Financial advisors often suggest investors diversify their investments by putting money into foreign stocks and small company stocks. A number of TSP investors don’t take this advice and put their money into the more traditional large company stocks (the C fund) and conservative bond funds (the F and G funds).
All TSP investors can feel good about their rate of return in September. But investors who put their money exclusively into bond funds or their only stock investments into the C fund may be regretting their decision not to diversify by putting at least some money into the less popular small company fund (S fund) and the international stock fund (I fund).
The big winner was the S fund with a return of 3.92% for the month. This fund is up 18.21% for the past 12 months.
The I fund also did very well. It is up 2.05% for the month and it leads all funds for the past twelve months with a return of 21.63%.
The C fund didn’t do badly either. It is up 1.11% for the month of September and has a positive return of 13.87% for the past twelve months-not bad but still third among the three stock funds available to TSP investors. Keep in mind also that these returns do not include the large jump made by the stock market on Friday, October 1st.
The two bond funds also had a positive return for the month but their returns still finished considerably below the three stock funds. The rock steady G fund provided investors with a return of 0.38% (4.34% for the past twelve months) and the F fund was up 0.29% for the month (3.61% return for the past twelve months).
The chart below shows a quick summary of how each fund has done in 2004.
(For more information, including different charts, visit the FedSmith.com TSP section by clicking here.)
So what is the prognosis for the rest of the year?
A number of companies have come out with warnings that their profits may not meet the expectations of analysts. During the next few days, a number of companies will be releasing their quarterly financial results. All the bad news from companies probably had an impact on holding down the market as more than 600 companies have recently issued warnings to investors that their earnings may be disappointing.
But, as often happens with markets dependent in large part on human psychology, we may have had a preview on Friday of what may happen. Some good news resulted in a rapid rise in stock prices. Some analysts think the bad news has already been built into stock prices and any positive surprises will result in a good finish for stocks through the rest of the year.
The bottom line: No one really knows but the potential for earnings gains in the next few months doesn’t look too bad. Keep at least some of your TSP funds invested in stocks to take advantage of the potential for better gains than you are likely to get by limiting your investments to the TSP bond funds.