All TSP Funds Post Gains in 2012

By on January 3, 2013 in Current Events with 6 Comments

It is always easier to look back at a year and see how much you would have added to your retirement account by changing your investment strategy. No doubt, 2012 will be a case in point.

About 43% of TSP investments are in the G fund. It is understandable why this is the case. It is a unique fund and always provides a positive return. Those positive returns have been very small in recent years but the fund is less volatile and investors have never lost any of their principal by investing in this bond fund. On the other hand, investors have lost money in other ways.

Safety comes at a price. The fund last year returned 1.47%. While inflation is low, that small 1.47% return will not keep up with the rising cost of many goods and services (such as the cost of food and gas). In effect, the investment is safe for your the principal you have invested and the fund is not very volatile but the potential for large gains is much less than with the stock funds. In a period of higher inflation, the fund has had a higher return. In 1988 – 1991, the G fund returned more than 8% per year and inflation was still only about 5%. If the federal government were paying that much interest on its debt now, of course, the federal government’s balance sheet would be even worse than it appears now but, at least, there was a higher return for G fund investors.

About 24% of TSP investments are in the C fund. The C fund is a large index fund based on the S&P 500 index. It had a return of 16.07% in 2012. In effect, those who invested in the C fund made considerably more money on their investment than those that put money into the G fund. The downside of investing in a stock fund though is that it can, and sometimes does, lose money. From 1988 through 2012, the C fund has had a negative return in five of the 25 years it has been in existence. The biggest loss was in 2008 when it dropped 36.99%.  From 2000 – 2002 the fund was down in each year. In the long run though, investors have made much more money than they have lost by investing in the C fund.

Watching the ups and downs of the stock market is too upsetting for some investors. They obviously prefer to see there investments grow at a small rate than face the possibility of their principal dwindling when the stock market tanks.

The biggest gains in 2012 were achieved by the I fund which was up 18.62%. The I fund has been the most volatile fund and it is invested in foreign stocks. It has been available for 12 years. It has gone down for four of those 12 years. Its best year was in 2003 when it soared 37.94%. Its worst year was in 2008 when it fell 42.43%. In the long run, those who have stayed with the fund have made money and added to the security of their financial future.

Despite this, TSP investors have not been willing to put much of their money into the larger potential gains of this fund. About 5% of TSP funds are invested in the I fund.

Investments in the L fund were up slightly in 2012 with about 14% of TSP investments going into these funds. For the more conservative investors, the L Income fund is worth looking at. Consider that in 2012 the L Income fund was up 4.77% while the G fund returned 1.47%. There is some risk in this L fund as your investment principal can go down (it was down 5.09% in 2008) but has been up every other year of its existence. In short, over time, it has provided a higher rate of return with a little more risk for investors than the G fund.

You can check out the annual rates of return for all of the TSP funds in the TSPdatacenter.

Here are the monthly and yearly rates of return for each of the TSP funds.

G Fund

F Fund

C Fund

S Fund

I Fund

Dec. 2012

0.12%

-0.13%

0.91%

2.69%

4.02%

YTD

1.47%

4.29%

16.07%

18.57%

18.62%

12 Month

1.47%

4.29%

16.07%

18.57%

18.62%

L Income

L 2020

L 2030

L 2040

L 2050

Dec. 2012

0.47%

1.19%

1.48%

1.69%

1.93%

YTD

4.77%

10.42%

12.61%

14.27%

15.85%

12 Month

4.77%

10.42%

12.61%

14.27%

15.85%

The question that everyone wants to know the answer to is what will stocks do in 2013. As usual, however, no one really knows.

Stocks Will Go Up in 2013

Here is one scenario that provides an optimistic assessment for stocks in 2013 that comes from the Wall Street Daily.

  • The relative value of stock prices to company earning is below the long term average, indicating that stocks could go up about 7% this year.
  • There is a lack of enthusiasm for the current bull market in stocks. When the consensus is that stock prices will go down, a contrarian will argue that is a good time to buy stocks.
  • Since 1928, either other bull markets have gone longer than the current one has been running so there is historical precedent for the upward momentum to continue in 2013.

Of course, not everyone agrees.

Stocks Will Go Down in 2013

An article  in MSN Money makes the case that we are in for a very rough ride in the stock market and that stocks could drop 21% or more next year.

  • Since early 2007, $380 billion has left the stock market. This is equivalent to the money invested in stocks between 2002 and 2007. Bonds and bond funds have received more than $1 trillion in funds since 2007.
  • Baby boomers are pulling money out of stocks in a big way and putting their money into bonds. As a result, stock market volume is down to 1998 levels.
  • The economy is structurally unsound.
  • Middle-class households have wages that are going down while prices for food and gas are going up, medical costs are higher and rents are rising. Young adults are on the same path as Japan’s lost generation with few jobs available and dim prospects for the future.
  • We have debased our currency with stimulus programs financed by taking on more debt and there is not much left the government can do to juice the economy.

No one knows, of course, which scenario is likely to be the most accurate in the coming year.

Each investor will have to make his own decisions and invest accordingly. Of course, if you have money in cash or the G fund and there is a significant drop in stocks later this year, that may be a good time to pour your assets into the stock market. On the other hand, if you leave your money in case or the G fund, you may look back at the year at the same time next year (as some people may be doing right now) and calculate that you were too conservative and ended up making a decision that provided a much smaller return than you could have had.

Other investors will spread their money around or put it in the appropriate lifecycle fund and just hope for the best. If you are relatively new in your federal career, that is likely to work out very well by the time you reach retirement age. Of course, if you are about to retire, a big drop in your retirement assets just as you are about to retire would probably mean you will end up working longer than you wanted and delaying your dream of traveling or sitting in a hammock enjoying life in your own backyard.

It’s your retirement future. You pay your money and you take your chances.

We wish all of our readers a happy new year and we hope you make the investment decisions that are right for you in 2013!

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources.

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  1. $8158352 says:

    But what about the “S” fund? 

    • Trkillings says:

       Good question.  I am 60 years old and have taken the conservative investing route most of my 20 year federal career.  In October 2012, I threw caution to the wind and placed all of my TSP investments in the S and C funds, 50/50.  I check the market regularly on the Fed.Smith website.  I am pleased with the progress I am making in the C and S funds,  and am comfortable to retire when I am 62, or later if I prefer.

  2. Trimclem says:

    It’s a shame that so many TSP eschew the I fund and generally don’t have a well-diversified portfolio. I encourage such employees to go with the most suitable L fund for their retirement horizon or risk tolerance.  The TSP doesn’t offer exposure to emerging market equities.  Therefore, I use my IRA and non-working spouse’s Roth IRA with Vanguard to gain exposure to EM (VWO) and small-mid sized foreign stock (VSS). I’m still missing exposure to Canadian stock and will soon lose exposure to S. Korea when Vanguard moves away from the MSCI index.  Additionally, I use my Vanguard IRA accounts to gain exposure to REITs (VNQ) and tilt toward the Fama and French value premium (VBR and VTV).  I don’t foresee 2013 as being a particularly bad year for stocks, but prices won’t come close to 2012.  I keep about 25% of my portfolio in the G and F funds to have available funds to buy cheap stocks should they fall again as they did in late 2008.  The G fund was outpaced by inflation in 2012, so I pity those Federal employees who are too risk-adverse to move some of their TSP holdings to other funds. In fact, I have a 23 year old co-worker at my agency that has left 100% of his portfolio in G since we hired him in May 2008.  Dr. William J. Bernstein, author of “Four Pillars of Investing”, recently wrote that “investors should pray for a bear market at the beginning of their careers”.  In this case, my FERS co-worker had, then wasted a great investing opportunity.

    • Subs1 says:

      As a person that has close to 900K in his TSP I am very
      happy to keep it ALL in the G-fund.   I
      live by the fact that I have made it to my goal..  With a bit under 6 years to work till I
      retire at 56, no bills and GS-15 FERS pension to look forward to I am just too
      darn risk adverse to take anything out of G at this time.

       

      Sure, hindsight is great and 2012 ended up as a good
      year.  But, just too many unknowns that
      may affect the markets.

       

      So, it’s probably a good idea when you are young…  But anymore when you are 10 years from
      retirement I just don’t have the stomach for any loss.

       

      MK

      • At says:

        Subs1, Trimclem was correct in his advise for the new employee. In your case you are right as well. With 900K in your TSP there is no need to risk losing principal. How many Govt  employees do you think have $500K in their TSP account, not many according to the stats. Anyway congrats and being a good saver and I wish you well in retirement.

        At

  3. Sincerely_09 says:

    Comparing the 2 analysis samples provided in this article. 
    The MSNM takes into account specific, current facts/trends that have occurred this past year & after recent news, clearly are not going to dramatically change in 2013. 
    The WSD points: 1) Companies are sitting on cash & not investing because of economic policy uncertainty; private investors have less cash to invest so stock prices will continue to stagnate… anyone think those problems will greatly improve this year? 2) I wouldn’t consider current market a strong bull & again companies/people are uncertain/poorer… why/how can they buy on such a weak speculation? 3) Another generic historic reference without considering an aging population, crippling debt, steady decline in taxpayers vs welfare recipients… I’d suggest removing the WSD as a source for investment research.

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