Here are some eye-popping returns for investors in one fund in the federal government’s Thrift Savings Plan:
| 42.92% | 2003 |
| 18.03% | 2004 |
| 10.45% | 2005 |
Here are the monthly returns for this same TSP fund for 2006:
| 6.70% | January |
| -0.98% | February |
| 3.84% | March |
| 0.34% | April |
Which TSP fund has these returns?
It is the small company or the S fund in your TSP. (The full name is the Small Capitalization Stock Index Investment Fund)
By any measure, investors who have owned the S fund have done very well. Based on this track record, should you pour all of your money into this fund in order to take advantage of future gains?
Probably not. There are undoubtedly some investors who will do that based on the recent history of this fund. They may be making the right financial move but the odds are probably not in their favor.
Here are statistics from the Wall Street Journal that should also catch your attention.
Over the past eight years, the Dow Jones Industrial Average is up about 24%. The 500 stock index used by the C fund is up about 7%. The S fund has not been in existence for that eight year period. But an index that tracks the stock prices of small companies is up about 81% for the same time period.
In other words, small company stocks have been star performers for a long time. Share prices of small companies have gone up much faster than shares of large companies. One large mutual fund company indicates that small companies are trading at their highest premium to large companies since 1983.
Generally, when a market segment has done very well, there is an increasing likelihood that there will be a pullback or other segments will do better. Whether the market is real estate or stocks, no one knows when the top has been reached until after the fact.
Your S fund has done very well and, if you are an investor in this fund, you have probably done very well with your future retirement funds. You may want to look closely to see if the percentage of your money in the S fund is out of balance with other portions of your TSP. If the percentage of the money you have invested in the S fund is now higher than you think it should be, you should consider rebalancing your TSP portfolio sooner rather than later.
Here is the advice from the Vanguard Group of mutual funds:
- Prices of small-cap stocks often fluctuate more than those of large-company stocks.
- Past performance is not a guarantee of future results.
TSP investors should keep Vanguard’s advice in mind when reviewing your own TSP portfolio.
