The Bull Market that we have enjoyed since 2009 has come to an end.  We are finally forced to look at the reality that the market DOES NOT always go up.  If you have been evenly allocated between the 3 TSP stock funds since mid-February, your account reflects a paper loss of approximately 34%.  The 2 questions I’ve been getting this week are:

  1. I’m still in the stock funds and getting clobbered!  What should I do now??
  2. I’m a Subscriber to the Site and want to follow along with the Alerts and Member Dashboard, BUT I’m out of sync.  My allocations don’t match the recommended allocations.  How do I get back in sync??

The answer to the first question is, it Depends…  The answer will be different for each person depending on their individual circumstances, risk tolerance, and a ton of other personal variables.  Read the Jerry’s Blog post from 5 March for some things to consider when answering question #1.

The answer to the second question is also tricky.  You COULD cut your losses now and reallocate to my current allocation.  I DO NOT RECOMMEND THAT!  We are too close to a short term bottom to lock in those kinds of losses!  How you get back in sync depends on how the market recovers in the short term, after finding a bottom.  There are really only 3 possibilities for the stock funds going forward.  In no particular order of probability:  

Possibility #1

We could get a V bottom, then the market drives on to new all-time highs.  This would be similar to the recovery we saw after the “Black Monday” correction in 1987.  At that time, the market corrected about 35% over the course of 2 weeks, hit bottom, and rebounded quickly to new highs.  If you are in the stock funds now, this is the type of recovery that you’re hoping for…  At some point during this recover, I would post an Alert and reallocate to the stock funds.  At that point, you would reallocate along with me and be back in sync.

Possibility #2

We could get a recovery rally.  In this case, the market would recover some or all of its losses and then roll over.  IF I am able to get back into the stock funds near the bottom (a), I would look to reallocate to the G fund near the top of the relief rally (b).  At that point, you would reallocate with me to the G fund and we’d be back in sync.  You would lock in some losses relative to the high in February BUT, you would have recovered as much of the paper losses as possible.  You would also avoid follow on losses (b-c).

Possibility #3

We could get a market bottom followed by a sideways consolidation.  If it broke up from this consolidation, I would reallocate to the stock funds.  If it broke down from this consolidation, I would reallocate to the G fund.  Either way, if you followed the Alert, we would be back in sync.  If you’re in the stock funds and the market breaks higher from a consolidation, you got lucky…  If the market breaks down from the consolidation, you are in a very difficult position.  If you reallocate to the G fund here, you have locked in losses but avoided additional losses.

Bottom Line: 

There are no good choices here.  We have not seen a Bear Market since the Financial Crisis of 2008.  It will be EXTREMELY difficult to navigate through this market without losses.  Your choice is to stay in the fight and attempt to mitigate those losses OR hold whatever allocation you currently have and wait this out.  Staying in the fight will be very difficult.  The alternative is to hold what you have and wait for the market to recover.  Unfortunately, you may be waiting a very long time…