TSP Stock Funds Drop in October
by Ralph Smith |
October has sometimes been a rough month for stocks. For those with a memory of some length, you will recall that in October 1987 the stock market’s leading index dropped almost 23% in one day (508 points). That drop of 22.6% would be the equivalent of a drop of 3,015 points in the stock market on October 19, 2012. That is enough to create fear in any investor and, no doubt, many who lost money on that day stayed out of the stock market for a long time after that.
Dropping out of the stock market, in hindsight, would not have been a smart decision. Two years after Black Monday, the stock market hit a new high. Over the past 25 years, the Black Monday action in the stock market was significant in the short term but only a blip on a chart showing gradually higher returns for those who kept their money invested in stocks.
October 2012 was not a good one for stocks this year but the drop was nothing out of the ordinary. The storms hitting the Northeast had an impact on the market with the first weather-related shutdown of the New York Stock Exchange on consecutive days since 1888.
The TSP’s C fund has been going up for the past four months. It dropped 1.86% in October although it is still up 14.37% for the year-to-date. The S fund also went down (-1.31%) but the I fund was up 0.85%.
The G and F funds went up slightly. So far in 2012, the G fund is up 1.24% and the F fund is up 4.26%. Here is how all of the underlying funds fared last month.
The lifecycle funds were all down for October. The Income fund was down -0.11%, the L 2020 fund down -0.45%; the L 2030 fund down -0.60%, the L 2040 fund down -0.71%, and the L 2050 fund down -0.80%. All of the L funds are still up for the year to date.
You can check out all of the current and the historical monthly returns for each of the TSP funds in the monthly rates section at TSPDataCenter.com. The daily rates and the yearly rates for each fund are also available.
How Do You Compare?
The average balance in the Thrift Savings Plan now for FERS employees was $87,721 as of the end of September. The average Roth balance for FERS employees was $716. For CSRS employees, the average TSP balance for the same period was $88,374 and the average Roth balance was $1382. For military personnel, the average TSP balance was $13,535 and the average Roth balance was $954.
TSP Participant Actions in September
TSP participants shifted about $150 million out of the F fund in September and about $130 million out of the G fund. Smaller amounts were transferred out of the C and I funds. In the same month, about $175 million was transferred into the S fund and about the same amount was transferred into the lifecycle funds.
Much of the media coverage has been focused on the national elections and Sandy hitting the Northeastern United States. When the election is finally over, more attention will be focused on investment returns and the stock market. There are a number of major decisions to be made (or not) which will impact investors and we do not know what will happen in Congress. We have known that nothing would happen until the election results are in. Once that occurs, agreement may be possible to prevent the “fiscal cliff” from actually occurring.
For those who may not have been paying attention, here is what the “fiscal cliff” is referencing. Among the laws that will change at the end of the year are the temporary payroll tax cuts (resulting in a 2% tax increase), the end of some tax breaks for businesses, shifts in the alternative minimum tax that would mean tax hikes for many taxpayers, the end of the tax cuts from 2001-2003, and the introduction of numerous taxes related to the national health care law. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect. This would mean that over 1,000 government programs would receive substantial cuts. (Also see Prepare for Tax Changes in 2013)
Most people think the fiscal cliff will not occur and that when time is running out, Congress and the administration will take action to prevent many of the taxes and cuts from actually being implemented. Whatever decisions are made (or if inaction rules and no action is taken), there will likely be an impact on the stock market and your TSP investments.
For many investors, the safest course is to diversify your investments but with more emphasis on safety of your money—depending on your willingness to take risks with potential large rewards and how long before you need your investment for retirement income. As if often the case, there is no guaranteed way to make the most out of a potentially volatile economic situation.
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