Following the Herd? TSP Investors Moving Billions into the G Fund

By on October 15, 2008 in Current Events with 0 Comments

Some events are predictable.

In an article on the TSP, we noted that: "We don’t have the latest figures from the TSP reflecting the actions of TSP investors during the recent market volatility but, without a doubt, the same has happened again during this bear market. We will find that millions of dollars have been transferred to the safety of the G fund–after the market started going down. Usually, the largest amounts are transferred when the market hits a low point, emotional panic is setting in as stock owners are watching their portfolio value dwindle and the pessimism among investors is at its peak."

Back in July 2008, TSP investors took these actions:

  • TSP investors transferred 2.4 billion dollars into the G fund.
  • Most of this money came from the C fund from which TSP participants transferred $826 million;
  • the I fund from which they transferred $831 million;
  • and from the S fund from which they transferred $359 million.
  • TSP participants also transferred $413 million from the lifecycle funds.

Since July, the market has continued to go down with fear spreading throughout the ranks of stock market investors, including those in the TSP funds. And, in fairness, the rampant fear that stocks will again hit new lows despite a big bounce on Monday of this week (October 13th), may be justified as the market may still go down more than it already has.

For those who like to follow trends, perhaps these statistics will be an encouraging sign that we are about to hit a market bottom. TSP investors have stepped up the pace of moving money from stock funds into the safety of the G fund. Unfortunately for these investors, this usually happens about the time the market is at or very close to the very bottom and it starts going up. If or when the market goes up, it means they sold their TSP stock funds at a low price and fled to the G fund just before stock prices headed up again.

So, if you are an optimist, perhaps there is good news for you in the large movement of money into the G fund as those TSP investors who have decided to bail out of stocks by moving billions of dollars in September may be an indication that the market is close to a bottom.

Just during the month of September, TSP participants transferred close to $3.5 billion into the G fund. Here is a quick summary of some of the more significant money transfers for September:

  • Almost $3.5 billion moved into the G fund
  • More than $1 billion moved out of the C fund
  • Almost $1.2 billion moved out of the I fund
  •  $483 million moved out of the S fund.

Most of this money went into the safety of the G fund which, while it does not go up much, has never gone down either.

The same thing happened on a smaller scale during the last bear market when the Internet stock bubble burst and stock prices tanked for several years in a row.

From June through October 2002, when stocks were at their lowest levels, TSP particpants pulled $3.8 billion out of the C fund and put their money into bond funds. These investors sold their stock funds at the lowest levels just before the C fund jumped up 29% in 2003 and kept going up for the next four years. (The I fund went up 38% and the S fund went up 43% in 2003). 

Anyone who tells you that the market is going to start going back up or it is going to continue its downward trend is not necessarily smarter or more knowledgeable than you are. No one can tell you with precision what the stock market will do this week or this month. Of course, if you moved much of your money into the safety of the G fund several months ago, you have stemmed your losses in stock prices of the past couple of months. If you are trying to time the market, do you now leave your money in the G fund or move it back into stocks?

What we do know, is that investors move like a herd of cattle moves. A herd moves in the same direction to follow the leader. The cow in front doesn’t necessarily know why she is moving in a particular direction and the cows that follow probably do not know either. But there is a feeling of safety in numbers.

Some investors are now buying stocks and stock funds. They do not know the future of the stock market either. But they do know that stock prices are much lower now than they were last month or six months ago. They also know that investors are moving money from stocks into other investments in large numbers. Those buying stocks now think the likelihood of stock prices moving higher rather than lower in the next few months is a good bet while the herd of investors continues to sell.

Those buying the stock funds now may be wrong. The stock market could certainly continue its decline. It may be that the herd of investors selling stock funds is moving in the right direction.  But, before you decide to sell your TSP stock funds in the current market turmoil, and to effectively "lock in" the losses you may have incurred in recent weeks, you may want to consider the value of historical precedent before deciding what moves to make with your TSP portfolio.

It’s your money and the decisions are yours to make. Best of luck in making your investment decisions.

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

Tags:

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters onĀ federal human resources.

Top