From the e-mail comments we see from readers, some TSP investors are relatively new to investing. Even readers who have been investing in stocks for a long time ususally want to see stability in their retirement investments.
So, when the stock market fluctuates wildly as we have seen in recent weeks, some TSP investors get nervous. That is understandable. No one likes to envision a safe, solid retirement crashing and burning–allegedly due to arcane actions taken by the Federal Reserve, the collapse of condo prices in Miami or the retreat of investment markets in relatively small foreign countries.
There have been large swings in the stock market recently. Here is a quick summary of how some of your funds have done so far in June. Keep in mind (if you were trying to forget), these results are on top of losses in May (See TSP Investors Frowning From May Results). I have done some rounding of the figures for the month of June. You can check your personal results for a longer time period using the data in our TSP corner if you want to see how your investments have fared for different time periods.
The smaller they are, the harder they fall.
That might be the mantra for TSP investors who have money in the smaller companies of the S fund.
The S fund has had spectacular returns for investors in recent years. 10% in 2005. 18% in 2004. 43% in 2003. (The fund lost about 18% in 2002 and 9% in 2001.)
The S fund is obviously not for the faint of heart. So far in June, the S fund is down another 5%–after having lost more than 4% in May. This isn’t new to the stock market. Small companies often fly high when the economy is gaining steam. They are also the first to fall when investors think the economy is getting weaker. The stock market usually leads much of the economic data by 6 months or more. So, while the American economy is doing well today, some investors think it will slow down and the small stocks are losing investor confidence.
The result is that if you have $10,000 in the S fund on June 1st, you now have about $500 less in your account (assuming you did not put any additional money into or take any out of the fund). But, ever the optimist, here is some good news that may surprise you.
On January 3, 2006, your S fund had a per share value of $16.51. The value of one share of the S fund as of June 22, 2006: $16.51.
In other words, don’t panic. Put your investments into a longer term perspective. If you break into a sweat by looking at the TSP rates each day, you will worry yourself into an early grave and probably make hasty switches in your TSP that will cost you money over the term of your federal career.
Here is some more bad news for TSP investors. Your international stock fund (the I Fund) is down about 4% for the month of June so far. That is on top of a loss of just under 4% for the month of May. The good news: Your I fund shares are still up since January 3, 2006.
The value of one share of your I fund on January 3rd: $18.17. The value of that same I fund share as of the close of business on June 22nd: $18.62.
In other words, foreign stocks have been better for your TSP than small company stocks. From reading some of the financial reports, you may have thought that your I fund was sinking faster than the Titanic. Some foreign stocks have done that. But the I fund does not put large amounts of your money in the riskier foreign markets. So, while foreign stocks have gone down in the past two months, the horror stories you often read in the press about foreign markets often refer to stocks in relatively small, emerging markets overseas.
And the C fund? It is down about 3% in June. The value of one share of the C fund on January 3, 2006: $13.77. The value of one share of this fund as of June 22nd: $13.64. So, you have lost money in the C fund so far this year but the losses are not very large. May was the first month in 2006 that the C fund lost money. And, to put it into broader perspective, the C fund had postive returns of about 5% in 2005; 11% in 2004 and 29% in 2003.
For bond investors, there is more stability. The G fund is up three cents per share so far in June and the F fund has lost two cents per share for the month. The F fund is down for 2006 as interest rates have continue to rise. The G fund is, as always, up slightly for the year. (Check out the specifics in the TSP corner.)
Some analysts think the market will stabilize with less fluctuation and then continue its upward ascent as it builds a base of support at the current lower levels. With a little effort, you will find other analysts that will tell you the current instability is a precursor to further losses.
Since we can’t predict the future with accuracy, keep your current losses in perspective, diversify among the several TSP funds, and keep putting a percentage of your income into the TSP as your future retirement nest egg. You will sleep better at night and will still have a reasonable retirement income if you invest as much as you can for your future–regardless of what happens in a span of a couple of months.