TSP S Fund Continues to Shine

All TSP investors have a reason to be happy with the returns for November. Surprisingly, the S fund had the best return for the month and the I fund has the best return for the past 12 months.

There were no losers among the Thrift Savings Plan (TSP) funds last month. If you had any money in any of the TSP funds, you came out ahead in November.

Many financial professionals have been saying for months that the place to have your money now for the best returns is likely to be in larger companies. The theory, based on historical experience, is that as the economy gets weaker or starts to head into a recession, large companies often do better. Small companies often do better at the start of an economic expansion; perhaps because they are in a position to grow more and to quickly take advantage of market changes.

With that advice coming from some experienced investment advisers, the C fund should be the big winner.

But that was not the case. The biggest winner for November is the TSP small company fund with a monthly return of 3.54% and a return over the past twelve months of 15.61%. The I fund finished with the second highest return with 2.96%. The I fund is also the biggest winner over the past twelve months with a return of 28.20%.

Looking back in time for an explanation is always more accurate than looking ahead. Small companies may have done better because of falling energy prices and interest rates that remain historically low.

The C fund has a number of larger companies in its staple of stocks. It finished with a return of 1.91% and a 12-month return of 14.25%. Both of the bond funds also finished in the black for November with the G fund coming in at 0.43% and the F fund at 1.08%.

Here are the returns for each of the five basic TSP funds in November:

Fund G F C S I
November Return 0.43% 1.08% 1.91% 3.54% 2.96%
12-Month Return 5.04% 5.96% 14.25% 15.61% 28.20%

Once people start to worry about a recession, small stocks are likely to take a back seat to the returns of larger companies. The problem with this is that no one knows when the next recession is likely to occur or when investors will start to focus on a possible recession to the extent it will impact where they put their investment dollars.

While none of the lifecycle funds matched the return of the small stocks or the I fund, all of these funds also finished ahead for November and for the past twelve months. Here are the statistics for these funds:

Fund L2040 L2030 L2020 L2010 Income
November Return 2.32% 2.03% 1.78% 1.34% 0.79%
12-Month Return 16.54% 15.04% 13.65% 11.11% 7.55%

Investors who are retired or nearing retirement may want to look closely at these figures. Many TSP investors flock to the safety of the G fund for stability and to prevent wide swings in their TSP returns. The G fund is safe and does not have wide swings.

Note the difference in the returns for the Income fund and the G fund though. The difference of about 2.5% does not sound like a great deal of money. But the small differences can add up to big ones and could add several more years to the duration of your TSP funds during retirement. The income fund provides some diversification along with providing a relatively safe investment package that may be attractive to investors who are now retired or who will be retired relatively soon.

The returns for November are all positive. All TSP investors have a reason to cheer.

The returns also continue to provide a demonstration of why diversification is a way to enhance your retirement investments. A reader sent in a comment recently disagreeing with this philosophy. Instead of diversifying investments, according to this TSP investor, those in the TSP will do better by selling their stock funds when they are way up, putting the money into the G fund for safe-keeping, and then buying the stock funds again when they are down.

That would certainly be a much better system of investing. The problem, as many will have noticed, is that no one can reliably predict when stocks are at an unreasonably high price and about to fall. There is no shortage of advice telling you when to buy or sell stocks. But predicting the actions of millions of investors in advance, and taking into account world events or natural disasters that may occur that impact the stock market is not possible. For a typical investor, spreading your money between different types of TSP funds and occasionally rebalancing your investments to account for changes may provide the most reliable way to increase the value of your TSP investments over the long term.

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