The stock market has been on a roll as there is evidence that the recession may be showing signs of ending.
Investors in the Thrift Savings Plan may also be breathing a sign of relief. While the full value of your stock investments may not have been recovered from the time your investments were made, there is a large increase in the overall value of the TSP funds and many investors are now ahead if they have been investing on a regular basis.
The Standard & Poor’s 500-stock index on which the TSP C fund is based was up 3.4% for August. More importantly, that is the sixth consecutive month of gains for this index. The result is that the C fund has also been going up for the past six months with monthly returns ranging from 9.58% in April to 0.24% in June.
But, after savoring your substantial year-to-date returns for these funds, step back and take a deep breath and get a broader perspective.
After a substantial gain as we have seen in stocks this year, it is not uncommon for a dip or a correction of as much as 10% to occur. Moreover, September is historically one of the worst months for stock market returns.
According to the Wall Street Journal, since 1900 the leading stock market index has fallen an average of 1.1% in September. That is the only month with a significant average drop.
And, in the 10 years through 2008, the Dow index has fallen in seven Septembers with an average loss during this month of 3.4%.
Perhaps this September will be different. For those investors who invest in various funds or in a lifecycle fund each pay period, there is presumably no cause for concern. But, for those investors who delight in moving their money into our out of funds at different times to try and predict the ups and downs of the market, there is reason to be wary.
Other investors will predict that, because stocks are still down substantially over the past year, the current market will continue to go up.
At a minimum, this means that your overall investment for the past 12 months may still be showing red ink despite the recent gains in most of 2009.
There is no way to accurately predict what will happen in the next month or for the rest of the year. For now, you can be happy to have seen your investments growing throughout the year but any investor would be wise to remain cautious as there is still plenty of risk. (See, for example, Thrift Savings Plan Funds Rebounding: Are We in a New Era or Can History Tell Us Anything About Our Financial Future?)
