Investors in the Thrift Savings Plan stock funds had an outstanding year. The C fund returned 32.45%. That is not the best return the fund has ever had (the return was 37.41% in 1993) but it has helped create a larger number of TSP millionaires and improved the average balance of TSP investors. (See Number of TSP Millionaires up 195%)
This is the fifth year in a row that the C fund has been up for the entire year. The S&P 500 gained 30% for the year (the S&P 500 is the index upon which the C fund is based). Dividends from stocks are reinvested into the fund shares which probably accounts for much of the difference in the annual returns between the C fund and the S&P 500 index.
The big winner for the year for TSP investors was the S fund which returned 38.35%. The I fund also did well with a return of 22.13%. Those that were seeking the safety of the G fund had a return of 1.89% for the year. Investors in the L Income fund did much better than that as they had some money invested in the stock funds. The return for the L Income fund was 6.97%.
Here are how all of the stock funds fared in December and for 2013:
|L Income||L 2020||L 2030||L 2040||L 2050|
|Last 12 mo||6.97%||16.03%||20.16%||23.23%||26.20%|
|G Fund||F Fund||C Fund||S Fund||I Fund|
|Last 12 mo||1.89%||(1.68%)||32.45%||38.35%||22.13%|
Here is how the average balances now stack up for TSP investors:
The stock market gains are something of a surprise. In theory at least, part of the reason for the increase is due to few attractive investments in stocks. Bond yield are still very low, as evidenced by the 1.89% yearly gain in the G fund and a loss for the year of 1.68 for the F fund.
Actions by TSP Investors in November
TSP investors may have been expecting another positive month of returns in December. In November, about $2.6 billion was transferred out of the G fund. Another $272 million was transferred out of the F fund. Some of this money went into the C fund which received about $1.25 billion in November and the S fund which saw an influx of $697 million. The I fund also had transfers into the fund of $760 million.
For those with an historical perspective, actions by TSP investors may provide a reason for caution. Here’s why.
In December 1999, TSP participants put $427 million into the C fund. At the same time, they withdrew $427 million from their bond funds. In January 2000, another $728 million was moved into TSP stock funds.
This was about the peak of the high-flying stock market. In other words, American stock prices were at their highest level in history. Several months later, the bear market hit hard. Stock prices started dropping. Prices continued to drop throughout much of 2000. When TSP participants got their December 2000 statements, many realized for the first time what was happening to the value of their stock investments.
TSP participants started selling their stock funds with abandon. From June through October 2002, when stocks were at their lowest levels, TSP particpants pulled $3.8 billion out of the C fund and put their money into bond funds. Their timing was terrible. Investors who sold their stock funds at that low point missed the C fund jumping up 29% in 2003 (the I fund went up 38% and the S fund went up 43% in 2003). As stock prices continued to fall, TSP participants put less money into stocks on a regular basis with 47% going into stocks by the end of 2002.
That does not mean that history will repeat itself. It may, however, be a reminder that there are advantages in diversifying your investments instead of investing based on recent history of stock and bond prices.
What Will Happen in 2014
TSP stock fund investors have had a good run. The same high rate of return is unlikely to happen again in 2014. The biggest question may be whether the Federal Reserve can stop putting $75 billion a month into bonds without creating a massive downdraft in stock prices (and provide higher returns for bond prices as interest rates start to climb).
Also, stock prices are much higher than they were in January 2013. That may also restrict growth in stocks unless corporations are able to increase their profit margins.
But, of course, no one knows how the year will play out. A general consensus of analysts seems to be that stocks will go up again in 2014 but at a much lower level than the past year. That would be good news for TSP stock fund investors who would generally like to see an increase in their investments without incurring the risk that would be incurred from another large increase in prices.
We wish all of our readers the best of luck in making successful investment decisions!