This is my basic, entry level advice to newbies into the TSP system, after 35 years. Just personal advice. This is what I would have done if I was just hired. I’m not putting this out there as “investment advice”. 4 things.
- Try to max out the allowable contribution each year. At least try to contribute enough to get the Fed match.
- I personally would put it into a TSP ROTH version, of whatever fund you put it in. For most of my FED career (30 years), a Roth wasn’t available, just traditional. If you are successful and save a lot in the TSP(which I know you will), by far most of the gains will be due to capital appreciation. You will owe taxes on those gains if you are in a traditional version of the TSP, but not if you are in a Roth.
- Do not believe the story that you will be in a lower tax bracket when you are retired. If you have a long Fed career and save wisely, you very well may be in the “double comma club”, and you will owe taxes on over a million dollars. This seriously mucks up your taxes, Medicare IRMAs, RMDs, passing it on to your kids, etc. But if it’s in a Roth…no taxes, no nothing.
- I preferred to put all of my paycheck TSP contribution into the C stock fund. The S&P500 index matching fund. It has had the highest return of all of the TSP funds over 10 years. If you leave it all in the G fund, set-it-and forget it. you will barely do better than inflation. In my view, it gives a false sense of security. There may be times when you might move into the G fund for safety, but I wouldn’t leave it in there.
In the early years of your career, these decisions don’t matter that much, because there is a lot of time, and you don’t have a lot in there anyway. But over time it matters…a lot.
Learn to identify a correction and what to do. It’s like a Volcano eruption. Learn the warning signs. Be ready for the big one. The issue with leaving it in the C fund and forgetting about it, is you are subject to potential corrections (-20%) or a rare crash. Learn about how that works ahead of time, what you might do in recognizing when a correction is beginning. You don’t want to be making emotionally driven trades. If you are interested, read the rest of my web page.
People are different, they have different risk tolerances and they don’t want to worry about it. If you are a set-it-and-forget it type of person, my preference would be to put it all in the C fund and forget about it.
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