TSP Funds Turn Down in October

Except for the G fund, TSP fund prices are down across the board for October.

The latest monthly return rates are in from the Thrift Savings Plan. Here is the sad news for TSP investors for the month of October.

I Fund: -2.90% (up 17.47% for the past twelve months)
S Fund: -2.33% (up 17.10% for the past twelve months)
C Fund: -1.66% (up 8.75% for the past twelve months)
F Fund: -0.75% (up 1.15% for the past twelve months)
G Fund: 0.36% (up 4.34% for the past twelve months

The new L Funds are also down for the month.

L Income: -0.17%
L 2010: -0.93%
L 2030: – 1.67%
L 2040: -1.90%
Most readers are already aware of the reasons for the decline in the stock market: Fear of inflation, concerns about government spending, natural disasters, shortages of gas and oil, rapid increases in the cost of gasoline, and concern about the cost of heating during the winter season.

Also, the Federal Reserve has raised interest rates again which will put another damper on stock prices as the government tries to keep inflation under control by raising rates.

In short, there is plenty of bad news to go around. Those with a pessimistic disposition are probably considering selling their stock funds and putting all of their money into the G fund to ensure the steady, positive returns offered by this fund.

Here is a flip side to the pessimism.

The S&P index fund (on which the TSP C fund is based) has gone up an average of 10% in the last quarter of the year from 2001-2004. There were plenty of reasons to be pessimistic during this time including terrorist attacks on New York City and Washington, DC, the negative rhetoric emanating from the national elections and concerns about company earnings just to name a few. Stock prices went up anyway as investors saw enough good news to override the negative factors.

Last month, I wrote that "…October is one of the year’s best months (for the stock market). Typically, it is the month when stocks begin a rally that, on average, makes late fall and early winter the best time of the year for the stock market."

The stock market went down in the next two days (and was subsequently down for the month as well) and one irate reader responded to the article with a comment that said, in effect, I was not very good at predicting the future of the stock market as his stock investments went down as soon as my article was published.

I hate to admit it but the reader has a point. If I could predict the future turns of the stock market for the next day, week or month, I would have amassed billions of dollars and probably purchased a small island in the Caribbean instead of writing for FedSmith.com as a hobby.

With very few exceptions (and I am not one of the exceptions), most investors cannot predict the future short-term direction of the stock market. The best anyone can do is to look at historical examples and try to apply those examples to the current situation. Over time, investing in stocks has been one of the safest and most reliable ways to accumulate money.

Having said that, here are several facts to consider which could provide the basis for the stock market to rally in the waning months of 2005.

The value of stocks is now as low as it was in October 2002 at the bottom of a bear market. According to the Wall Street Journal, stocks typically have a trailing price/earnings valuation of 17. The current valuation is now 15. That is typically a good sign for the price of stocks which tend to rise under these circumstances.

In addition, there are strong signs that companies are experiencing healthy earnings growth and a number of companies are showing confidence in the future price of their shares as they are buying back shares of their stock.

All in all, there are factors that would support stronger stock prices.

How good is my crystal ball? Probably no better than yours. I don’t own an island in the Caribbean and there are no prospects for buying one in the future. The best most of us can do is to look at the underlying statistics, analyze the current political situation and hope it follows that projected scenario.

For those with money in the TSP funds, lets hope for good returns in November!

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