The Federal Drive with Terry Gerton provides expert insights on current events in the federal community. Read more interviews to keep up with daily news and analysis that affect the federal workforce. Reach out to Terry and the Federal Drive producers with feedback and story ideas at [email protected].
Terry Gerton You’re going ton teach us a new acronym today. We know FOMO, fear of missing out, but what is FOGI?
Thiago Glieger FOGI is a new way of looking at this, where we have the fear of getting in, and it’s interesting because most people have heard of FOMO, but this FOGI is this new idea that there’s both sides of the coin that we really need to be looking at, right? We’ve got when the markets are doing really well, people are scared of getting into the markets, and then the idea that we don’t want to miss out is very natural to us, but we also want to protect what we have. And so that’s where the fear of getting into the markets becomes very relevant to us.
Terry Gerton The market has been kind of scary lately, so you kind of can’t blame people. But how should folks, especially who’ve been parked in the G Fund forever, think about maybe making some changes?
Thiago Glieger I think as federal employees are looking to, is this the right time? There’s obviously a lot of concerns looming around things like the tariffs and the economy. There’s inflation that just seems to be so persistent. And we also have people not spending as much. We have a lot these red flags popping up in the economy, and so we start to get these questions about, is it really the right time to be putting my money out of the G Fund and back into stocks? After everything that has happened, the markets have recovered, so you start to get this fear of getting back in again. And you know, at first this sounds like you’re being very reasonable. But the idea is it’s almost a tug of war, right? We want to protect our money as we’re getting in and make sure that we’re not getting in at the top. We often hear these ideas of, I’m just waiting for a better time to reinvest the money, or, gosh, I know there’s a 15% drop here somewhere. So I’m just going to wait for that until I get back in again. Let’s just see how things play out over the next year, right? And it’s really tough too, because of how volatile the markets have been over the last couple of years, everything that has happened in federal service, federal employees are feeling like they often may not have total control over their circumstance. And so we try to cling on to the things that we do have control, like, hey, how am I going to be invested? And so the problem in that is that the markets don’t wait for anyone. And if you miss out on getting in and the market keeps going up, did you miss on a lot of growth that maybe you really needed for your retirement? And that’s the big challenge.
Terry Gerton Well, you know, the hot tip is always buy low, sell high, but figuring out when low and high are pretty tricky. So when people think about timing the market, what’s your advice there?
Thiago Glieger I think we really need to be careful of the fantasy that we can get that timing correct, right? We might get lucky every once in a while. Where something really is very obviously smacking us in the face, and then we get out or we get in at the right time. But the idea that you can continuously do that correctly over and over again, this is not something that happens over time. And so particularly this last run around, the markets were — every red flag was going up with everything going on in the economy. And even the people that knew and were in the know thought that the markets were going to keep falling and they didn’t, they reversed. And we’re right back to the beginning of the year again in terms of where the markets are. And so we have to be really careful about how we feel and not let our investment decisions be guided by feelings, but rather some sort of process that we have. If you look at the principles of building a financial plan, one of those is, how do you construct a portfolio that helps support what you’re trying to do? And so thinking about your money in terms of, hey, when are my timelines? What if I’m wrong about this right now? Is that going to impact my ability to retire in five years or in 10 years, because I’ve just been sitting on the sidelines the whole time? So we have to ask these really hard questions.
Terry Gerton I’m speaking with Thiago Glieger. He’s a wealth advisor with RMG Advisors. Thiago, I think your advice is sort of like starting a fitness program, right? It’s discipline, it’s decision. Decide early that you’re going to do it. What are some of the rule-based frameworks that can help people get over this feeling of being stuck, or their fear of getting in?
Thiago Glieger Yeah, I think what we can do that’s really helpful to a lot of people is to just look at some of the facts. When we look at what the S&P 500 has done over the last 20, 30, 40 years, the S&P 500 in the TSP equivalent, that is the C Fund, right? We have about a 30% chance or so of being negative in any 12-month running timeline. So that’s pretty high. One in three chances you might actually lose money here. But as we start to push out from one year to roughly five years, now we’re looking at only a 20% chance of a five-year rolling period being in the negative. And as we look to 10 years, that number further drops to about 10%. And you can see here, the further out we go, the less chance of your actually losing money in the S&P 500 or the C Fund. And so this brings a lot of good clarity to an investor that truly what’s most important is, when do I need the money, right?
This is what we call in the business, we call it time horizon. And that can be the biggest deciding factor. So when someone is going to retire, let’s say over the next five years or so, the rule is, hey, look, if you’re looking at five years, that’s about a 20% chance that your money might be down by the time you need it. So you have to be a little bit more careful. You might not want to go 100% stocks when you have that little time left. But as you’re looking into retirement, you might be retired as long as your career was. And so 15, 20, 30 years from now, you’re going to need some money then too, and inflation is going to have done its erosion on your money. But by then, what’s the chance that the S&P is going to be lower 20 years than today, right? And that helps us guide clients and then helps investors get comfortable with being in the market, because they know they have that time.
Terry Gerton So rule number one is think about your time horizon. What about the dollar-cost averaging rule?
Thiago Glieger Dollar-cost averaging is a really powerful tool, Terry. I’m glad you brought that up. The idea is that you are deploying money over time and you’re riding the wave either up or down in the markets. And it sounds a little counterintuitive because you would want to buy when things are cheaper, not when they’re high. But if you do the math, getting in periodically over time, even if you bought a little bit of the market as it was at an all-time high again, over time, that average actually works out better for you. Because you’re picking up more shares of stocks, more parts of the equities markets, and that compounding interest over time actually allows you to build a lot more wealth than you would if you were just timed yourself perfectly in the moment. And this is what the TSP contributions are. Every time we get paid every couple of weeks, we have some of that money get squirreled away and put into the TSP. That consistent deposit is what we call dollar-cost averaging.
Terry Gerton So the third rule might be diversification.
Thiago Glieger Yes, and this is one of the things that the TSP has really struggled with over the years in only having a few sectors in the markets with its core funds. And so finally, they released the TSP Mutual Fund Window, which has about 4,000 options for federal employees to diversify. It’s the old, don’t put all your eggs in a single basket adage, right? We want to make sure that there’s different parts of the markets that are spreading out the risk. Simply because when one thing is doing better, there is often a different kind of investment that maybe is doing poorly, and so the better one offsets the poor one. And then we also have this idea that there’s investments that are not correlated to each other. And especially for retirees, we want to reduce volatility, because that kind of volatility in the short term in retirement, that’s a big risk to you. So the diversification is a big part.
Terry Gerton The decision framework that you’re laying out for us is really like my workout plan — I pick my workout the night before, I lay out my workout clothes, I set my alarm, and then hopefully I get up and go do it.
Thiago Glieger That’s right, because then when you don’t feel like doing it, right, everything’s already set for you, you’ve got your framework, it just makes it that much easier.
Terry Gerton But it takes the emotion out too, and that’s where people get stuck.
Read more on Federal News Network
