The G Fund and Predicting The Stock Market
By Ralph Smith
Wednesday, November 18, 2009
With the stock market having had a big run in 2009, investors in the federal Thrift Savings Plan (TSP) and taking action.
For the 7th month in a row, investors are moving money out of the safety of the G fund and into other investments, primarily the F, S and I funds. The chart below shows the interfund transfers into or out of the G fund so far in 2009. As you can see, the range has been significantly different ranging from more than $2 billion going into the fund in February to more than $1.5 billion leaving the fund in May.
Investors don't leave a note explaining why they are moving money into or out of a fund, but we can assume that some TSP participants are moving their money around based on their predictions about the future of the market.
In other words, if there is more risk that the stock market is likely to go down, money will flee quickly to the safety of the G fund where the upside potential is small but it is the safest fund for preserving your initial investment. And, on the other hand, investors will move money into the other TSP funds with a greater potential for making money as the market goes up.
For example, look at how the I fund has done each money this year. As you can see, when investors are moving money into or out of the G fund, the I fund moves in the opposite direction.
No doubt, moving money into or out of the G fund on a short term basis has served some investors well. For others, it is probably a recipe for reducing long term returns. Predicting the short term action of the stock market is somewhere between difficult and impossible but it is human nature for us to try and improve our results by taking on the task.
If you are a "contrarian" investor, you would do the opposite of what most people are doing with their investments. In other words, as investors move money into the G fund, you would invest in the underlying TSP stock funds. And, when others are pulling money out of the G fund, you would move your money back in.
I will leave it to others to try and time and market as I have always had better results by having a long term allocation plan and then balancing the allocation between different types of funds or stocks to maintain that allocation. If you decide to take this approach, it is a good idea to also change your allocation over time as your investment goals change from a new, young federal employee to one who is getting closer to retirement or one who has now retired.
For now, it seems that those who are pulling money out of the G fund and putting their assets into the underlying stock funds have generally had a good year as the TSP funds have had a good run in 2009. (You can check out the monthly returns for each of the TSP funds here.)
In your own financial interests, be honest with yourself. Before singing your own praises to your colleagues, be sure to calculate your longer term results to see what your results and compare these results with the overall market.
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