Your investment in the Thrift Savings Plan is off to a good start for 2011 regardless of how you have decided to invest your money to support your current or future retirement. All of the TSP funds were up in January.
In fact, the return on the Dow Jones Industrial Index was 2.7% for the month–the strongest return for this index since
January 1997. It is also the first positive January in four years.
The best return among the underlying TSP funds in January is the I fund with a return of 2.41% but the C fund was not far behind with a return of 2.37%. Readers who follow these statistics will recall that in January of 2010 the C fund was down 3.6% and the I fund went down 5.17%.
For the past twelve months, the S fund was up 33.90% followed by the C fund with a return of 22.18% and 16.57% for the I fund. The super safe G fund provided a return of 2.76% while the F fund had a gain of 5.23%.
Here is a chart displaying the returns for all of the underlying TSP funds for the month of January and for the past 12 months:
The Lifecycle funds also did well in January. Here is a chart showing how each of these funds fared and their performance over the past twelve months:
As one might expect in a month in which stocks did well, the more aggressive lifecycle funds had the best returns, as illustrated by the chart, as they contain a greater percentage of their investments in stock funds. For those readers who may be wondering why we are not displaying the rate of return for the L2010 fund, it has been discontinued. It is being replaced by the L2050 fund. We will display the rate of return for the newer fund next month. (See L2050 Fund Debuts in TSP)
The third year of a presidential term is often a good year for stocks. In the third year of an election cycle, stocks have delivered a total return of 22% a year going back to 1940. For the other three years together, the total return on stocks has been a single-digit percentage gain annually. 2011 is the third year of the election cycle and the historical data may hold true in 2011 as well but there are also plenty of concerns for investors.
The prospect of rising commodity prices and inflation is a nagging worry for stock investors as we head into February and for the rest of 2011. Commodity prices are rising rapidly, although the official government inflation figures used to determine the COLA increase for 2012 do not show any significant inflation in the economy. In fact, the latest figures in calculating the cost of living adjustment for 2012 show negative inflation. There are also concerns about the riots in the Middle East and how this will impact our economy.
Corn is up 77% since last summer which translates into higher prices for food (we also now use 40% of our corn production to create ethanol for cars); sugar prices are hitting their highest prices in 40 years and various other commodities are also going up fast. Oil prices are up substantially and could dampen an economic recovery. Obviously, the government counts different things when it calculates inflation figures which, among other things, keeps down the amount of money the government has to spend on Social Security and federal retirement pensions.
Investors are likely to ignore the inflation figures and, instead, pay more attention to the underlying reality of what consumers buy on a regular basis including health care, food prices and the cost of fuel. Whether the underlying will have an impact on stock returns in the short term remains to be seen.
It isn’t too surprising that the number of TSP participants participating in the lifecycle funds continues to grow. At the end of December 2009, 647,040 TSP participants had investments in the L funds. At the end of December 2010, 738,720 TSP participants had at least some of their money in the L funds.
For now, you can celebrate a healthy, happy return on your stock investments in January and for the last 12 months and we can all hope for positive returns for the remainder of the year.