3 Ways to Get TSP Participants to $1M

February 18, 2021

How do you become a millionaire with a Thrift Savings Plan? Almost 75,500 participants did it in three steps, according to Mike Causey, senior correspondent at Federal News Network:

  1. Save for three decades.
  2. Stay in the market, even bad ones.
  3. Stick to the C, I and S funds.

The S Fund in particular had a banner year in 2020, gaining nearly 32% in value, including a 7.24% gain in December 2020, according to FedSmith. As of late January, it had gained another 7.11%.

Causey noted that TSP participants with $1 million or more in savings were invested for an average 29 years.

Related: TSP Core Funds Show Strong Gains in 2020, Thanks to Remarkable Year for S Fund

Causey spoke with Washington, D.C.-based advisor Arthur Stein, who said participants tend to invest too heavily in the G fund, which invests in short-term U.S. Treasury securities. The G Fund returned 0.97% in 2020, and year-to-date returns of 0.07% in January, according to tsp.gov. The S&P 500-tracking C Fund returned 18.31% in 2020, though it started 2021 slightly down at -1.01%. The I Fund, which invests in international stocks, returned 8.17% in 2020, and -1.09% YTD in January.

“Even the people who are investing in the stock funds tend to have not enough money in the S Fund,” Stein said.

“Between the C Fund and the S Fund, you’re invested in the top 3,801 stocks in the United States,” Stein said. “Many people don’t invest in the S Fund at all, and those that do tend to have a much lower allocation, so that the allocation for all TSP participants is three times as high for the C Fund as the S Fund, even though the S Fund had a higher rate of return.”

Stein noted that the S Fund is more volatile than the C Fund, adding that participants show the same preference for the less volatile of the bond funds, the G Fund.

“They’re concentrating their investments in funds that have a lower rate of return,” he said of TSP participants.

There are different kinds of investment risk, Stein said – one being market volatility, obviously. “There are other investment risks, which are not as visible. The key one for long-term investors is the loss of purchasing power as a result of taxes and inflation,” he said.

Click here to listen to the interview.