TSP Funds Up Five Months in a Row
By Ralph Smith
Tuesday, August 4, 2009
July was another good month for the stock market and the federal Thrift Savings Plan (TSP).
All of the TSP funds had a positive return in July. The biggest gain came with the I fund which was up 9.74%. It is now up 16.99% for the year. The S and C funds also did very well moving up 8.66% and 7.58% respectively.
This is the fifth month in a row for positive returns from your TSP investments. (Here are the monthly returns for all of the TSP funds for 2009.) The widely followed Dow Jones Industrial Average was up 8.6% for the month which is its best monthly performance since October 2002. It was the best July for the Dow in percentage terms since 1989.
The S&P 500 (the index on which the TSP's C fund is based) was up 7.4% in July and it has risen 34.33% in five months, its best five-month span since October 1938.
While your stock investments are recovering, it is also a good idea to put the recent gains into perspective. The recent surge in stock prices is certainly good news. But, to put something of a damper on your enthusiasm, check out the returns in the five underlying stock funds over the past twelve months. Here is a chart that displays these returns. (To see the specific percentages, just scroll your cursor over the bar you wish to display the results.)
The results for the lifecycle funds show a similar trend. All of the L funds have a negative return for the past twelve months. And all of the L funds have a positive return for July and for the year-to-date.
What the charts make apparent is that the funds with the biggest recent gains are also those with the largest losses over the past twelve months.
The dramatic difference in results shows the advantage of diversifying your TSP investments. No one can accurately predict whether the current trend in stocks will continue and quickly turn the 12 month losses into gains--perhaps even sizable gains. There is certainly the possibility of a pullback after the market having gone up so dramatically.
The stock market usually looks ahead--or at least stock investors try to invest based on future events. The looming national debt and the high unemployment rate of about 10% are likely to give some investors pause and could well put a damper on the markets continuing to go up at their current rate.
If you are early in your federal career, this is probably a great time to invest and to take some risk as any downturn is likely to be largely forgotten when you retire in 25 years or so. But, if you are retired or getting close to retirement, you will probably want to hedge your bets somewhat by keeping a portion of your investments in the safer G and F funds unless you are prepared (and financially able) to withstand any downturn that may occur in the market while trying to cash in on potential gains that may still be in the offing prior to the time you may need the money.
To get a longer-term perspective on the TSP rates of return, check out the yearly return rates for the TSP funds.
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