August 2012 proved to be a profitable month for TSP investors. All of the TSP funds provided a positive return for investors. The highest returns were in the S fund (3.57%) and the I fund (3.29%).
The fund with the highest yield for the year so far is the C fund with a return of 13.61%. The G fund, the most popular TSP fund with investors, returned 1.02% so far in 2012.
The lifecycle funds also had a positive return for the month for each fund with the best returns coming from the L2050 fund with a return of 2.51%.
The L 2050 fund has also had the best year to date rate of return with an increase of 10.59%. The L Income fund, the most conservative of the lifecycle funds, comes out ahead of the G fund (the TSP’s safest fund) with a year to date return of 3.39% (1.02% for the G fund).
While the news so far this year has been positive, history suggests than September is often not as benign. September is historically the worst month for the stock market. For September, the average return for the S&P 500 (on which the C fund is based) has been -0.5%. The stock market is often more volatile in September and that may turn out to be especially true this year. The traditional August vacations in Europe have come to an end and there is likely to be more news about the problems with debt and default in Europe. Moreover, our national debt now exceeds $16 trillion and rising rapidly each day.
Look for plenty of news about these topics which could put a damper on stock market returns.The Federal Reserve is likely to announce a new round of action (referred to as QE3) which means printing more dollars to try to encourage investment and to keep rates low. And, in case you have missed it, the national elections this year appear to be certain to be the most divisive and most partisan in modern history as the two parties churn out charges and counter-charges against each other in hopes of gaining a political edge.
In other words, there are plenty of headwinds coming up this month. While the stock market returns have been good so far in 2012, major market indices are still below their October 2007 high water marks. For historical reference, the Dow Jones Industrial Average closed at 14,164 in that month. While many investors may not recall, this major stock market average was 6,878.26, or 94% higher, since the low point of Oct 9, 2002. At the close of the market on September 4th, the Dow Jones average was 13,036.
No one knows, of course, what will happen in September and trying to time the market often turns out as damaging to investors. There could be unexpected good news from Europe and the market shows a strong upward trend or the political news in the United States or elsewhere in the world could provide an unexpected positive development that negates the negative indicators on the horizon.
Actions by TSP Investors
No doubt, many TSP investors make their investments based on what they think will happen to their TSP funds in the short term. In July, for example, TSP participants transferred $1.2 billion from stock funds and into fixed income funds. The F fund was the recipient of most of this money with $733 million going into the F fund. Another $494 million went into the G fund while the C fund saw withdrawals of $507 million; the S fund declines $349 million and withdrawals from the I fund totaled $204 million.
Of course, as you can see from the August returns, the money seeking the safety of the fixed income funds resulted in lower returns for these investors as July provided positive results for all of the TSP funds, especially for the stock market funds.
As far as allocation of TSP funds, the G fund is the largest fund with 43% of funds in this investment. 8% of funds are in the F fund and 24% in the C fund. Despite a record of providing a higher return than the G fund in most years (see the annual returns for each fund in the TSPDataCenter), only 2% of TSP funds are in the L Income fund. The largest investment in the lifecycle funds is in the L 2020 fund with 5%.
