The stock market is up and the DOW stock market index has recovered from its low of 6629 in March of 2009 to over 15,000 recently. Interest rates and yields on CDs, treasuries, and savings have remained historically low. The government has artificially maintaining interest rates well below norm to stimulate the economy and to encourage savers to spend and dive into high yielding and higher risk investments like stocks and housing. Most of this nation’s Gross Domestic Product (GDP) is based on consumer spending since we lost much of manufacturing years ago. I discussed in Size Matters, Especially in Retirement how the government is taxing all of us, especially retirees on fixed incomes, by maintaining artificially low yields on safe and secure CDs, savings accounts, and treasuries.
The dilemma that we face now is do we continue to suffer with miniscule yields on our savings or dive back into higher risk investments such as stocks to take advantage of the upswing. Unfortunately the ship has already sailed; the market is up over 100% and a correction may be in sight. Nothing goes straight up forever and many experts anticipate a market correction while other suggest the market will continue on this trajectory at least until the end of the year.
Many jump back on the band wagon long after the gains have been made. Some panicked in 2007 and jumped totally out of the THRIFT stock funds into the G Fund and stayed there after losing a good portion of their savings. Too often we ride the wave of sentiment and that means we sell low and buy high and lose both ways. Federal employees in their early to mid careers have time to recover and are still contributing to their TSP accounts. Many financial planners suggest those in early to mid career stay invested in a diverse mix of stock and bond funds until you are close to retirement. The closer you are to retirement the more you have to play defense and PROTECT what you saved for a lifetime.
If you’re close to retirement or now retired ask yourself if you can afford to lose a significant portion of your TSP, IRA or other 401K funds if the market takes an unexpected and undesirable turn? Retirees have time against them to recover their losses. If you will need these funds to live on you may have to accept the lower returns and you will sleep well at night. If you can take some risk look for a market correction and jump back in with a conservative lower risk level you can live with. The Life Cycle L TSP funds do moderate the risk and as you approach the target date of the fund the mix becomes more conservative until the majority of your TSP is in the bond fund. In retirement many consider the L Income fund that still keeps a small portion of your account invested in stocks to help you keep up with inflation.
For other savings and investments retirees may wish to pursue a conservative approach such as I discuss in When CDs Come Due Earn Higher Yields. If you are unfamiliar with investing in general you may need to consult a professional for help. Managing retirement funds isn’t easy and it does take time and even with understanding there is always risk no matter what you are invested in.
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