Being Fearful When Others Are Greedy, Moving Into The G Fund

Warren Buffett once said, “Be FearFul When Others Are Greedy and Greedy When Others Are Fearful.” With the stock market hitting all-time highs...I’m fearful.

In November of 1999, the NASDAQ (major index tracking mostly technology stocks) hit an all-time high of 4,303 during the “dot.com” bubble. Now in June of 2015, the NASDAQ is sitting at 5,160 jumping from a bottom of 1,476 in November 2008. While most people are encouraged by this upward movement, I am fearful.

Military members and federal government employees can take advantage of the Thrift Savings Plan (TSP) which allows them to invest in specific funds in a 401(k) like program. When an investor contributes to the TSP it automatically invests in the “G” Fund which invests in Government Securities. It’s the safest fund yet offers very little returns. Since 2008, I’ve been advising people to move their money out of the “G” Fund to take advantage of returns after the financial collapse in 2008. For most people I’ve recommended not being in the “G” Fund at all. That advice was spot on for those that listened. For those that kept their money in the “G” Fund, their portfolios have barely moved.

For nearly 7 years, we’ve enjoyed a stock market rally fueled by historically low interest rates and two administrations (Bush and Obama) with uncontrollable government spending. Both of these have artificially pumped cash into the pockets of corporations and the people who, then in turn, spend it quickly. With our National Debt over $18T, these low interest rates and government spending can’t last forever. Despite gas prices going lower, all others commodities in our lives have seen price increases. As I joked in a Facebook post, “Inflation is coming”; borrowing the ominous warning from Game of Thrones.

I believe there will be a stock market drop soon. I believe Thrift Savings Plan (TSP) investors should consider moving money back into the “G” Fund to protect against major market drops. Each investor is different, but if the investor is under 30 then they should consider putting about 10-15% in the G Fund. If the investor is 31-45, then I recommend 15-35% in the “G” Fund. Anyone over 45 should very carefully analyze their current financial position and evaluate retirement goals before deciding on how much to put in the “G” Fund. If the retirement goal is to retire at 55, then there should be a larger percentage in the “G” Fund and if the retirement goal is later, then less in the “G” Fund. Retirees should be careful not to take all their money out of the stock market though with average life spans reaching 85 years old—they’ll need to make their money last better. As interest rates rise to fight inflation, investors will see increased returns in the “G” Fund as well.

Investors can either go to MyPay or change their allocation to start moving money into the “G” Fund or they can use one of their two a month Interfund Transfers (IFT) to move money out of one fund and into another. They can do this through www.tsp.gov. Please do your own research before making any investment decisions, but I really feel that this 7-year long rally is about to end.