Beating Information Bias: A Fed’s Guide to Smarter Investing

Today’s investors are surrounded by nonstop market updates, email alerts, and market commentary. While staying informed may seem helpful, too much information can cloud your judgment.

Many investors fall into the trap of information bias – the belief that more input automatically leads to better decision-making, even if the information is irrelevant or the source is unreliable.

Putting too much weight on the wrong information may cause you to stray from a solid investment plan. It’s common for Feds who are flooded with tips about investment options that aren’t available inside their TSP to feel the need to “do something” with their account.

Information bias when investing in TSP funds may lead to over-trading between your options, giving up on a strategy that’s working, or making emotional moves based on noise rather than your goals and timeline.

Understanding Information Bias

It’s easy to get pulled off track by noise that feels important at the moment. Even experienced investors may fall into familiar patterns, especially when the news starts to invoke emotion. Here are some signs that you may have crossed the line from research into bias:

• Data overload: Consuming near-constant market news without considering whether it’s relevant to your situation.
• Headline chasing: Mistaking attention-grabbing headlines for actionable insight.
• Confirmation bias: Seeking out information that supports what you already believe while ignoring anything that contradicts it.
• Recency bias: Giving too much weight to the latest market moves or news cycle.
• Authority bias: Treating analysts and commentators as definitive proof rather than opinion.

How Information Bias Shows Up in Federal Portfolios

Information bias often shows up when investors make portfolio changes based on fear, hype, or pressure to act. A scary headline may lead Feds to panic-sell TSP funds, abandoning a well-chosen L Fund glide path mid-swing. Others may move everything out of C, S, or I Fund because of one chart or viral opinion they saw online.

Some Feds ignore the G Fund because it feels boring, or the returns seem small compared to stocks. But it plays an important role, helping to stabilize portfolios when stock markets get volatile. Each of these decisions may seem reasonable at the moment, but they’re reactions to noise, not part of a well-thought-out strategy.

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Evidence-Based Filters to Avoid Bias in Retirement Investing

To avoid bias in retirement investing, consider the following for these five filters:

1. 1. Start with your IPS: Use the goals, risk band, and rebalancing rules laid out in your Investment Policy Statement as the basis for portfolio adjustments.
2. Focus on quality over quantity: Prioritize long-term data and trusted sources. Ignore hot takes and single anecdotes.
3. Stick to scheduled check-ins: Review your portfolio on a quarterly or monthly basis. Avoid making changes in between unless your goals change.
4. Pre-commit to rebalancing: Set thresholds (for example, a 5% drift or specific time periods) for rebalancing, or use L Funds if you prefer built-in discipline.
5. Run a dissent test: For every move you want to make, list strong reasons not to do it. If you can’t come up with solid counterarguments, you may be acting out of confirmation bias.

Filter the Noise, Follow the Plan

The bottom line is that you don’t need more information. You just require the right information and a structure that keeps you grounded. A strong plan and reliable filters may help you stay focused, even when you’re faced with information overload.

For help reviewing your strategy or building a bias-proof plan for your TSP funds, reach out to the team at Serving Those Who Serve at [email protected].

The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers  and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **

The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you’re eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.