Q. My understanding is that the TSP lifecycle funds do not change allocation percentages based on projected market trends and changes in risk. For example, a lifecycle fund would not increase the percent in G funds if they thought a bear market was nearing. So, if Forbes is right and a bear market looms, what is the best way to minimize loss in one’s TSP lifecycle fund? Should we drop back from lifetime expectancy L fund selection to actual expected retirement timeframe for our L fund? When is the recommended time to do this?
A. Market timing is pretty simple, really. You’ll want to reduce your exposure to market risk right before the market decline begins. Then, you’ll want to reverse this move right before the start of the following bull market. The diversification provided by the L Funds is intended to mitigate the risk of market volatility. If used properly, the L Funds alleviate the need to time the markets.