Why Dave Ramsey Is Wrong About The TSP

Why Dave Ramsey Is Wrong About The TSP

Why Dave Ramsey Is Wrong About The TSP

Think back to the last time you needed a new car.

Did you consider buying or leasing?

If you did, you probably went through the pros and cons in your head.

How long am I going to keep this car?

Am I going to put a lot of miles on the car?

Do I want to buy brand-new or something used?

Am I going to pay cash or will I finance?

Do I have a car I’m going to trade in?

Every person who goes out and gets a new car is in a unique situation, specific to only them.

What works for you might not work for someone else.

It doesn’t always make sense for someone to buy a two year-old car with low miles.

That’s why we have an issue with a one-size fits all approach to any finance related area in your life.

Ramsey’s Thoughts On The TSP

Have you ever heard of Dave Ramsey?

He’s one of the most popular figures in personal finance today.

Awhile back on his radio show, Dave spoke about the Thrift Savings Plan.

And he gives some TSP guidance on his website.

If you don’t know Dave, he hosts a radio show and takes listener questions.

So as you can imagine, the advice he gives is blanketed.

Dave tries to give the best advice “in general” or the advice that would work well for the majority of his listeners.

Ramsey’s Recommended TSP Allocations

On Dave’s website, he lists the following recommendations for your TSP allocations.

80% – C Fund (Common Stock)

10% – S Fund (Small Cap Stocks)

10% – I Fund (International Stocks)

First, we want to say, that might be great advice… if you’re a younger employee and you have time on your side.

However, it’s an aggressive allocation.

You have the potential for higher returns, but also the potential for larger losses.

What if you’re a year or two away from retiring?

Does this still make sense for you?

Can you afford a 30% loss to your portfolio if that market corrects?

Unlikely.

You might not have time on your side to make up what you’ve lost.

How Much It Takes To Recover From Portfolio Loss

Most federal employees don’t realize what it takes to recover from a large loss close to retirement.

From 2007 to 2009 the S&P 500 Index lost 57% of its value.

Do you know what it would take to recover from that loss and get back to even?

Most people say a 57% return the following year.

Not quite.

It would actually take a 133% return to get back to where you started.

If you’re close to retirement, often times it makes sense to shift your allocations and investments to a more conservative strategy.

Or at least something that’s in-line with your personal risk tolerance.

Final Thoughts

Make sure the advice you read about is tailored to you and your situation.

Don’t always take blanketed advice from some “guru” on the internet.

It might not be right for you.

If you’d like to learn more about your TSP options in retirement, contact us today.

Schedule your FREE federal benefits review and retirement analysis here.

For more information, you can contact your friends at GPIS by calling 866-201-7829 or by sending an e-mail to info@gpis4u.org