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Do you know how to invest in the TSP in 2022?
You want to invest in your TSP, but you’re worried about inflation, COVID and the markets crashing.
I’ll show you exactly how to invest in the TSP in 2022 including:
- What changes to make to your portfolio in 2022
- Fatal TSP Mistakes to Avoid
- Nine TSP allocation strategies for 2022
- How to Protect your TSP balance with bonds
This shows how to invest your TSP in a way that will lead to financial independence at or before retirement.
Through using these types of investment strategies (I’ll tell you exactly which one I used), I became a military millionaire well before retirement.
Anyone can duplicate this.
The allocation strategies I talk about in this article are:
- S&P 500 Index Allocation
- Total Stock Market Index Allocation
- Warren Buffett TSP Allocation
- Dave Ramsey TSP Allocation
- Paul Merriman TSP Allocation
- Total World Stock Market TSP Allocation
- Balanced Index Fund Allocation
- Three-fund Allocation
- My Rich on Money Personal Portfolio Allocation
Changes for 2022
My investment recommendations did not change in 2022.
The biggest mistake people make with retirement investing is tailoring their strategy year-to-year depending on what’s going on in the world.
This causes you to make far less money than you would if you stuck with the same strategy through thick and thin.
Global Pandemic? Inflation? Overheated stock and real estate market?
This tried and true method of how to invest in the TSP will make you rich in retirement if you stay the course.
Don’t bounce around with useless TSP investment strategies like timing the market, playing with TSP charts, selling before or after elections, buying on dips, selling on bad news, etc.
Instead, use these tools to make an informed decision about the best long-term TSP strategy for you.
Several of these TSP investment strategies are recommended by well-known money gurus such as Warren Buffett and Dave Ramsey.
I’ve also added every TSP investment option I could find that will work with the available funds.
TSP ALLOCATION 2022
Below is a list of different potential TSP allocation strategies to show you how to invest in the TSP in 2022.
I’ve pulled these from various sources and as I discover new ones, I will update this. Please send me your recommendations with supported documentation.
The S&P 500 Index
This is the asset allocation I used most of my working life.
When I opened a Roth IRA in 1999, I called my bank and asked to put it in the S&P 500. At the urging of an investment advisor (I’m not a fan of most), I put it in an aggressive growth fund instead. In 2000, it lost half its value.
From that day forward, I decided S&P 500 would be the way I invest. I had read before that Warren Buffett said something to the effect of, if you don’t have time to look at stock charts and read finance news all day long, you are better off investing in the S&P 500 index and never touching it.
Actually, here’s exactly what he said in 2013 in his letter to shareholders:
“In the 20th Century, the Dow Jones Industrials index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st Century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners…but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.”
Additionally, instead of investing his wife’s inheritance in Berkshire Hathaway stock, he plans to invest it in the S&P 500 index.
That should tell you something.
If it’s good enough for Warren, it’s good enough for me.
To mimic a full investment in the S&P 500 index, just invest 100% in the C fund.
The Total Stock Market Index
Instead of just investing in the largest companies that make up the S&P 500, you invest in those plus mid and small cap companies as well. This index encompasses the entire U.S. stock market (as the name suggests!)
Financial Independence Retire Early (FIRE) enthusiasts will swear to the superiority of this index to the S&P 500, and to suggest considering anything else is heresy!
It’s clearly more diversified than the S&P 500, and small caps have been known to outperform large caps over the long term, albeit with potentially a little more volatility.
Over long periods of time, the total stock market index fund and S&P 500 had similar performance, and it would be hard to say for sure which will outperform in the future.
In my opinion, you are doing great with either one.
80% C and 20% S will closely mimic this popular index.
The Warren Buffett TSP Allocation
Image from moneycrashers.com
While I mentioned earlier I got my idea for an all S&P 500 index allocation from something Warren Buffett said in a newsletter, he actually has more specific instructions I want to address here.
I talked earlier about how he had a plan for how the money left for his wife would be invested. I said he would invest in S&P 500 index instead of Berkshire Hathaway, but that’s only part of the story.
He also has a plan to throw bonds into the mix to smooth out the ride a little bit, which is a common investment strategy. The amount of bonds you throw into the mix will dampen the volatility, but will also limit your upside potential during booms as well.
In the same newsletter in 2013, he talked about his specific advice to his trustee on how to invest the remaining money that will be left to his family:
“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund…I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”
As luck would have it, this is easy to mimic with the funds offered in the thrift savings plan. 90% C fund and 10% F fund.
Next is Dave Ramsey’s strategy.
Dave Ramsey TSP Investment Advice
I’m a huge fan of Dave’s book Total Money Makeover. His baby steps for getting out of debt are legendary!
He also has TSP investment recommendations on how to invest in the thrift savings plan. His caveats are typical of Dave’s approach to money.
In typical Dave fashion, he suggests that you first pay off all your debt besides your primary residence before you begin long term investing and have an emergency fund of three to six months of expenses as well.
He has two sets of recommendations. One slightly more aggressive than the other.
More conservative: 80% in C, 10% in S, 10% in I.
Less conservative: 60% in C, 20% in S, 20% in I.
Here is the link to his recommendation.
Next: Money Guru Paul Merriman’s TSP Allocation Reccomendation:
Paul Merriman TSP Allocation Recommendations
Paul Merriman is a successful advisor on mutual fund and index fund investing. He’s an accomplished author, speaker, and is well known for the ultimate buy-and-hold portfolio.
This portfolio is comprised of index funds and has an amazing track record. Unfortunately, due to the various types of funds held in this portfolio, it is impossible to mimic with the TSP funds available.
If you are curious, I wrote an article about this how to invest in this portfolio:
He explains that most notably what is missing from the TSP funds is value funds, which is a key component of his strategy to boost typical index fund returns.
He does make specific recommendations for TSP owners using what is available to us.
He has 3 separate TSP allocation recommendations based on your risk tolerance: conservative, moderate or aggressive.
With all three of these portfolios, the equity part of the portfolio is split the same way:
50% in S, 25% in C, 25% in I.
With the aggressive portfolio, the entire amount is invested this way. The conservative and moderate portfolios have a portion of the total invested in the F and G funds. This portion is not exposed to the risk of the stock market, as the C, S and I funds are.
His advice is that, generally, younger investors can afford to be more aggressive, and as you get older, you become more conservative, but this is a generalization and everybody’s situation may differ.
The conservative portfolio: 18% G and 42% F, and the rest in S, C and I at 50/25/25.
The moderate portfolio: 12% G and 28% F, and the rest in S, C and I at 50/25/25.
The aggressive portfolio: 50% S, 25% C, 25% I
Here is the link to his article on TSP recommendations:
Attached is a graphic from his website outlining exactly how to do this strategy.
Maybe you know how you want to invest your TSP, but you are concerned about huge drops in the market?
Total World Stock Market Portfolio
This portfolio mix is a TSP investment strategy modeled loosely after the Vanguard Total World Stock Index Fund (VTWSX).
It will allow you to have exposure to stock markets around the globe, including the United States and developed foreign markets.
The weakness of this portfolio compared to the Vanguard one is exposure to emerging markets.
The I fund currently only has developed economies, and not emerging markets. There supposedly is a plan in place to change the I fund in the future to include emerging markets, but it hasn’t happened yet.
This matters, because the I fund isn’t as diverse as it could be, and that could affect returns.
The Vanguard fund I am modeling after has roughly 60% of the portfolio in U.S. stocks, and the rest are international. To model this portfolio:
Use 48% C and 12% S to make up the U.S. stock market, then use 40% I for the rest.
The 48/12 mix comes from splitting 60% into an 80/20 mix to achieve the Total Stock Market Index.
Balanced Index Fund Portfolio
This portfolio is meant to mimic the Vanguard Balanced Index Fund Admiral Shares (VBIAX).
It is a way to have access to the entire U.S. stock and bond market. It has far less volatility than the Total Stock Market Index by using bonds to smooth out the ride. The balance of this portfolio is 60% stocks, and 40% bonds.
This can be accomplished through 48% C, 12% S, and 40% F.
Obviously, you could adjust the stock/bond ratio to meet any level of risk that you would like.
Three Fund Portfolio
This is a favorite among Bogleheads (Those who love Vanguard and its founder Jack Bogle).
This fund is comprised of 1/3 each of the following:
- Vanguard Total Stock Market Fund
- Vanguard Total International Stock Market Fund
- Vanguard Total Bond Market Fund
This fund is broadly diversified, but heavily weighted in large cap stocks. Remember, the I fund lacks the exposure to emerging markets that the Total International Stock Market Fund has, so the thrift savings plan version won’t be identical until the I includes more countries and emerging markets.
To mimic the Total Stock Market fund, I split the 33% in an 80/20 C/S split. This is where I get my weird percentages from.
A way to closely mimic this portfolio is: 27% C, 7% S, 33% I, 33% F.
Make sure you use these recommended allocations correctly!
Most people screw this up.
My Current TSP Allocation for 2022
There are literally thousands of people who google “Rich on Money TSP Allocation” every millennium. They want to learn from a true master how to invest in the TSP in 2022.
Until now, nobody has ever known how the brilliant mind of a master invests.
I like the idea of being a little heavier weighted on the mid-cap stocks as opposed to being just all S&P 500 index fund. Of course, I’m going against Warren Buffett’s philosophy.
Not sure how wise that is!
I used to have international sprinkled in there at 10%, but I gave up on it. There is enough international exposure between C and S IMHO.
Here it comes…
The Rich on Money world-wide dominance TSP portfolio:
50% S / 50% C
I know, I know. I should be charging for revealing my personal portfolio. I just have too much love and altruism in my heart (and no one reads this blog).
Best TSP Strategy for 2022
Now this is the important part. I reveal secrets here that nobody else knows…
How should you make changes to your portfolio based on current inflation, overheated economic markets and with the uncertainty of the pandemic?
The question of what is the best TSP strategy for 2022 gets asked all the time.
It’s a fundamentally flawed question.
If you are asking which TSP fund is best in 2022, you may think that jumping between funds at the right times depending on cycles, economic data, politics, etc. will yield you superior returns.
You may also believe that experts scouring the market for data and gifted chart readers have some way of knowing which funds will outperform in the near future.
I’m here to tell you, people with those abilities do not exist.
That’s what I gave you in this article. Options for great TSP allocation strategies that will work better than any other strategy.
Using any one of these recommendations over the long term is essentially how to invest in the TSP for 2022 or any other future year if you:
- regularly contribute to your Thrift Savings Plan
- ensure you are getting matching if it’s offered
- stick with the same TSP investing strategy over the long term
Changing strategies or funds often is a recipe for low returns.
Want to know what to do with your IRA and real estate too?
One Change to Make in 2022
Now for the changes you should make to your portfolio in 2022.
What you can change in your TSP portfolio year to year is your exposure to risk.
I made a separate video about this which is deep in the weeds, but I will explain it quickly right now.
Many people invest in 100% stocks. When I say stocks, that includes mutual funds and index funds.
We often don’t have any fixed income (bonds and treasury bills) in our portfolio as a hedge against market risk. Bonds and treasury bills are safe. They don’t go up and down with the stock market.
It is wise to put a specific percentage of fixed income, which is bonds or treasurie bills into your portfolio of stocks to lower market risk as you near retirement.
For the thrift savings plan (TSP), stocks are the C, S, and I funds and fixed income are G fund treasuries and or F fund bond
Here’s a quick example of how to use bonds to protect your TSP.
If you have 50% or half of your portfolio in stocks and the other half in bonds, (f fund in this case), when the markets suddenly drops 30% in one day, you’ll only drop about half that, 15%, because your only half invested in stocks.
The bonds you have won’t lose value. This limits your downside.
Here’s the problem. If the market shoots up 30% in one day, you only go up half of that or 15%, because you are half invested in stocks. It’s a double edged sword, but smart to do this as you get older and have a growing need to preserve your portfolio.
Here is some simple guidance for achieving the right balance of stocks to bonds for your age and risk tolerance.
I use the law of 120.
When it comes to the percentage of your portfolio that should be in stocks, you subtract your age from 120.
A 30 year old will be 120 minus 30 equals 90% stocks. So you need 10% bonds, which means 10% F fund.
A 50 year old would be 120 minus 50, 70% invested in stocks. 30% in bonds.
Some people use the law of 100 instead of 120. You can adjust this number based on how risk averse you are.
Here’s some questions you could ask yourself and decide between 100, more conservative, or 120, less conservative.
Do I have a higher or lower risk tolerance than other investors in my age group?
Is this my only source of income in retirement, or do I have a pension, real estate, a sugar mama, or other income as a supplement?
To understand all this TSP advice, it helps to know the five core funds inside the TSP and what they consist of. This is important in understanding how they are used in building TSP investing portfolios.
TSP INVESTING GUIDE – THE FUNDS
The G fund contains short term U.S. Treasury securities with no exposure to the risk of the bond or stock market
The F fund is an index of world-wide government, corporate, and mortgage-backed bonds
The C fund is equivalent to the S&P 500 index.
The S fund is an index of mid and small-cap stocks not included in the S&P 500.
The I fund mimics the MSCI EAFE Index of international stocks in 21 developed markets excluding the United States and Canada.
The L funds are professionally managed investment funds tailored to a specific time horizon.
Now we dive into each one a little more in depth before going into our TSP investment strategies:
The G Fund – The Government Security Investment Fund
Pros: No volatility and backed by full faith and credit of the U.S. government
Cons: Can barely match the inflation rate; rate based on prevailing interest rate, which is currently low
This unique investment is only available for TSP investing. It’s rate is equal to 10-year treasuries, but their liquidity and protection from interest rate fluctuations is superior to 3-month T-bills.
The interest rate resets monthly and is based on the average of U.S. treasuries with a duration of 4 year or more.
The F Fund – The Fixed Income Investment Fund
Pros: Low volatility; historically outperforms G fund
Cons: Currently has low returns as based on prevailing interest rate; loses value if interest rates rise sharply
This fund follows the Bloomberg Barclays U.S. Aggregate Bond Index, which invests in government and corporate bonds as well as mortgage-backed securities. That means this fund holds some U.S. treasuries, which means it has some overlap with the G fund.
The returns on this fund are historically slightly higher and slightly more volatile than the G fund.
The F fund tends to be superior when interest rates are flat or falling. If interest rates are rising, it is safer to have money in the G fund.
The C Fund – The Common Stock Index Investment Fund
Pros: Historically has returned around 7-9% over the long term, depending on who you ask, and how you calculate.
Cons: Can have decade long periods without gains; falls with crashes and bubbles
This fund follows the S&P 500 index, which is an index of the 500 largest and most profitable U.S. corporations.
Even though there are 500 companies in the index, the top 10 companies, which consist of big names like Apple, Google, Microsoft, and Amazon, make up 20% of the value of the fund.
The S Fund – The Small Capitalization Stock Index Investment Fund
Pros: Similar returns to the C fund, but with more diversification
Cons: Can have decade long periods without gains; falls with crashes and bubbles
This fund has mid and small-cap stocks, making up the rest of the stocks in the market other than what is in the S&P 500 index. This fund seeks to match the performance of the Dow Jones U.S. Completion Total Stock Market Index. It consists of about 3300 stocks.
The I Fund – The International Stock Index Investment Fund
Pros: Allows for international equities to be purchased
Cons: Only invested in developed countries, so lacks exposure to entire international market and emerging markets
This fund mimics the MSCI EAFE (Europe, Australasia, and Far East) Index, a collection of over 900 large and medium sized corporations. Most of these companies are in Western Europe and Japan.
Keep in mind, this fund is concentrated primarily in Japan, Germany, Switzerland, France, and the UK. Japan makes up more than 25% of the portfolio. It is not the same as some international funds out there that have a sampling of small companies from countries all over the world.
This is actually an important consideration when equating this I fund with some of the TSP investment strategies I have listed later in this post.
When strategies call for an international index fund, they probably mean one with exposure to emerging countries and smaller companies as well as the ones listed in the MSCI EAFE. There are different flavors of international index funds, and this I fund doesn’t quite capture the most diverse of them.
Keep that in mind when using the I fund as a substitute for international index funds in a prescribed strategy.
The L Funds – Lifecycle Funds
Pros: Asset allocation and rebalancing is done for you by BlackRock, which is one of the most respected investment firms in the world with $6.3 trillion under management.
Cons: You have no control over your asset allocation; some say the fund is conservative
The L funds, which stands for Lifecycle funds, use professionally determined investment mixes. You choose the L fund that matches the timeframe you plan you start needing the money in your TSP.
Currently, the L funds offered are L2025, L2030, L2035, L2040, L2045, L2050, L2055, L2060, and L2065. If you were to choose the L2040 fund, this fund would be optimized for beginning withdrawals in the year 2040.
Using the 2040 L fund as an example, if you were to invest in it in January of 2019, it would have the following allocation:
As you can see, roughly 28% is invested in the G an F funds, which are essentially treasuries and bonds. The rest is divided up between the C, S, and I funds, which are invested in the stock market and more volatile.
This is BlackRock’s recommendation for an appropriate balance between stocks and bonds to mitigate the volatility of the portfolio. When the stock market crashes by 40% in a month, this portfolio would go down less due to being invested 29% in treasuries and bonds.
The converse, however, is also true. If the stock market goes up 40% in 2 months, this portfolio will go up less than that, because of the investment in less risky treasuries and bonds.
The funds allocation is adjusted quarterly to slowly move towards a much more conservative portfolio by 2040 that will at that point turn into the L Income fund which has the following asset allocation that does not change:
Ignore the date October 2018 on this graphic. This will be the asset allocation in 2040 for the L 2040 fund once it matures and becomes the L income fund.
So essentially what happens with L funds is they move from being more risky to more conservative over time, ending with the L income fund, which is how the investment stays while you are actually withdrawing from it in your older years.
It the case of the L 2040 fund, it moves from the allocation in the first graphic above to the second. Quarterly reallocating the investment gradually from roughly 28% to 80% invested in treasuries and bonds.
There you have it.
If you have a recommendation for additional TSP investment options or TSP strategies, comment or email them in.
I’ll keep this updated.
How to invest in the TSP for 2021 with the best TSP allocation was largely influenced by a White Coat Investor post I fell in love with a long time ago.
Share your TSP allocation and reasoning in the comment section below.
I told you mine!
- Checking your net worth often is a bad idea, right? Wrong. It reminds you to make smart financial decisions.
- Looking at our net worth several times a month reminds us of the importance of each financial decision we make
- Ignoring your finances allows expense creep that results in a neglected retirement portfolio
- No-risk, free to join, no credit card info or contracts
Check out why I use Personal Capital for this.
This sad little blog has somehow caught the attention of the TSP police!
I didn’t know there were TSP Police!!
They put a gun to my head and are making me put this disclaimer on all my TSP posts.
Disclaimer: Neither Richonmoney.com nor any of its partners or representatives is in any way affiliated with the United States Government, The Federal Retirement Thrift Investment Board or the Thrift Savings Plan, and that the service being offered is not sanctioned by the United States Government, the Federal Retirement Thrift Investment Board or the Thrift Savings Plan.
I told those TSP police to trust me on this.
No one would mistake my website for being official. My website is far too convenient and helpful to be considered affiliated with the government.
Rich on Money