“I have X years till retirement… how risky can I be?”

“The reality is that you want to make the best possible decisions, based on market conditions, regardless of your age.

A new subscriber asked a simple question the other day that gets to the core of how I determine when to reallocate funds at GrowMyThriftSavingsPlan.com.  The question was, “I have 8 years to go… how risky can I be?”  There are actually 2 parts to this question that drive the way people think about investing for retirement.  The first part is Risk, what it is and what it means with respect to investing.  The second part is Time.  How does time effect your decisions for retirement investing.  If you’ve been following this site for any period of time, you know that my thoughts on investing tend to buck the system so, you shouldn’t be surprised to see that the way I view risk and time is pretty significantly different from the financial industry standard…

What is Risk?

The Oxford English Dictionary cites the earliest use of the word in English (in the spelling of risque from its from French original, ‘risque’ ) as of 1621, and the spelling as risk from 1655. It defines risk as:

  • (Exposure to) the possibility of loss, injury, or other adverse or unwelcome circumstance; a chance or situation involving such a possibility.[5]

Investopedia says, “Risk involves the chance an investment’s actual return will differ from the expected return. Risk includes the possibility of losing some or all of the original investment. Different versions of risk are usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment.”

When we’re talking about investing for retirement, the conventional wisdom goes something like this… “Keep putting as much into the riskiest funds when you’re young and just starting your career.  You’ll have plenty of time to ride the ups and downs of the market.  As you get older and closer to retirement, you’ll want to move to less risky funds like the G or F to keep your retirement funds safe”.  This is the idea behind the L Funds offered by the TSP.  The L Funds are based on your expected retirement date and automatically rebalance your account quarterly, decreasing your exposure to the stock funds over time.  By the time you retire, all of your money is safe and sound in the G fund.  Check out the video here of how it works.

What is Time?

Time is, without a doubt, the single most important aspect of long term investing.  Having said that, it is completely out of your control.  The more time you have, the greater the effect of compounding, the more mistakes you can make and recover from, and the more potential you have to make money.  Your potential for growing your TSP nest egg decreases along with time.  The effect of compounding is truly magical. “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein.

The “Rule of 72” says that if you get a 10% average rate of return on your investment, it takes 7.2 years to double.  If you make a 1 time investment of $10,000 at age 20, using the Rule of 72, you would have $160,000 at 60 years old.  Unfortunately, the math can also work against you.  If you make a 1 time investment of $10,000 at age 20 and the market crashes 50% during the first 10 years of your career you have $5,000 left.  What % do you have to make on the remaining $5,000 to get back to your initial investment?  You need to make 100% on that $5,000.  Plus, you’ve lost 10+ years of potential.  The conventional wisdom just crushed you…  The reality is that you want to make the best possible decisions, based on market conditions, regardless of your age.

Risk and Time at GrowMyThriftSavingsPlan.com

Below is a 20 year, monthly chart of the S&P500 (C Fund).  This is a bit simplistic since I use 2 year weekly charts to make trading decisions but, the concept is exactly the same.  Using a 20yr monthly chart really illustrates my point.  The chart shows 3 significant tops in the past 20 yrs along with 2 significant bottoms and 1 great buying opportunity (November 2016).  In every case in the chart below, when the price was high and topping as the MACD and Divergence turn down, the market falls.  Equally true, the significant bottoms were identified when the price chart formed a bottom pattern while the MACD and Divergence turned up.  In November 2016, the MACD and Divergence turned up as the price chart broke up out of a 2 year consolidation.

The way I view risk is 2 fold.  First, the risk of losing money and second, the risk of not making money.  When the risk of losing money is high, identified by connecting the dots with the red lines, you want to move to the safety of the G fund.  When the risk of not making money is high, identified by connecting the dots with the green lines, you want to be fully invested in the 3 TSP stock funds.  Let that idea sink in, study the chart, and then continue below…

C Fund 20yr Monthly RISK Chart

So here’s the big take away.  Risk has NOTHING to do with you and EVERYTHING to do with the market.  The market doesn’t care how old you are, what your retirement goals are, or what your personal circumstances are.  Risk, in terms of TSP management, is the amount you stand to lose vs gain on any reallocation that you make.  

Take a look at the chart below of the C fund 1994-2004.  The market had run up from 400 to almost 1600 (400%!) along a well established trend line.  The MACD and Divergence indicators gave us an early warning as the price chart formed a double top pattern.  Once the double top pattern was detected with the indicators already turning negative, the RISK of losing money by staying in the C fund out weighed the risk of the opportunity cost of staying in the C fund.  What exactly was the risk?  Let’s say I reallocated to the G fund at 1400, right after the price went below the trend line.  If the market had turned back around and started going higher, I would have got back into the C fund at about 1600 or a little above the highest recent top.  So, my actual RISK was 200 points of potential gain and 0 risk of further loss.  If you had reallocated at 1400 you would have saved the loss of almost half of your TSP fund.

Now let’s look at the bottom from 2002-2003 and apply the same risk analysis.  This time, there was a double bottom pattern with the second bottom higher than the first (a good sign).  When the indicators and price turned up in February 2003, we were off to the races again.  If I had reallocated from the G fund to the C fund at about 900 and the market had rolled over and gone lower, then I would have gone back to the G fund if the price got lower than the recent low of about 750.  So, my RISK of loss was 150 points.  By March of 2003, the risk of being out of the stock funds far out weighed the risk of potential loss.  In fact, if I had reallocated from the G fund to the C fund at about 900 and stayed in the market until the next major top in 2008 at 1550, I would have made a 172% gain!

So, here’s my argument to the “conventional wisdom”.  Based on the 2 charts above, if you were just starting your government career in 1999 or 2000, would you really want to be “risky” and put all your money in the TSP stock funds?  Or, the other way.  If you turned 60 in 2003, would you really want to stay “conservative” and leave all your money in the G fund?  Think about it…

Please post questions to comments…


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  1. Jerry. This is a discussion I have with the “old heads”all the time. I can’t convince them and they refuse to read your articles. I move on but their POV gets passed on to the younglings and I am trying to break that reliance on the L fund and retired G fund mentality.

    1. Thanks David! It’s very tough to fight the “Conventional Wisdom”. Whether it’s L funds, Buy & Hold, “Timing the Market”, etc, many people are unwilling to learn new approaches for potentially 10x results. I appreciate you getting the word out!

  2. I am trying to figure this out. Its so much to take in. I retire end of 2021, so don’t want to be risky. I only started following you in Jan, and to date seeing a loss. So your basically saying, if we keep moving the money eventually, this weird market will stabilize and we’ll stay in the c&s funds longer than we’ve been doing the last two months? Or by moving from c&s gains will come and we will save them before the market drops?

    1. First off, welcome Kathy! Your question depends much more on your personal risk tolerance than on trying to respond to the market. You began by stating that you are retiring at the end of 2021 and don’t want to be risky. If that’s the case, you do not want to be too exposed to the stock funds (C and S). On the other hand, depending on your circumstances, you will need your TSP account balance to continue to grow while you are in retirement. To accomplish that, you need to be in the stock funds when the market is trending up. You certainly want to be able to sleep well at night… We can set up a coaching call if you’d like. Email us at Coaching@GrowMyTSP.com.