What style of investing should you use to invest your money? I get that question occasionally, it's should I be somebody who gets down and dirty with my investments, and I'm moving things around a lot. I just like to tinker, like to make sure I've got the right thing at the right time, or am I somebody who is just build it and leave it alone? What's the best way of investing?
There's been a lot of controversy about that, a lot of studies done about that. In the end, what people are saying is that, "Look, it's really hard to beat the market average, so if you're going to invest as an individual, why not just invest using indexes and take the passive approach?" In other words, the passive approach is where you're informed as to what assets should be included in your investment choices, and then if you use all the choices that are available to you, then you are taking advantage of all that research, so why not put it all together into one portfolio? All you have to ask yourself is, what kind of risk should I be taking? The risk that you're going to take doesn't determine which asset you use, the risk you're going to take actually determines what percentage that should be in each of the assets that are available.
So take Thrift Savings Plan, for example. The Thrift Savings Plan really has just five investments: the G Fund, the F Fund, the C Fund, the S Fund, and the I Fund. That's it. eah two bond, or I would say fixed income-type choices, G Fund and F Fund, three equity choices or stock choices, C Fund, which is the S&P 500, S Fund, which is all the smaller companies in America, and I Fund, which is the larger companies in the international market. What they've done for you, what TSP has said to you is this, "Hey look, you can use any of these, but we would encourage you to use all of these because we're also making available these L Funds.
L Funds is about using using all five funds, except that it's already predetermined what percentage of your balance goes into each one of those funds, based on the risk you want to take, or based on the time at which you want to have the money available to you. So when you look at it that way, should you be an active investor who is tinkering all the time, or should you be a passive investor? Here in TSP, it's a passive investment platform. It's very difficult to be an active investor in a passive platform, so I think that what type of investor you are actually comes down to, what kind of platform are you in? Are you in an active platform or passive platform? As far as TSP is concerned, you're in passive.
"The question for you is, what are you going to be most comfortable at? What are you going to be most confident in?"
What about the other stuff you have, and what if you're not in TSP? What if you have something else going on? You have to understand what the investment platform, what that entire platform is offering you. Then give yourself the opportunity to see how it can be put together to offer you the best of all possible worlds.
It's possible that platform didn't want to be passive. If it's not possible in that platform, then you have no choice but to be active. The question for you is, what are you going to be most comfortable at? What are you going to be most confident in? That's the real test, and you need to learn more about that. That's why we're here, to help you understand.