Stocks Plunge–How About Your TSP Investment?

Stocks took a major dip yesterday with concerns about a falling dollar and federal budget deficits. How will this impact your TSP investments?

The Dow Jones industrial average took a big drop yesterday (February 22). The 174 point drop was the highest drop in this average in almost two years. How come? Are you worried about the impact it will have on your investment in the Thrift Savings Plan?

It might make you feel better to do that. The bottom has not fallen out of your investments in one day, one week or one month.

In fact, you may notice that the large drop in the stock market yesterday did not have a major impact on your investments–especially if you look at how the TSP funds have performed over the past few weeks.

When you look at these figures, you may be surprised to see that the total value of your investment has actually gone up in the past few weeks. And, in support of the contention that diversification of your investments is a good idea, the I fund (the one that invests in international stocks) has actually gone up more than 4% recently.

Even with the real and potential rise in interest rates, the F fund is still up slightly.

Here is what is scaring some of the markets. The value of the dollar is falling against other currencies. Investors are nervous that foreign investors are going to pull their money out of America. And, when South Korea’s national bank indicated it was going to have more diversification in its foreign-exchange reserves, the result was a large fall in the value of American stocks. (The C fund also decreased in value as a result.)

And, another factor which will impact most agencies, is concern about the federal deficit. Government spending is much higher than government revenue. Political pressure and economic pressure are building to reduce the spending gap. This pressure will be reflected in the budget bills that are passed for next year and most federal employees are likely to feel the impact in some way as programs may be cut or eliminated. And, if the past experience of how the system works is any indication, there will be less money available for training, travel and perhaps for salary increases as well.

As for the American economy, there is some benefit that goes with a falling dollar value. American exports become cheaper to buy in foreign companies. The cheaper our goods are in foreign markets, the greater potential there is for a more favorable trade balance with some of our trading partners.

In short, there are changes going on, as always, and these changes will impact your retirement funds in the Thrift Savings Plan. Our advice: don’t panic and don’t take a short term view. Your investments have been doing well. There will continue to be swings in the markets and they may be major changes for a variety of reasons. By taking advantage of the several funds available to you, you will be less likely to experience the full impact of these swings and may sleep better most nights instead of worrying about your financial security.

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