How has the stock market of the past several years impacted the actions of investors in the government’s Thrift Savings Plan program? Have investors become skittish about the decline in their investments? Will they bail out of stocks altogether or will they assume that this is a good time to invest in stocks because the price of stocks has declined during the bear market?
It is apparent that the TSP funds have been a favorite with investors. But there is little consensus among these investors as to what to do next as you can see from the comments we have included in this article.
We were curious about the mood of investors so we asked several questions on this topic in a recent survey. First, we asked Fedsmith.com readers if they were planning on making changes to their investments during the TSP open season. 45% of those responding said they were going to make changes. 41% said they were not going to make changes and 15% were still undecided.
A human resources manager from the VA said “I have moved everything into the G Fund since I’ll be retiring soon and cannot take any more risks.” On the other hand, an automation clerk from the Census Bureau in Suitland, Maryland who is in a similar situation is taking this approach: “I believe that stocks are on the rise again, hopefully for the long term, so that those closer to retirement can recover.”
Perhaps more significantly, 59% of respondents indicated that the decline of the stock market has impacted how they will allocate their TSP investments. 37% said they were not making any changes and 4% have not yet made up their minds.
An employee of the Forest Service in Portland, Oregon says that “I am aggressive. I took a hit during the down turn but that just means that stock[sic] are cheaper now. I’m upping my C fund.”
An employee of the Social Security Administration in Albuquerque reflected the feelings of some readers who are unsure what to do. “I don’t know enough about the TSP Plan to understand exactly what I’m paying into. I put into TSP because I’ve been told it’s a good/wise thing to do.”
A contract specialist with HHS in Washington, DC wrote: “The recent increases in the market indicate that buying done [sic] while prices were depressed will yield better than average returns for the long run. The stock market has always been the best place for the long-term investor.”
37% of survey participants say they are increasing the amount they are investing in stock funds and 10% are decreasing the amount of money they have put into stocks. 42% are not changing the amount of their stock investments.
The defensive mood of some investors was captured by this FAA employee in Oklahoma City: “I transferred out of the stock funds last open season. Even though they are improving, those funds are just too risky, as I’m nearing retirement.”
Some investors are more optimistic and looking forward to having a lot more money when they retire in the future. This VA employee in Alaska says: “I currently contribute the maximum amount of 13% in the C Fund. I am glad the market was down because that means I was buying more shares at a lower price. Just need to wait until it goes back up! ”
One area that has obviously impacted investors is the amount of risk they believe they are taking with the two newest TSP funds-the small company fund (the S fund) and the international stock fund (the I fund). 45% of our survey participants said these funds were too risky for their portfolio and 30% were still not sure if they should invest in them or not. Only 25% said these funds were good additions to their investments.
This is somewhat ironic because, according to the investment service Morningstar.com, small stocks tend to perform better than their larger company counterparts when stocks are emerging from a bear market. But, as many investors know, small companies can be hurt more than large companies during an economic downturn so they are inherently more volatile-both on the way up and on the way down.
Finally, while we did not ask any questions about the upcoming changes to the TSP system, quite a few readers sent in comments on this topic anyway. Readers are looking forward to the changes and being able to see the value of their investments on a daily basis. Some readers clearly want to start day trading by moving money between different funds while sitting at their computers during the workday. Others are just frustrated that the changes have not been implemented yet.
Here is a typical comment. It was submitted by a computer specialist from Los Angeles:
“I would sure like to see my contributions in both dollar AND share values so it would be obvious that I am dollar-cost-averaging! I understand this is one of the changes the TSP is making (if it ever gets finished.).”
The advantage of the TSP program is that investors can take the approach they think is best and get the benefits or the disadvantages of their investment style. There are funds to satisfy most personality types–from the very conservative who only want to put their money in the G fund for more safety to the more aggressive that are putting virtually all of their money into stock funds who hope to cash in on higher returns over the long term.
Happy investing to all of our readers. Thanks to everyone who took the time to vote and to send in their comments.
Follow Ralph on Twitter: @RalphSmith47