Avoid These Retirement-Killing Reactions to Market Volatility

Markets will rise and fall. That’s a given.

But the most lasting damage to TSP balances often comes not from the market’s decline itself, but from what people do during it.

Fear and impulsive decisions can turn temporary losses into permanent ones.

Below are three common reactions that federal retirees should avoid at all costs — plus how to guard against them.

1. Panic Selling into “Safety”

When markets plunge, it’s natural to feel the urge to move everything into the G Fund.

After all, it doesn’t lose value, and in a crisis, that stability is appealing.

The problem? Many investors don’t get back in.

In 2008, billions shifted into the G Fund at the bottom. But by 2009, the C Fund had rebounded +26.68%, and a decade-long bull market followed. Those who panicked missed out on years of compounding growth — not because the market failed, but because fear drove them out of it.

Moving to safety feels like control. But when done out of fear, it often locks in losses and removes the chance to recover.

2. Chasing Last Year’s Winners

The opposite mistake is performance chasing — jumping into whichever fund recently posted the biggest gains.

Take the S Fund, for example. After huge returns in 2020 and 2021, many investors shifted more heavily into it — just in time for a sharp drop in 2022. The same pattern has repeated with the I Fund during foreign market rallies and the C Fund during tech surges.

The issue? Chasing past performance often leads to buying high and selling low. The exact opposite of successful investing.

Just because a fund performed well last year doesn’t mean it’s poised to do the same this year.

3. Trying to Time the Market

It’s tempting to think, “I’ll move to G now and wait until things look better to get back in.”

But the market doesn’t give warning signs before it rebounds.

In fact, the biggest up days often follow the biggest down days. If you’re on the sidelines during those recoveries, you miss a large portion of long-term gains.

Over the past 20 years, if you missed just the 10 best days in the market, your equity returns would have been cut nearly in half.

That’s the high cost of trying to outsmart volatility.

The Takeaway

You can’t avoid volatility — but you can avoid destructive reactions to it.

Panic selling, performance chasing, and market timing are behaviors that sabotage long-term success. Staying disciplined allows recovery, compounding, and your plan to work as designed.

👉 Tomorrow: Five specific strategies to protect your TSP from turbulence — without trying to time the market.

Best,
—FWR