September surprised many stock market investors. It is often a month in which stocks do not provide a positive return.
September did split into two distinct markets during the month. The first half or so was mainly speculation about how much the Federal Reserve would cut its $85 billion per month bond buying program which did not happen. The second half focused on dire warnings of a government shutdown because of a debt ceiling that would not be lifted and the initiation of Obamacare that would be a mass of errors and confusion.
But, while headlines were screaming about problems, the stock market went up. As you can see from the chart below, the only fund that went down (again) last month was the F fund. The I fund had the largest gains with a return of 7.41% for the month and a 12 month return of 24.10% as both Germany and Japan stocks moved up. The Dow Jones Industrial Average hit its 31st all-time high of the year and, at month’s end, even after a last-day loss on renewed government-shutdown worries, was just 3.5% below its peak.
Here are the results for all of the TSP funds:
|G Fund||F Fund||C Fund||S Fund||I Fund|
|L Income||L 2020||L 2030||L 2040||L 2050|
Investment Actions by TSP Investors in August
For a variety of reasons, including trying to guess what the market returns would be in September, TSP investors moved almost $1.6 billion into the G fund in August. $524 million was removed from the F fund, perhaps because of losses in the previous month in this fund, $749 million from the C fund and $268 million from the S fund. $12 million was moved into the I fund in August. (See TSP Funds Fall in August)
Budget for the TSP
The TSP’s fiscal year (FY) 2013 budget of $170.5 million is an increase of 19.1% over the fiscal year 2012 of $143.1 million. The full budget request for fiscal year 2014 of $201.0 million is an increase of 17.9% over 2013. The rate of budget growth slows sharply in 2015 where an estimated budget of $209.2 million reflects a 4.1% increase over 2014. Based on historical average growth rates, assets of the TSP are projected to increase from $369 billion in fiscal year 2013 to $474 billion in fiscal year 2015. The number of participants are projected to increase from 4.6 million in fiscal year 2013 to $5.2 million in fiscal year 2015.
What Will Happen in October?
When the Federal Reserve finally does begin to slow its purchases, there will probably be a market sell-off and bond funds such as the F fund will probably go down. Stocks will probably also go down based on an immediate panic reaction rather than realistic projections for earnings and interest rates. Of course, we do not know when the tapering by the Federal Reserve will actually end but we know that it has to end sometime as adding $85 billion a month cannot last forever without disastrous consequences.
A market pullback would not be unexpected. With the C fund gaining more than 19% in the first nine months of the year, one might expect the market to slow down, either by taking a step backwards or just moving sideways for awhile as markets do not always move in one direction. There is plenty of news that could create a sudden change of direction in the market.
Since no one can predict short term market trends with any accuracy, many investors keep investing at a regular rate with each paycheck instead of fretting over the returns for the last month or the upcoming quarter. Some of the best investors are those that invest on a regular basis, regardless of how the market has done recently, as the returns of the stock market have historically gone up over time. (See Market Timing and Your TSP)
With the government shutdown, a large number of baby boomers deciding to retire and enjoy their retirement benefits after a long career of working for Uncle Sam, and probably a number of younger federal employees looking for work in the private sector, there are plenty of pitfalls and each person’s goals and circumstances may differ. But, for all of these problems, the TSP is considered one of the best retirement investment plans available so use it to your own advantage. (See A Financial Advantage for Federal Employees and Military Personnel)