Some Feds Are Making a Killing in Their TSP: Should You Switch Funds?
By Ralph Smith
Thursday, February 2, 2006
The government's Thrift Savings Plan funds continued to grow for the month of January. There was not a loser in the bunch although there are significant disparities between the returns for the different funds. This is the third consecutive month that all TSP funds have had a positive return.
Here is the breakdown. The first figures are the monthly returns for January. The second figure is the return for the last 12 months. The L Funds have not been in existence for 12 months so there are no 12 month return figures for these funds.
| Fund | Monthly Return | 12 Month Return |
| C Fund | 2.66% | 10.40% |
| S Fund | 6.70% | 22.00% |
| I Fund | 6.14% | 22.91% |
| G Fund | 0.36% | 4.48% |
| F Fund | 0.09% | 1.91% |
| L2040 | 3.84% | |
| L2030 | 3.40% | |
| L2020 | 2.92% | |
| L2010 | 2.22% | |
| LIncome | 1.10% |
As you can quickly see from these figures, those TSP investors who put their investments into the international stock fund (the I Fund) and the small company fund (the S fund) have easily outpaced other more conservative investors.
Does this mean that you should sell all of your investments in the G fund and move your entire portfolio into the I fund or the S fund--or should you split all of your TSP investments between these two high performing funds?
No one can really tell you how they are likely to perform in the future. But, as a general rule, chasing the latest winning investment often means that you are putting your money into the funds when they are highest and may have further to fall than other investments that have not performed as well.
Federal employees are probably better educated than the majority of the American workforce. But if recent history is any guide, they are not any better at timing the market than other investors. For example, when the stock market was flying high in the late 1990's, was that a good time to pull all money out of the conservative G fund and put it into the faster growing C fund?
Here is an excerpt from an earlier article about TSP investors who tried to time the market to take advantage of the fast moving C fund: (See Timing the Market With Your TSP Funds?)
"Here are some of the statistics found by the Wall Street Journal. 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 just about the peak of the bull market. In other words, American stock prices were at their highest level in history. Several months later, the bear market hit and hit hard. Stock prices started dropping. They continued to drop throughout much of 2000."
In other words, TSP investors did what many American investors did during the rampaging bull market. They lost their financial shirt by waiting until the worst possible moment to sell their bond funds and buy into the stock funds.
Readers commenting on this event have observed that part of the reason for the dismal financial performance by TSP investors was that time restrictions were then in place to prevent them from moving their money at the most opportune time.
For some people, that may be true. But trying to time the market often fails and there are often reasons cited later as to why it wasn't the fault of the person who made the decision to switch at the worst possible time. Those who had missed the tremendous advances of the stock fund would have been much better off sticking with their current investments and learning from it. Instead, they forfeited the advances of the stock market by not being invested in stocks. Then, after most of the gains had occurred, they sold their G and F funds and invested in stocks--just in time to see much of their investment wiped out when the bubble popped. So much for the Caribbean cruise on a luxury liner to celebrate retirement!
What you do with your retirement funds are your business and the decisions to make are yours. If you think that this is the best time to put much of your future retirement into the S or I fund, no one will stop you. It may be a brilliant decision.
On the other hand, you may be investing at the worst possible moment as these stocks have had a big run. You may have missed the best move these markets will make.
Since no one knows what the future holds, you should consider spreading your wealth between the different funds in a way that makes you comfortable and will let you take advantage of the gains often made by stocks but protecting some of your investments with more conservative investments in the G and F funds.
And, to make it more confusing, there are likely to be more investment options in the TSP funds in the future. Should you invest in value or growth stocks? Real estate or bonds? Gold or international stocks? Your options may expand if some in the investment community have their way in getting access to the many billions of dollars in the TSP.
Confusing? No doubt. You are facing the joy of having choices from living in a capitalist, democratic society. Of course, there are always the L funds where the computer will allocate your funds according to how much time until you retire.
In any event, be careful with your retirement dollars. The decisions you make will influence the lifestyle choices you will have when you turn in your government identification card! (See Getting By or Living High?)
© 2010 FedSmith Inc. All rights reserved. This article may not be reproduced without express written consent of FedSmith Inc.
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