Sell in May, Then Go Away?
by Ralph Smith |
The C fund for the Thrift Savings Plan broke its string of four straight months of gains with a loss in April, down 0.62%. The other underlying stock funds were also down with the S fund losing 0.71% and the I fund losing 1.87%.
For the past twelve months, the C fund is still up 4.85% (11.94% for the year-to-date) while the S fund is down 1.24% over the past twelve months (up 13.64% for the year-to-date) and the I fund is down 12.49% but up 8.84% for the year-to-date.
At this time of the year, a popular phrase is “Sell in May, then go away.” It means sell your stock holdings in May and then buy again when the prices are lower and start to go up again in October. You can see the logic behind this investing maxim from this chart as the summer months are generally below other months of the year in their rate of return for investors.
Each investor will have to make his own decision about whether to follow the advice of this philosophy. Last year, an investor that sold stocks at this time last year would have avoided a drop in the market of about 17% (check out the monthly returns for the TSP stock funds for the summer of 2011. The results were also not good for most of the summer of 2010.)
But the experience of a couple of years does not mean it is always a good idea. Daniel Wiener, who writes an investment newsletter for investors in Vanguard mutual funds, wrote in his latest newsletter: “The fact is that selling in May is a lousy idea. Only September is a so-so-month, historically. Many others make you money….It does not make sense…to forego positive returns between May and August in anticipation of a weak September.”
As you can see from this chart, April was generally not a good month for TSP investors as the only underlying funds with a positive return were the F fund (up 1.44% and the G fund (up 0.15%). Here is a depiction of how the underlying TSP funds performed in April and also for the past twelve months:
For the lifecycle funds, each of the funds lost ground in April with the exception of the income fund was had a return of 0.01% for April. It is up 2.22% over the past twelve months. Here is how these funds fared in April and for the past twelve months:
Money Continuing to Flow Out Of the G Fund
TSP investors apparently think that 2012 will be a good year for stocks though. In March, TSP investors withdrew $471 million out of the G fund and $126 million out of the F fund through their interfund transfers. Most of this money went into the C fund ($225 million) and the S fund ($127 million) and into the lifecycle funds ($250 million). About $1.3 billion was withdrawn from the G fund in February and $821 million was withdrawn in January through interfund transfers.
But, to put it into perspective, 43% of monthly contributions goes into the G fund and only 19% goes into the C fund. And, despite the fact that the F fund has the best results of any underlying TSP fund over the past 12 months, and also had the highest return of any of the underlying TSP funds in 2011, only 6% of contributions went into this fund in March.
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by Ralph Smith |