Down Month for TSP Stock Investors

By • July 1, 2013

Investors in the Thrift Savings Plan (TSP) would certainly like to see their investments go up each month. Unfortunately, that is not how the stock market works.

In June, for the first time since October 2012, stock prices for the C fund went down.

As we finished the halfway mark for 2013, the U.S. stock market has had its best start for a year since 1999. But, in June, investors became wary as the Federal Reserve made noises about cutting back on the massive buying of bonds ($85 million per month). The buying has not actually decreased but just the possibility of the inevitable end of the massive infusion of cash sent ripples through the market.

As a result, the F fund declined 1.53% in June and it is down 2.28% for the year. the C fund declined 1.34% but it still up 13.83% for the year. Here are the results for all of the TSP funds for June 2013 and also for the year-to-date:

TSP Investment Results: June 2013 

G Fund F Fund C Fund S Fund I Fund

Month

0.14% -1.53% -1.34% -0.99% -2.77%

YTD

0.76% -2.28% 13.83% 15.75% 3.51%

12 Month

1.44% -0.48% 20.58% 25.66% 18.91%
L Income L 2020 L 2030 L 2040 L 2050

Month

-0.30% -0.94% -1.20% -1.40% -1.59%

YTD

2.68% 6.00% 7.46% 8.55% 9.50%

12 Month

5.09% 11.66% 14.42% 16.49% 18.51%

For those who may be wondering why the F fund went down but the G fund did not, the difference is because of the different nature of the funds. The G fund invests in specially issued Treasury notes that go up every month. (See A Financial Advantage for Federal Employees and Military Personnel) They do not go up very much and often lag behind the real rate of inflation. But, if you review the returns of the G fund for each month, this fund never goes down. So, in effect, an investor in the G fund may lose money as a result of inflation but the initial investment remains intact and adds at least a small rate of return each month.

The F fund is a bond fund with government, corporate and bonds backed by mortgages. There are years when it does very well and it is a good way to diversify your investment portfolio. In most years, it provides a better rate of return than the G fund with a little bit more risk. But, as you can see, it is down 2.28% so far in 2013 and also down for the past 12 months. And, if you review the annual return rates for the TSP funds, you will see that the F fund provides a positive rate of return for investors in most years. In years in which the stock market goes down, the F fund often provides a cushion for your investment. For example, in 2008 the C fund was down almost 37%. The F fund, on the other hand, went up 5.45%.

The reason that the fund is down in 2013 and for the past twelve months is because interest rates on bonds are at historic low levels. While the economy is growing at a very slow rate, the massive buying of bonds by the Federal Reserve is holding down interest rates. The low interest rates are artificial and probably only exist because of actions by the Federal Reserve. Interest rates went up in June just based on a fear that rates will go higher quickly once the Federal Reserve cuts back on its buying of bonds. Therefore, the F fund is down.

At the same time, the very low interest rates have had an impact on the stock market by driving up stock prices. Investors cannot receive a rate of return that is acceptable to many by buying bonds, and there is more risk in bond funds than in normal times because of the Federal Reserve’s actions, so stock prices have risen over the past several years as a result. (See Dumping Your Bond Funds? Read This First for more on this topic)

As noted in the article cited in the previous paragraph, this does not mean that investors should dump the F fund. In the view of that author: “[T]here is nothing to justify an immediate change to Fed policy or the higher yields that would drop bond prices and hurt bond funds. Despite (Federal Reserve Chairman Ben) Bernanke’s words and warnings, nothing seems to have changed; the market simply had a tantrum over his words.”

As with all investments, each investor will evaluate the risk and make a choice as to how to invest for your current or future retirement income. Trying to predict short term market movements is normally a game in which investors who try to time the market lose more than they make.

Actions by TSP Investors in May

The stock market has been up for the past few months as noted above. In May, TSP investors apparently felt bullish and moved money out of the G and F funds and into the stock funds—unfortunately, just in time for the market to go down in June. In May, TSP investors transferred more than $1.6 billion out of the G fund and another $542 million out of the F fund.  The biggest gainer for the month was the S fund, with an inflow of $727 million followed by the I fund with $669 million and the C fund with $471 million.

Average Plan Balance

The total plan balance for TSP investors has grown to over $358 billion during the month of May. This is a another new high for the TSP. The FERS participation rate in the TSP is 87%. After reaching the one-year anniversary of the implementation of Roth TSP, there are 203,092 participants with Roth balances totaling nearly $415 million. Year-to-date net cash flows totaled $3.5 billion versus $5.3 billion for the same period in 2012, reflecting a significant increase in post-separation withdrawals.

The average TSP balance for TSP investors in the FERS retirement system is now $97,598 (for Roth accounts the average for these investors is $2,472). For those under the CSRS system, the average TSP balance is now $97,153 ($4,218 for average Roth balance).

2013 has been a good year for investors so far, despite the decline in June. Readers can check out the most current and the historical monthly returns for their TSP funds at TSPDataCenter.com.

© 2014 FedSmith Inc. All rights reserved. This copyrighted article may not be reproduced without express written consent of FedSmith Inc.

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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 newsletter and a co-founder of two companies and several newsletters concerning federal human resources.

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