Without once mentioning the word “Brexit”, the Federal Retirement Thrift Investment Board today warned federal employees against panicking over big swings in the stock market following the United Kingdom’s vote to leave the European Union.
The unexpected election result produced a dramatic drop in the value of the pound, followed by a steep decline in stock markets around the world.
The TSP board advised feds to stick with their existing plans rather than attempting to “time” the market:
Once you’ve established your retirement goals and a savings strategy that fits your needs, you’ll have the best results if you stick to your plan. Don’t get sidelined by distractions. Make adjustments to your strategy only after careful consideration.
It’s always a good idea to periodically ask yourself whether your retirement portfolio properly reflects your willingness and ability to take risk. But if you are certain about the amount of risk you can tolerate, don’t allow short-term market movements to steer you off course.
Suppose, for example, that you have many years before retirement and you have determined that investing in the TSP’s stock funds is appropriate for your time horizon because of the potential for higher long-term returns. If you move your money out of your TSP stock funds when the market starts to dip, you may miss out when it bounces back.
An investment strategy of chasing returns or trying to “time the market” means you have to be consistently correct two times: exactly when to get out of a particular asset class and exactly when to get back in. Most investment experts agree that such success is highly unlikely over long periods.
Source: TSP: Avoid Chasing Returns