The Bulls Are Running Toward Cliffs. The Bears...Are On The Prowl.

Jarrod H. Smith | June 2, 2021

By Jarrod H. Smith

As a military servicemember or government civil servant, an excellent opportunity to lock up hard-earned dollars with little access for decades and “save” that stored time for retirement exists with the Thrift Savings Plan program. In the stock and bond markets, however, we must ensure a plan is in place to protect decades, even life-long, hard earned savings and perceived gains achieved with the buy-and-hold strategy touted by advisors and promoted by funds managers.

The Buy-and-Hold Myth

Too often, plan participants are told to buy and hold. By waiting it out, investors will have the best chance of staying the  course. This advice isn’t always the best answer for the account holder, though the short-term benefactors, the funds managers and financial advisors aren't inclined to tell us anything differently.

According to Ned Davis Research, Inc., with an average buy-and-hold strategy, an investor spends 77% of the time recovering from the cyclical market downturns.

The sequence of returns logic shows it takes a 100% gain to overcome a 50% decline. The returns required to recover from a loss dishearteningly grow with the fact that markets tend to drop quickly while slowly advancing higher.

Take a hypothetical example: 

Given $100,000 in a TSP account, the buy, hold, and bury the head in the sand approach causes a loss of 50% in the first year, with a 50% gain in the second year. The commonly accepted industry math would say your average rate of return over that two-year period was 0%. The sequence of returns, however, shows it just ain't so.

This isn’t too terrible if your long-term goal is to average 5%. However, realistically the account is still down 25% after year two, worth only $75,000 ($50k * 0.5 = $25k "gain" ; $50k+$25k = $75k, still short of the $100k the account began with two years prior).

To stay even (and have a 0% rate of return), you would have needed to gain 100% in year two, or doubled the $50k to get back to the level where the account began.  We didn't mention the opportunity cost or purchasing power that was also eroded away over those two years, either.  That's an entirely separate discussion, though!

The bottom line is that losses hurt the TSP accounts much more than similar gains help the portfolio.  Losses are experienced as a percentage of a larger total. This makes it extremely difficult to recover from realized losses when uninformed account holders sell as the markets drop past 20%, 30%, and 40%+ or more.

An Appropriate Alternative

Rather than settle on a buy-and-hold strategy that enriches you financial advisor who claims fiduciary status, there’s a more appropriate way to defend stored wealth from significant loss — by taking profits along the way according to a plan. By using a protective “stop loss” strategy with the G-Fund, capital can be protected from market declines while opportunity cash can be positioned to purchase the inevitable market corrections and volatility.

Warren Buffett, arguably the world’s greatest 20th Century investor, famously said, “Rule number one is never lose money. Rule number two: never forget rule number one.”

As analyzed above, when 50% of an accounts perceived valuation is lost in a recessionary market, a 100% gain must happen to break even, and there's still the lost time and purchasing power due to the inflationary nature of our debt-based monetary system supported by ever increasing quantities of fiat currency. 

Even if accomplishing a recovery, the time lost retracing the gains is gone forever, as is the potential for doing other things with the perceived wealth during the recovery time.

Developing A Defense Strategy, and Offensive Planning Actions

One of the biggest risks comes from not knowing, not being informed and going with the flow. This is why some account holders  choose to work with a Financial Literacy Expert and Money Aptitude Guide to plan a strategy before they’re in the midst of the storm, which always comes.

Do you have a strategy in place that you're confident in, and won't be shaken lose from?

Know that there are only four outcomes with market investments:

Massive gains

Minimal gains

Minimal losses

Massive losses

The first two are good, whereas the third and fourth keep account holders from achieving financial goals.

With a disciplined sell strategy in place during the so-called bull run, you'll capture gains and keep the bear market from clawing them back when emotions without information cause many to lock in large losses. While everyone dreams of achieving massive gains, small gains and small losses are much more realistic and frequent. And frankly the limitations of the TSP don't afford massive gains for most, due to monthly restrictions on the number of times account holders can enter and exit fund positions. It's usually best to cut minimal losses (5-25%) quickly while letting profits run, but TSP ties one hand behind our back most of the time.

A method to use is a disciplined approach aiming to take advantage of 2/3 of the up markets and gain profits while avoiding 2/3 of the down market by taking profits off the table monthly or quarterly, which requires paying attention. As the Oracle of Omaha, Buffet, once warned, fools go broke picking peaks and valleys. A much more realistic aim is to target the middle 20-80%. By not raising capital while the markets are going ever higher, most will be missing the opportunity funds necessary to buy when the bear arrives.

Moral of the Story

The next time an advisor tells you not to worry about short-term market volatility because the TSP account is designed for long-term stability, highly consider seeking advice elsewhere. Remember, that advisor makes their cash flow increase by increasing their assets under management, including the size of your TSP account. If the advisor is at the base Family Readiness Center, well, their advice is free.  Be skeptical of free, because someone who doesn't value their own time, or lacks having skin in whatever advice they're giving, how valuable can it be? 

The most important rule of saving and buying stocks and bonds is not to lose wealth, because losses hurt much more than gains help recover them.  Short-term wins assist in achieving long-term success.

We've only scratched the surface with respect to TSP accounts with this discussion, or have yet to develop an exit strategy, contact me for a complimentary reconnaissance session.

We can discuss what you’re currently doing, what changes may be necessary, and how to structure an exit strategy based on your goals. 

To get started, email

About Jarrod

Jarrod H. Smith is the founder and Senior Partner of the Liberty Accelerator Program, an independent life coaching and advisory services firm specializing in helping military service members, military families, and military veterans pursue their life goals, financial independence, Liberty and Total Autonomy. With professional experience as an independent advisor, military officer, author, speaker, and coach, he's making waves in the traditional approach to financial planning in military service, in preparation for far beyond. He serves clients throughout the country and around the globe using information technology. To engage and embrace your destiny, connect with Jarrod on LinkedIn, Twitter, or visit

*Examples provided are for illustrative purposes only and do not imply or guarantee that market positions will achieve these results, nor do the figures represent actual returns of any particular investment. The figures are hypothetical and do not take tax liability into account. Actual rates of return on all investments will vary. It is not possible to invest directly in an individual index with TSP. Past market performance is no guarantee of future investment performance, success, or shortcoming.

Check the background of your financial advisor on FINRA's BrokerCheck. Sharks are listed there, and excited to skim off of your wealth while the risk stays with you. Financial Literacy Experts and Money Aptitude Guides like Jarrod will help you protect what you’ve accumulated.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal or investment advice. Please consult legal counsel or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by USVetWealth to provide information on a topic that may be of interest. USVetWealth is not affiliated with the named representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

We are licensed to sell Insurance Products in the following states: Virginia. We are not registered to sell Securities. Advisory services offered through The Smith Sircle, LLC, a Texas LLC.