the item for $30 rather than sell it to someone else for $30. That way, when the recession is over, you will have an item at full value. So, the strategy can be related to buy low and earn higher.
Third, the most important thing is a dividend. Most of the individual companies pay out a regular dividend to their investors. These dividends are the same as paid by 80% of the companies that offer the C Fund. The dividend rate remained 2% after the recession of 2008. Later, its value increased by 3% and 4% in the coming years. Paying these dividends to the clients might be a challenging task for some of the companies. However, most of the companies have the ability to pay these dividends to their clients in the time of economic recessions or downfalls. So, it can be better understood that even if there is an economic recession, the situation becomes lighter with time.
For TSP holders, knowing the status of dividends is difficult, as these dividends are automatically included in the accounts of the clients. So, the impact of these dividends cannot be determined. But, if the impact of the dividend reinvestment is subtracted from the TSP accounts, it has been seen in the case of 30 years, C fund could not perform better as G fund performed. These 30 years have been examined right after WWII. So, dividends are so important for the TSP investors, as they have a long-lasting impact on the value of the TSP. These dividends keep on increasing with every passing year, and hence the worth of TSP accounts becomes even better.
