A Household Divided: Annual 401K Results of Both My Wife and I

My wife and I are Thrift Savings Plan (TSP) participants. TSP is the Department of Defense's (DoD) version of a 401k. This week both of us received our annual TSP statements.

My wife gets very agitated whenever she knows that i'm buying and selling investment products. She is a staunch advocate for buy and hold. I believe in buy and hold only in its application to our household Dividend Reinvestment Plans (DRIPs).

Unfortunately for my wife, her buy and hold philosophy didn't result in stellar TSP account performance. For 2008, my wife lost 12.06% in her TSP. During 2008, her portfolio investments were:

- 68% in government bonds (TSP G-Fund)
- 10% in the S&P 500 (TSP C-Fund)
- 9% in small cap stocks (TSP S-Fund)
- 13% in international stocks (TSP I-Fund)

During 2008 my TSP account lost 1.47%. This pales in comparison to those that decided to keep their TSP purely in the G-Fund. Had I decided to do this, I would have had a positive return of 3.77%. During 2008, I bounced back and forth between government bonds and equities. At one point, I had as much as 12% of my TSP invested in equities. I finished the year with 100% of my TSP in government bonds.

My TSP investment plans for 2009 are as follows:

(1.) If the DOW hits 6500: 97% government bonds (G-Fund), 1% international (I-Fund), 1% S&P 500 (C-Fund) and 1% small cap stocks (S-Fund)

(2.) If DOW hits 5000: 34% G-Fund, 22% I-Fund, 22% C-Fund, 22% S-Fund

(3.) If the Dow hits 3500-4100: 1% G-Fund, 33% I-Fund, 33% C-Fund, 33% S-Fund

In reality, I will slowly transition to the above investment allocations as/if the DOW falls vice waiting for it to exactly hit the points in detailed in 1, 2 and 3 above. Additionally, i'll slowly increase my TSP contribution rate from 1% of base pay (what it is now) to 15-40% of pay as/if the DOW falls. I typically elect for 100% contribution to the G-Fund (government bonds) and reallocate between investment options depending on where the stock market indicies are, value wise.

My wife will continue with her 5% of pay contribution with 4% employer matching. Her contribution allocations will remain 25% G-Fund and 25% in each of the I, C and S Funds. This contribution allocation should steadily increase her position in equities over the long haul.

Some of my readers may staunchly disagree with my household's small contribution rates of 1 and 5 percent of our pay to TSP. We are contributing this small amount because we have made the decision to pay off one of our three investment properties within the next 12 months. Today, we owe $43k on the property. We will continually need to plow most of our free cash into this house to meet our goal.