Thrift Savings Plan investors have had a rough year if they follow their investments closely on a daily or even a weekly basis. Concerns about credit markets drove the major stock market indices down in August as the market dropped 9% from its high point in July. And, in the same time frame, oil prices hit a new high and in recent weeks the American dollar has dropped against currencies such as the Euro and the Canadian dollar. Moreover, the housing market has yet to stabilize and many homeowners are watching the value of their nest egg drop which certainly makes them feel less wealthy–at least on paper.
With news like this, some investors undoubtedly sold their TSP stock funds and headed for the safety of the G fund. That would be a logical move and, without a doubt, in August a number of TSP investors did just that as more than 1.1 billion dollars were moved from the C and I funds and $697 million was moved from the S fund into safer waters. (We do not yet have the figures for fund movement in September.)
With these market timers having moved their money into the safer funds, presumably on the basis of the abounding bad news, the stock markets shot up again in September and, in fact, the leading stock market indicator hit a new all-time high on October 1st. The September TSP figures do not reflect the increase in stock prices after the end of September.
So what is going on? Why would the market surge upward in the face of so much bad news? It may be that people with money to invest do not see any alternatives to the stock market. Interest rates are low, credit markets are frozen in some ways, and leaving the money in a savings account or other options that pay very low returns are not attractive.
In short, timing the market is very difficult. In a sense, market timing is like gambling. We remember our wins but tend to forget our losses. Even professional investors find that trying to predict the short-term movements of the market over an extended time is extraordinarily difficult.
For the majority of TSP investors, many of whom have money in one or more of the TSP stock funds, here are the results from September which should make them feel like they are a little closer to a successful retirement future. Here are the results of the TSP funds last month:
|12 Month Return
And the returns for Lifecycle Fund investors was also good. In fact, the most conservative of the L funds (the income fund) had a monthly return of 1.13%, considerably ahead of the more conservative G fund which returned 0.41% for the month.
Here is a summary of the monthly results for the L Funds:
|12 Month Return
For the year to date, Thrift Savings Plan investors also have plenty to make them feel a little richer. The lowest rate of return for the stock funds is the S fund with a year-to-date return of 9.17% while the C fund finished just ahead at 9.18%. The I fund is still ahead of the others with a year-to-date return of 13.32%.
The bad news that some investors think should be taking stocks down is still with us. Housing prices have not started back up, there are signs of a recession in our future, and the final fall-out from the problems with the credit markets may not yet be over.
But, as we have seen from the past month, the latest quarter and the year-to-date, the bad news does not necessarily lead to lower stock prices. October is often a volatile month and many will remember the dramatic drop in stock prices on October 19, 1987. But even that memory may have an outsized influence. The Wall Street Journal has this observation: “]B]etween 1988 and 2007, returns posted during the month are third-best (1.89%), trailing just November and December. In addition, it ranks third in terms of least volatility.” But, when October 1987 is added into the mix, the picture changes dramatically. Adding in the 1987 results makes October the most volatile month of the year.
What will happen this year? We will show you the results in early November.