Factors that affect you personally

Factors that affect YOU personally 

The three factors from the previous lesson, Contribution, Time, and Rate of Return, apply to everyone.

The next factors apply to you as an individual: 

• Your circumstances 

• Your personal risk tolerance 

These are the factors that will establish the core of your investment strategy and enable you to make rational TSP management decisions while sleeping well at night.

Know Your Circumstances:  

We discussed the importance of consistent contributions and the goal of hitting the maximum contribution level as soon as possible.

This is GREAT advice, but sometimes life gets in the way... The more you contribute to TSP the faster your account will grow, especially in the early years of your career. Eventually, the value of compounding becomes more important than contributions.

You want to contribute an absolute minimum of 5% of your salary to get the governments’ 5% matching.

Beyond that, your personal circumstances really come into play.

If you start your government career single, without kids, and living in a low- cost area, great. Hunker down, live frugally, and max out your TSP contributions. However, if you start your career as the sole provider for a family of 5 and live in a high-cost area, you will make different choices in how you spend or invest your salary.

Your circumstances may change over time. You will get married, have kids, buy houses, save for college, etc... Fortunately, the TSP enables you to easily change contribution amounts as often as necessary.

Know your circumstances and contribute as much as you can!  

Know Your Risk Tolerance:  

We will discuss the concept of risk as it applies to TSP investing in a later lesson.

Here we are talking about your personal views on risk.

Much like your circumstances, your view of risk will change over time. Your risk tolerance is your ability to watch the value of your account rise and fall while still sleeping well at night.

Consider the following questions to help determine your risk tolerance:

Would you consider yourself risky or conservative by nature?

Are you just starting out in your career or approaching retirement?

Do you have plans to use your TSP funds within the next 12 months?

How closely do you watch the market?

Are you willing to accept big swings (volatility) in the value of your account?

Are you willing and able to take an active role in managing your TSP account?

Defining your circumstances and personal risk tolerance can take some soul searching but the process is invaluable. 

In the next lesson we are going to give a brief overview of the TSP fund options. It is vital that you understand what each fund does...and does not do.

Click the "Return to course" button below and then select your next lesson...see ya there!