The last few weeks could have resulted in a major market reversal for TSP investors. Consider these events:
–A terrorist attack in Spain demonstrated that terrorism is not isolated to the United States and resulted in electing a socialist government in this western democracy which has a strong ally of the United States in Iraq;
–Gas prices have skyrocketed in the past few weeks as our “friends” in Saudi Arabia and other OPEC countries cut oil production in what may be an attempt to influence upcoming national elections in this country;
–Stock prices are up and some analysts are worried about prices moving ahead of company earnings;
–The impact of the global economy is having an impact on countries with high wages and benefits (like the United States) as a variety of jobs migrate to countries with low wages and benefits (like China and India);
–American personnel are being brutally killed in Iraq;
–National presidential elections generate continuing news reports from Democrats with an interest in convincing people the economy is in terrible shape and the future of business and job creation is not good.
There were a lot of reasons for the stock market to go down in a big way. The good news in all this is that the market has held up reasonably well. With this background, here are the latest monthly results for your TSP investments.
For the first time since September 2003, the C fund lost money for investors in a one month period. Back in September, the C fund lost 1.14%. Of course, since that time, it has had excellent returns of 5.68% in October, 0.91% in November, and 5.24% in December. It also had positive returns in the first two months of 2004 with returns of 1.80% in January and 1.35% in February.
In short, the C fund lost 1.50% in March but has given investors a return of 34.93% for the past 12 months.
The remaining TSP stock funds (the S and I funds) continued their winning ways in March. The S fund had a positive return of 0.38% and the I fund went up 0.60%. For the past twelve months, the S fund has had a 56.44% return and the I fund has done slightly better with a return of 56.56%.
Both the G and F funds had a positive return in March. The conservative G fund went up 0.29% and the F fund was up 0.69%. For the past twelve months, the G fund is up 4.09% and the F fund is up 5.29%.
Obviously, the stock funds have been the big winners for TSP investors during the past year.
Those who watch their investments on a daily basis know that February and March have been volatile months for stock investments for the reasons outlined above. In addition, some economic figures released this week have been disappointing. Factory orders have been disappointing and sales data have not met initial expectations. And some taxpayers have not gotten a tax refund as large as they had expected.
So with all of this bad news, why hasn’t the market gone down significantly?
It may still do that in April, of course, but there is room for optimism amidst the negative news reports. The stock market rebounded in late March based on increasing optimism about company earnings. And, while some of the economic numbers have been disappointing because they did not meet expectations, it is obvious our economy is still growing even if not at the fast rate some were expecting. Putting the economic news in perspective, and putting aside the barrage of political rhetoric, the economy is still growing at a healthy 4% rate instead of 5% as some economists had predicted.
Will stocks continue to go up? Perhaps they will. Investors are waiting to see new figures about jobless rates as an indicator of whether the economy is growing stronger. A positive number will be significant to stocks. Terrorist activity, or the lack of it, will also have an impact on stock prices.
But regardless of these events, it is unlikely investors will see the same kind of returns in 2004 we had in 2003 (approximately 28% for the C fund; 43% for the S fund and 38% for the I fund). On the other hand, more modest returns are certainly possible and some analysts are projecting possible returns of 8% or so in stocks this year.
Investors (or analysts) certainly can’t predict the future. Here is my advice: First, put the political rhetoric in perspective. The economy is doing reasonably well. It isn’t as bad as Democrats want you to believe or as good as Republicans want to portray.
Second, consider the positive aspects of your employment. By almost any measure, federal government jobs are more secure than those in the private sector. Federal employees are looking at a wage increase of at least 1.5% (and more likely 3.5%); Congress and OPM are looking at the possibility of increasing benefits in the health care area, and attempts to contract out jobs usually result in government employees keeping the jobs. By comparison, in many private companies health benefits are being cut or don’t exist at all, there are no wage increases for 2005, and contracting out existing jobs quickly, easily and with no warning or appeal rights is always a possiblity.
And, third, the TSP funds are solid and perform better than most comparable plans in the private sector. Diversify your investments within the TSP appropriate to your ability to take risks and your projected investment horizon so you can sleep at night and, hopefully, enjoy a bright retirement future.
