Most TSP Funds Down in January

By on February 2, 2015 in Current Events with 15 Comments

2015 is off to a rough start for the Thrift Savings Plan (TSP) and the stock market generally.

Most of the TSP funds were down in January. The exceptions were the G fund (up 0.18%), the F fund (up 2.13%) and the I fund (up 1.19%).

The C fund had the largest declines for the month as it fell almost 3%. That drop also reflected the 3% drop for the S&P 500 index which is the index followed by the C fund.  On the other hand, the C fund still has the largest return over the past 12 months with a return of 14.32% for the longer time period.

G Fund F Fund C Fund S Fund I Fund
Month 0.18% 2.13% -2.99% -1.85% 1.19%
YTD 0.18% 2.13% -2.99% -1.85% 1.19%
12 Month 2.27% 7.31% 14.32% 7.86% -0.10%
L Income L 2020 L 2030 L 2040 L 2050
Month -0.08% -0.58% -0.83% -1.02% -1.18%
YTD -0.08% -0.58% -0.83% -1.02% -1.18%
12 Month 4.13% 6.12% 7.04% 7.66% 8.03%

The Dow Jones Industrial Average fell 3.7% in January. That was less than the 5.3% drop in this average in January 2014. The stock market is also showing more strains lurking beneath the surface figures. The market was much more volatile, going up or down more than 1% on half of the month’s trading days. It only did that on 19% of the trading days in January 2014.

The January Effect on the Stock Market

From reader comments, the “January effect” has an impact on how some TSP investors choose to invest their money for their future retirement. The January effect is a hypothesis that there is a seasonal anomaly in the stock market. The theory is that stock prices increase in January more than in any other month. In effect, under this theory, there is an opportunity for investors to buy stocks at lower prices before January and sell them after their value increases.

The January effect also refers to the indicator that reflects a belief that the direction of the stock market from February through December is foretold by what the market does during January.

There have also been theories that the current fashion in women’s skirts foretells the future of the stock market for the year. According to the theory, if skirts are short, it means the markets are going up. If skirts are long, it is theoretically an indicator the markets are heading down. This is sometimes referred to as the Hemline Theory. The link between women’s hem lengths and stock market conditions was established in 1926 by a Wharton Business School economist.

Perhaps that theory had some validity in 1926. To serious investors, it sounds more like a fantasy topic discussed by men who are bored at work and should not be taken seriously. And, apparently, the January effect theory is also not valid according to one analyst who wrote:

“So, yes, if the stock market ends up rising for the full month of January, we may want to become somewhat more confident that the bull market will continue — just as we might want to become less confident if the market declines in January. But it’s not clear that these shifts in confidence should be any different now than at any other time of year.”

For those who choose to follow the January effect or the Hemline theory, we wish you the best of luck in your investments. Keep in mind that the C fund went down 3.99% in January 2014. The return of the C fund in 2014 ended the year up 13.78%.

While the future is unknown, a logical path for long term investors in 2015 is not to focus on forecasts with conflicting theories of what the stock market returns will be in the next few months.  The more appropriate time horizon for a long-term investor is their investment return over decades and not the next few months. Relying on a steady rise in your TSP portfolio every year will leave you unprepared to handle the emotional stress of the inevitable short-term drops in the market.

For those in or close to retirement, diversifying your investments among the TSP funds (or the lifecycle fund corresponding to your approximate time until retirement) depending on your appetite for risk and your personal financial preferences makes the most sense.

TSP Data of Interest to TSP Investors

The end of a year is a prime time for retirements by federal employees which probably impacts some of the changes in TSP accounts.

For the month of December 2014, TSP investors withdrew about $412 million from the I fund–just before that fund went up in January. Another $111 million was transferred from the S fund. $304 million was transferred into the G fund; $18 million went into the F fund and $128 million was transferred into the C fund.

The average TSP balance for TSP investors in the FERS system is now $115,046 and for those under CSRS the average balance is $114,486. Those in CSRS have an average Roth balance of $9,325 while those under FERS have an average balance of $5,714.

There are now more than 4.7 million TSP participants.

For those who may be concerned about your investments because of the stock market drop in January, take a deep breath. Look at the annual returns for all of the TSP funds at TSPDataCenter.com.

While the market is more volatile now than in the last few years, overall those that invested in the TSP and stuck with it have done well—and some investors have done very well and accumulated over a million dollars toward their future retirement.

We wish everyone the good fortune in investing for your future retirement.

© 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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