Despite the turmoil of a presidential election, the war in Iraq, fears about terrorist attacks within the United States, and the increase in oil and energy costs, your TSP funds did well last year.
For the past twelve months the I fund returned 20%; the S fund gave you a return of 18.03%; the C fund 10.82%; the F fund 4.30%; and the G fund 4.30%.
A pessimist would look at these returns and may say, “How come I got a higher return in 2003 than I did in 2004?”
The underlying observation is correct as the returns in 2003 were higher. In 2003, the I fund returned about 38%; the S fund returned about 43% and the C fund gave investors a return of about 29%.
The reason is that in 2003, the market was recovering from several down years in a row. While it is easy to forget, the C fund lost 22% in 2002, 12% in 2001 and 9% in 2000. A year of spectacular returns in 2003 after tanking for three straight years is not a big surprise.
What is the prognosis for 2005? Many analysts predict similar returns in stocks to what occurred last year. Interest rates are still relatively low and, while profit margins at companies are gradually going up, these gains are moderate and are unlikely to provide the impetus for a spectacular increase in stock prices.
Most of us are quite satisfied with a return of 10% or more on stock funds. Will interest rates soar in 2005? Will Asian countries stop investing so much of their money into Treasury securities and create a big rise in bond rates? Will the price of energy supplies rise (or fall rapidly) this year?
If you can answer all of these questions, that will tell you where to safely invest your TSP retirement money next year.
Should you put all of your TSP funds into stocks? Should you take all of your money out of the C fund and put it into the S or I funds? If you can’t answer the questions necessary to determine the short-term future of our economy, our advice is to stay diversified between the different funds and hope for the best.
Happy New Year and congratulations on your successful investing in your future retirement through the Thrift Savings Plan!