The third quarter of this year has not been good for the stock market. The broad market index of the Dow Jones Industrial Average finished the third quarter down 12%. The S&P 500 index (on which the TSP’s C fund is based) went down 14%.
The yield on the U.S. Treasury ten-year note fell to 1.71%. This is the lowest yield since the 1940’s. With current inflation officially measured at about 3.6% (the actual rate of inflation in the economy may be much higher), investors are essentially willing to accept a loss on their investments in the current state of economic uncertainty.
Heading for Safety
In short, investors are spooked by the stock market and heading for safety.
That is true for TSP investors as well. For the third month in a row, the Thrift Savings Plan saw an influx of money into the G and F funds during August as $1.365 billion was moved into the G fund. $687 million was moved into the F fund. Investors moved money out of all of the underlying stock funds in August.
About $8.8 billion has been transferred into the G fund by TSP investors in the past three months.
The timing of those that moved their money was good. The C fund went down more than 7% in September. The S fund was down almost 11% and the loss of value in the I fund was only slightly less than the loss of investments in the S fund. The G fund was up slightly (0.16%) and the F fund was the biggest gainer in the TSP universe for the past month with a gain of 6.68%. The F fund is also the TSP leader in the year to date (YTD) returns with a return of 6.68% and a 12 month return of 5.34%.
To make matters more painful, the S and I funds are now showing a negative balance over the past twelve months (-1.62% for the S fund and -10.12% for the I fund). The C fund is still up over the same time period with a return of 1.11%. (Go to the TSP Corner to see current and previous monthly TSP returns and charts that track each TSP fund.)
September and Year-to-Date Results
Here are the results of the underlying TSP funds for September 2011 and also for the year to date:
The lifecycle funds have not done much better. The best performing fund in this category is the L Income fund with a September return of -1.51% and a twelve month return of 2.08%.
Here is a chart showing the return for the lifecycle funds for September 2011 and for the year to date:
What is in store for investors for the rest of the year?
No one knows for sure. But we do know that the month is off to a poor start. The S&P 500 hit a new low for the year on the first trading day of October and the stock market is now close to being considered a bear market. (A 20% decline is often considered a bear market and the broad Dow Jones Industrial index is now down about 16.8%.)
Some analysts predict the stock market will rebound sharply before the end of the year and that the market is hitting a bottom before going up in the fourth quarter–especially since it is the third year of a presidential term when stock markets often do well. There are a number of indicators the point to continued growth in the American economy although the rate of growth is not enough to significantly reduce the unemployment rate. (For an opinion on why unemployment is so high, see Don’t Feel Sympathy For Unemployed where an economist says we are paying people to be unemployed while, unlike the depression era, many jobs cannot be filled.)
Others argue that concerns about the finances of European countries, such as Greece, that have borrowed so much money the European community may be so severe that the European union or the Euro may not survive. There are also concerns in the U.S. that the heavy hand of government in health care, financial and energy industries, and uncertainty about possible tax increases will prevent companies from expanding and hiring employees. And, until after the national elections take place late in 2012, there is unlikely to be any major legislation emerging from the legislative process. (Some readers will argue this is a favorable development, others will bemoan the lack of action. Feel free to weigh in with your own comment.)
It is apparent that many TSP investors have been willing to risk losing out on any stock market rally that may occur and, instead, seeking the safety of the G and F funds even though their rate of return may be less than the inflation rate. So far this year, these have been the more successful investors.