Many investors in the stock funds of the Thrift Savings Plan will feel a rush of satisfaction this month. Those that sold their funds a few months ago as the stock market was hitting its low point last Fall may feel a pang of regret.
After three years of losses, the C fund will be up about 5% for the month of May according to our calculations. The S fund will be up about 9.5% and the I fund about 5.66%. The official returns will be out in a few days when the Federal Retirement Thrift Investment Board publishes the rate of return for May. The actual results may vary because of expenses charged to investors or dividends paid by companies added in to the rate of return.
May continues the positive trend started in April. Last month the S fund brought investors a positive return of 8.31% and the I fund hit 9.82%. The C fund didn’t do badly either with a positive return of 8.26%. C fund investors undoubtedly remember the loss of more than 22% they felt in 2002; the (almost) 12% loss in 2001 and the 9.14% loss in 2000. Seeing positive figures again will be greeted with relief and some enthusiasm from the baby boomers (and even those born before 1946) planning on using their TSP funds as a source of funds for retirement. (Of course, the 1999 and 1998 rates of return were about 21% and 28% respectively which helped cushion the blow when the stock market tanked over the past three years.)
Why is the stock market up now? The unemployment rate has not gone down, terrorism is still a concern and some analysts don’t think profits for companies have been going up yet in earnings reports. Moreover, another terrorist act would get a lot of publicity and send the stock market in the opposite direction as investors would panic and start selling fast.
The stock market usually moves about six months ahead of an economic upturn. Consumer-confidence surveys are just starting to show some signs of life; home sales have continued to be strong; interest rates are still low; and investors have been putting more money into stock funds than they have taken out during the past two months. And, lest we forget, the war in Iraq is over and investors are feeling less pessimism about our role there than they did several months ago.
Don’t expect another roaring bull market that led to the “irrational exuberance” (with apologies to Alan Greenspan) of the late 1990’s. Investors are more likely to see a slowly improving economy and more gradual decline of the unemployment rate and the economy begins to turn positive again.
The positive rate of return in stocks is now rewarding those who kept putting money into the TSP funds when the market was down. Those shares you purchased over the past year or so are now showing a positive rate of return.
A few more months of this and many Feds can start shopping for their new RV and planning a trip across the country to celebrate their impending retirement.