- The Washington Times - Tuesday, October 18, 2005

“Buy low, sell high” is the recommended mantra for long-term investors. Part two of long-range investing strategy is dollar cost averaging.

That is investing the same amount of money at regular intervals, which means you avoid the pitfalls of trying to time the market by jumping out when it is down (or you think it is down) and buying when the market is on the upswing.

All of the above is especially true for the millions of active and retired feds and military people whose investments now will finance a big chunk of their future retirement via the Thrift Savings Plan. The TSP is the government’s version of a 401(k) plan.

Many experts predict that TSP accounts will provide anywhere from 30 percent to 50 percent of the money people have to spend in retirement. That is, of course, if people invest. Most feds are doing that, although many don’t take advantage of maxing out their contributions.

All federal investors are forced to dollar cost average, but now have another option to ensure long-term investing success. The new Lifecycle funds, or L-funds, set and then regularly readjust your portfolio for risk based on the date (immediate, or the years 2010, 2020, 2030 and 2040) you plan to start withdrawing the money.

The idea is that your portfolio should have more high-risk, high-reward funds if you are a long-term investor. And your distribution of shares should get more conservative as you get closer to D (for drawdown) Day.

So far, under the buy-low principle, the L-fund is doing great.

On Aug. 1 the year 2040 option was worth $14.13 per share. As of Thursday it was $13.70.

When the fund began, a share in the 2030 option was worth $13.50. Last week it was $13.36.

For the current-income version of the L-fund the numbers are $11.62 in August and $11.60 last week. You get the idea.

The current income fund is invested more in the G-fund (Treasury securities) and the F-fund, which is a bond index. It has less up-and-down action.

But the longest-range investment, the year 2040 fund, has a much greater percentage of the high-risk, high-reward C (S& P 500 Index) fund, the S-fund (small- and mid-cap companies) and the I-fund, which tracks the international stock markets.

Retiree raise

The 4.1 percent January cost-of-living adjustment for federal-military-Social Security retirees is the highest inflation catch-up in 15 years. It should help the retired feds — who get about half the income of active duty workers — pay for higher health premiums next year.

Active duty military personnel are due a 3.1 percent pay raise in January. The final amount for civil servants hasn’t been fixed but it will be between 2.1 percent (the White House figure) and 3.1 percent, the amount Congress is working to establish pay raise parity with the military.

Of course, a high COLA means higher prices drove it up. The big jump in the 2006 increase (effective in December, payable in January) is because of the increase in oil prices for the month of September.

Feds who retired under the old Civil Service Retirement System will get the full 4.1 percent raise. Those under the newer Federal Employees Retirement System will get 3.1 percent. Bottom line: That’s 4.1 percent and/or 3.1 percent more than most private sector retirees whose pensions are frozen at the time of retirement.

• Mike Causey, senior editor at Federal News Radio AM 1050, can be reached at 202/895-5132 or [email protected]

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