TSP Stocks Down in January: What Are the Odds for the Rest of the Year?

TSP stock funds went down in January. Will this trend hold for the rest of the year?

How does your TSP balance look today?

A number of readers don’t like any month when the stock market goes down. Unfortunately, the nature of the beast is that it won’t always go up. And, after a number of months of a rising stock market, January tilted to a down mode.

How much? The C fund lost 2.40%. The S fund lost 3.39% and the I fund lost 1.87%.

For a broader perspective, for the past twelve months, the C fund is up 6.24%, the S fund is up 10.14% and the I fund is up 16.22%. So long term investors are still feeling pretty good but probably a little nervous with the declines in the past month.

The bond funds did better in January but still lag for the past twelve months. The ever steady G fund was up 0.37% (4.38% in the past 12 months) and the F fund is up 0.58% (up 4.07% for the past twelve months).

There is statistical evidence for the saying that goes something like “As goes January, so goes the year.” Translated, it means that January is a bellweather for the rest of the year as far as stock prices are concerned.

So, should you rush out and sell your stock funds at the earliest opportunity?

We don’t advise that as you might be surprised.

The Wall Street Journal compiled some statistics that give an idea of the January effect on the stock market.

Since 1897 (the first full year for the Dow Jones Industrial average), a gain in the month of January has been followed by 11 more months of an advancing stock market 71% of the time.

When the Dow average declined in January, the chance of a gain in the stock market in the next 11 months was only 50-50.

And, says the Journal, when the market goes down in January, any gains in the following months are usually lower than usual. When the Dow average has gone up in January, it has averaged a gain of 7.8% in the 11 remaining months. But, if it falls in January, it has only gained 3.7% in the remaining months of the year.

Your TSP stock funds are not based on the Dow Jones Industrial Average. But there is a strong correlation. If the Dow average goes down for a month, there is a strong likelihood the C fund will also go down. (The C fund is based on a different index.)

One reader wrote in recently and asked a question along the lines of: “Is the I fund a safe investment for my retirement funds? Should I put more money into the I fund?”

We won’t answer that question even though a number of readers would like to know the answer. The definition of “safe” will mean many different things to different people. If you are concerned about your investment never going down, you don’t want to be in a stock fund. Domestic or international won’t make any difference because they all go down at one time or another.

The answer would also depend on how much money a person already has in stocks and how much in bonds; the percentage of stock investments in each fund; the person’s age and length of time until retirement; and a more definitive definition of “safe” to that individual investor.

If you are investing your money based on the odds, you may be considering putting all of your money into the G fund at the first opportunity. On the other hand, what if the market jumps up again in February or March or in the next 11 months? As you can see from the Journal’s figures, the odds are lower this time than in some other months but there is no sure way to read the future.

If you are going to gamble and play the odds in this way, you may want to try a trip to Las Vegas. If you are going to invest for retirement over a number of years, most financial advisors will advise you to have your money spread through a number of investments, including stocks and some in international funds.

We have confidence you will make the right decision for your investment style.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47