With two major financial voices signaling a warning about the direction of the markets, federal employees may want to review their TSP investment strategy.
Vanguard recently issued fresh allocation guidance, recommending investors consider a more conservative 70% bonds / 30% stocks mix instead of the traditional 60/40 split. The shift is based on concerns that stocks look overvalued and may produce weaker returns in the decade ahead, while bond yields are now more attractive than they’ve been in years.
Bank of America has flagged three red lights for the stock market: seasonal weakness in late September, divergence between key market indexes, and fewer stocks participating in the recent rally. Together, these suggest equities may be vulnerable to a short-term decline.
So how should federal employees, particularly those invested in the Thrift Savings Plan (TSP), make sense of this? The answer depends largely on how close you are to retirement.
If You’re More Than 15 Years From Retirement
Time is on your side. While stocks may underperform in the near term, a longer horizon gives you room to recover from downturns. Staying invested in the C, S, and I funds keeps you positioned for long-term growth. Occasional rebalancing is important, but avoid making drastic shifts every time the market dips.
If You’re 10–15 Years From Retirement
This is the transition zone. Growth still matters, but risk management begins to take on greater importance. A balanced mix of stock funds and fixed income, such as more weight in the F or G fund, can help reduce volatility without abandoning equity growth altogether. Having the security of a FERS annuity in retirement could make it easier to tolerate more risk in your investment strategy.
If You’re Less Than 10 Years From Retirement
Now, the focus shifts to preservation. A large market downturn just before or during retirement can jeopardize your nest egg and disrupt your withdrawal strategy. Increasing allocations to the G and F funds offers stability and predictable returns. L-funds with nearer-term dates (2025–2035) are built for this stage, dialing back equity exposure gradually.
Neither Vanguard’s cautious long-term stance nor Bank of America’s near-term warning should drive wholesale changes on their own. For federal employees, the best approach is to align allocations with your age, retirement timeline, and comfort with risk.
A Federal Retirement Consultant (FRC®) can help simplify the complex. Schedule a complimentary benefits review to get a clear snapshot of where you stand and create an investment strategy that best fits your goals.
