CAUSEY: Market-timers taking biggest risk

If you are an investor in the federal Thrift Savings Plan, odds are you fall into one of these six categories. You may be:

1) A conservative investor whose 401(k) nest egg is parked in a super-safe but docile fund, like the Treasury securities G-fund.

2) A proactive investor who is willing to take significant risks for the greater reward potential offered in the C, S and I stock-indexed funds. The C-fund is indexed to the S&P 500. The S-fund follows most of the rest of the U.S. stock market and the I-fund tracks international stocks.

3) Someone who is supersensitive to the market. Someone who flees from stock when the market is down, moving into safe Treasury securities and then moves back to stocks when the market is heading upward. A market-timer.

4) The individual who is happy with the allocation (percentage of stocks, bonds and Treasury securities) in the portfolio. This individual tends to ignore short-term tics in the market and only occasionally readjusts the portfolio to keep long-term investments on track. Many of these people (about 5 percent of all TSP investors) are in the target-date Lifecycle Funds. The L-funds readjust automatically. They sell stocks when the market is up, and buy them when it is down - something hands-on investors have trouble doing - to maintain their portfolio balance.

5) You have money in the TSP but you aren’t exactly sure which fund or funds you are invested in. You grumble, of late, when you see how your TSP balance had dropped, or grown only slightly more than your own contributions. But you stay put.

6) You like the concept and ease of the automatic-pilot L-funds but, for whatever reason, you have investments in one of the L-funds plus investments in the C, S, I, F and G funds. Maybe you like the idea of splitting contributions 50-50. Maybe you just joined the L-fund and didn’t bother to, or chose not to, consolidate all your other funds into the single L-fund.

Many financial planners say that contestant No. 3 is taking the biggest risk because he/she is trying to time the market. That is to get out of a shaky or falling stock market and seek out a safe haven with a guaranteed fund like the G fund. The idea is to ride out any financial storm in the safe harbor, then go back into the stock market when things get better, or it is heading up.

They call it market-timing. That involves chasing higher returns or running from poor returns. Despite the computer programs on TV and the how-to-books, it is more an art than a science. Financial gurus from Warren Buffett to John Bogle say they can’t time the market, and they’ve never met anyone who can.

Ironically, contestant No. 1 and contestant No. 2 are both doing the wrong thing, according to Paul Yurachek. He’s a Bethesda-based financial planner who advises a lot of active and retired federal workers.

Mr. Yurachek tells his clients that investors one and two, at opposite ends of the spectrum, are taking the biggest risk. He also has a warning for people who invest in some or all of the regular funds - the C, S, I, G and F funds - while also investing in one of the target-date L-funds. Those investors, who split their money, “are riding two horses.”

“You ought to ride one or the other,” he says.

Otherwise, he says, the allocation that you set in choosing one of the L-funds is always out of whack because of the up and down nature of the regular funds. You may intend to have 60 percent of your TSP in the C-fund, for example. But if it does well, you wind up with a larger percentage of your investment in the stock market. And if the market performs poorly, you have a smaller allocation than you intended, by going into the L-fund. His advice: Do one or the other. But not both.

Health premiums to rise

Health insurance premiums paid by most federal and postal workers, as well as retirees, are going up next year. The Office of Personnel Management (OPM) says the average increase is 8 percent. There are nearly 300 plans in the program (most localized HMOs), and feds in the Washington-Baltimore area have more than a dozen plans, and even more options within those plans, to choose from. There will be an open season in November-December when anybody (regardless of age, medical problems or pre-existing conditions) can switch plans.

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