How Stock Turbulence Has Affected Thrift Savings Accounts, and How You Can Strategize
The value of Thrift Savings Plan funds has been volatile over the past year, reaching new highs and producing some big dips. These market fluctuations can make investors nervous. This is doubly true if this is your first experience with sharp swings in the value of your investments.
Here’s how some of the recent turbulence played out in the TSP’s individual funds most susceptible to market fluctuations — the C, S and I Funds, also known as the Stock Funds:
While recording some of the steepest monthly losses in recent years in December 2024 and February and March 2025, two of the Stock Funds (C and S) nevertheless ended 2024 at double their 10-year average rate of return. As of May 31, 2025, the S Fund was down for the year, but the I Fund, which performed below the 10-year average in 2024, was well over double the average so far for 2025.
The Stock Funds combine with the more conservative G and F funds to make up the TSP’s 11 Lifecycle Funds.
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Market turbulence may make you think you need to do something. However, if your financial plan is right for your timeline, goals and risk tolerance, then you probably shouldn’t make any big changes. Reactive decisions almost always hurt your long-term progress.
However, you may be able to take some smaller actions. What can you do? That depends on your current situation.
Understand What’s Normal
Market volatility is a natural part of investing. Pullbacks of 10% or more occur, on average, every year or two, and declines of 20% or more happen every few years. These fluctuations are not aberrations; they are an expected feature of financial markets.
Recognizing this normality helps investors avoid panic selling, which can lock in losses and derail long-term plans. The most successful market recoveries often follow sharp declines, and history shows that about 80% of significant stock market recoveries occur within three years.
If You Don’t Have an Investment Strategy
If you aren’t investing according to a plan, it’s time to sit down and build a road map for your investments. You need to consider your goals, timeline, risk tolerance, age, overall financial picture and individual preferences.
Because we’re talking about investments, goals are generally mid- to long term. Investment goals might be to fund retirement, to pay for college for children who are currently young or to buy a home in 10-plus years. To each goal, you want to identify the timeline for that goal.
Then you need to think about risk tolerance, which generally refers to how much loss you’re willing to endure before you become uncomfortable. A volatile market is a good test of your risk tolerance: People who build their plan during market swings can often better identify their risk tolerance.
Once you understand your risk tolerance, you can identify the types of investments that will help you reach your goals without too much potential loss along the way. Or you may discover that you likely won’t reach your goals using investments that fit your risk tolerance, in which case you’ll need to either adjust your goals or consider whether you’re willing to accept more risk.
You may need help building your investment plan. Department of Defense resources such as personal financial counselors and Military OneSource can provide education but can’t give you investment advice. When looking off base, be sure to work with someone who doesn’t have a conflict of interest because they’re paid based on what you choose. This may mean that you have to pay for financial advice. This is not a situation in which free is always good.
If You Have an Investment Strategy
Investors should have a written financial plan that takes into consideration their goals, risk tolerance and timeline. You might write this yourself or with the help of a financial professional. Your investments should reflect the priorities set out in your financial plan, and your risk tolerance should already be built into the plan.
A robust financial plan serves as the foundation for weathering market turbulence. It should be tailored to your personal financial goals, risk tolerance and time horizon. This plan is not static — it evolves as your life circumstances change — but it provides a stable reference point when markets become unpredictable.
However, even the most confident investor can get rattled when the markets jump around. Ask yourself whether this means you didn’t understand your own risk tolerance. Sometimes, a wild week in the stock market makes you realize that you weren’t quite as comfortable with risk as you thought you were. If this sounds familiar, maybe you need to adjust your financial plan to be a little less risky.
If your financial plan concentrates your investments in a small group of stocks or just one or two funds, then maybe you need to diversify. Spreading investments across different asset classes (stocks, bonds, real estate, commodities and alternative investments) helps to mitigate risk and smooth out returns. Diversification is one of the most effective tools for managing volatility, as it increases the chance of poor performance in one area being offset by gains in another.
You may also need to rebalance your investments. Over time, some investments will grow more than other investments. This will push your investment mix out of alignment with your plan. Periodically adjusting your portfolio to maintain the right mix of investments is important.
Another way to handle market volatility is to have a large enough emergency fund. Having cash reserves outside your investment portfolio ensures you won’t need to sell investments at a loss during downturns.
Stick to a Long-Term Mindset
A long-term perspective is the antidote to short-term anxiety. Markets have always recovered from downturns over time, and those who stay invested tend to reap the rewards of compounding and growth. Emotional discipline is critical: Nobel laureates and behavioral economists emphasize that staying the course and avoiding knee-jerk reactions are hallmarks of successful investors.
Volatility is uncomfortable, but it’s part of market cycles. With a sound plan, diversified portfolio and disciplined approach, you can navigate current swings or even position yourself for long-term opportunity. A well-thought-out financial plan, an understanding of market norms and a focus on the long term are the pillars of successful investing in volatile markets. A thoughtful plan helps investors navigate uncertainty and position themselves for long-term financial success. Volatility is not a reason to abandon your plan; it is an opportunity to reaffirm your commitment to your financial future.
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