In a bear market, when stocks drop dramatically, many investors just give up and sell their stocks. Some of them are in desperate need of the money. Others cannot sleep at night thinking about how much money they have lost. Others may not need their money now but are fearful for the future. All are understandable reasons and all may be justified.
Most investors became relatively sanguine as the stock market went up for years and the bear market earlier in this decade was not as pronounced as the current one. Anyone who has invested in stocks (or other investments) has now experienced the fear than can accompany a dramatic downturn. And, unlike some earlier recessions or bear markets you may have lived through, this one is unique and much more chilling as some ponder the possibility of a collapse of our entire financial system.
There are always plenty of extreme views. Here is one that came out in 2003: A prediction that the widely used Dow stock average would be hitting 20,000 as we enjoy a long period of prosperity. Perhaps history will prove the prediction is correct but, as we now know, there are going to be some very rough bumps along the way.
So, while we are wallowing in what may or may not be at the bottom of a bear market, you can expect predictions of a doomsday scenario in stocks. For example, here is a column published yesterday with predictions of a 100-year bear market, never-ending federal spending deficits and general tragedy and despair for the world’s population and America in particular. Note that one of the predictions says that the Dow will get down to about 400 (it is currently at about 8500) before it heads back up. And, if you want to wallow in real depression, note that the person predicting that the stock market would go through a terrible fall was making this prediction back in 2002. "We’ve been in a long-term uptrend since the Depression lows, but that ended in the first quarter of 2000. So we’re now in one of those setback periods. It won’t be the end of the world, but it should be the deepest one since the Depression. It will shake up the lives of anyone unprepared"
As the stock market continues to fall, we get depressed, morose and fatalistic. That always happens. And, sometimes, terrible events do come to pass. There are currently articles now appearing speculating that Britain will go bankrupt and that the United States is self-destructing and will be broken up into several countries.
Several years from now, we can look back and find out which analysts were accurate in their predictions and which ones were just bogus.
For now, investors have to decide for themselves how to invest their retirement money. As we noted several weeks ago, the TSP funds had their worst month in 21 years in October.
With that background, one would expect TSP investors be be bailing out of their TSP stock funds and heading into the safety of the G fund. In fact, that is what is happening. Along with the TSP stock funds going down, TSP investors were pulling money out of the other funds and moving heavily into the G fund.
This chart shows the activity in the TSP’s G fund for the past few months: