What 2008, Dot-Com, and COVID Teach Federal Retirees

Market swings are a fact of life, but they don’t have to derail your retirement. That’s why we’re is launching a 5-part series: Surviving Market Volatility in Retirement. 

Each issue will deliver lessons, strategies, and insights to help federal retirees protect their TSP and stay confident no matter what the market does.

Here’s part 1.

When markets fall, fear takes over.

It’s natural to wonder if a particular crash is different, if the recovery will come, or if your retirement plans are in jeopardy.

But history gives federal employees and retirees powerful perspective.

Downturns are temporary, and recoveries are the rule — not the exception.

Lesson #1: The Dot-Com Bust (2000–2002)

The S&P 500 lost nearly half its value.

Tech stocks were hit hardest, and the C Fund closely mirrored those losses. Investors faced years of negative returns and constant warnings about a “new economy.”

But by 2007, the market had fully recovered — and those who stayed invested were in prime position for the bull market that followed.

The lesson wasn’t just about patience.

It was about resisting the urge to chase trends or abandon your long-term plan when headlines turn pessimistic.

Lesson #2: The 2008 Financial Crisis

This was more than a market drop. It was a full-blown financial collapse.

Major banks failed, housing prices imploded, and the stock market plunged over 50%. Many TSP participants moved their savings to the G Fund in an effort to preserve what remained.

But the recovery began faster than most expected.

In 2009, the C Fund rebounded with a 26% gain. And over the next decade, equities continued to climb. Those who missed the recovery often struggled to get back in, sitting in cash while markets marched upward.

Staying invested didn’t just avoid losses — it captured growth.

Lesson #3: The COVID-19 Crash (2020)

In just weeks, markets dropped 30% as the pandemic brought the global economy to a halt.

Uncertainty was sky-high, and many retirees feared a prolonged downturn.

Instead, markets staged the fastest recovery in history. By summer, losses had been erased. It was a stark reminder that timing the market is nearly impossible — even when the danger feels obvious.

TSP participants who held steady came out ahead, while those who reacted emotionally often locked in unnecessary losses.

The Takeaway for TSP Investors:

• ✅ Volatility is inevitable. Markets will crash again. It’s not a matter of “if,” but “when.” Timing the top or bottom consistently is nearly impossible—even for professionals.
  

• ✅ Recovery follows. Every major decline in U.S. market history has eventually given way to new highs. Patience, not panic, is what history rewards.
  

• ✅ Behavior is the real risk. Selling in fear locks in losses and removes your chance to benefit from recovery. Staying invested allows the power of compounding to keep working on your behalf.

Bottom line: You can’t control when the next downturn arrives. But you can control how you react. And history says your best move is to prepare, not to panic.

👉 Tomorrow: How each TSP fund holds up in a market crash — and what that means for your mix.

Best,
—FWR