The Dow Jones industrial average closed above 10,000 yesterday for the first time since May 2002. What does this mean for you?
Some people argue that the 10,000 figure isn’t important other than to make an investor feel good. On the other hand, feeling good is important and psychology is an important factor in the stock market.
It does mean that investors in the Thrift Savings Plan stock funds are having a good year. While the Dow Jones average is not used as an investment vehicle by the TSP, it does reflect the health of the overall stock market. (The C fund of the TSP uses the S&P 500 to invest in stocks.)
As you can see from the TSP charts listed on the left hand side of this page, the C fund is up about 1.9% since early November. The S fund is up 1.34% and the I fund is up 3.05%–and that is just in the past month or so.
And, looking at the S&P 500 index, for the past year, the figures are even more satisfying. Since this date last December, the S&P 500 is up about 19%. Or, stated differently, your investment in the C fund has made a lot of money for your retirement fund in the past year!
The Dow 10,000 figure means that stock investments are in good shape. Whether the market will stay above this figure for long is anyone’s guess. But a number of analysts think that 15,000 is a realistic target for the next five years or so.
The second year of a bull market typically returns about 13%. If that scenario holds true, TSP stock fund investors would do very well again next year.
What does this mean for TSP investors?
Remember that the Dow Jones is still not back to the high water market of 11,722.98 that it hit back in January 2000 during the stock market bubble. Some people poured money into stocks just as the market was peaking and that money has not been recovered.
If you invest money on a regular basis (e.g. regular monthly investments), you are in good shape. Since no one can predict world events, keeping a diversified portfolio is your best long-term investment strategy. If you plan on retiring and using your TSP funds as a major portion of your retirement income, you probably cannot afford to put all of your money into the more conservative bond funds–especially if you have a number of years before planning to retire.
In any event, for those readers who have money in the TSP stock funds, you have another reason to celebrate.
