The results for funds from the Thrift Savings Plan for the month of October are in and TSP participants are continuing to see their portfolios go up.
Those TSP participants with money in the international stock fund (the I fund) scored another hit. The fund had the highest return for the month of any other TSP fund (4.49% for October) and it also has the best return for the year to date (18.41%) and the best return for the past 12 months (25.70%).
Among the lifecycle funds, the L2040 fund, which is the most aggressive fund, is in a similar position to the I fund. It had the best return for the month (2.37%), it has the best return for the year-to-date (12.01%) and it has the best 12 month return (16.11%) of any of the other lifecycle funds.
And, for the most conservative investors, the L Income fund again outperformed the G fund. The L Income fund had a return for October of 0.82% whille the G fund returned 0.41%. For the past twelve months, the L Income fund has a return of 7.47% while the G fund has a return of 4.91%.
Here are the results for all of the funds for October 2007:
And here are the results for the Lifecycle Funds for October:
Here is an observation. A few months ago, we posted an article on Is There Room for the I Fund in Your TSP? The gist of the article is that there is room to grow in foreign stocks and in some ways there is less risk to your portfolio by spreading your money over a wider range of investments.
If you have not been paying attention, did you know that the I fund has provided the best returns for TSP investors for the month of October, the past 12 months and throughout 2007? Did you know that the I fund had the best overall return for investors in 2004, 2005 and 2006? And did you know that in 2003, it had the second highest return of any TSP fund (it returned about 38% for the year while the S fund brought in 43% that year).
With a fund that has consistently been the leader of the pack in overall returns year after year, a rational observer would assume that the I fund has the most money from TSP participants than any other fund just because everyone wants to see their money grow faster. And, after the money goes into the fund, it accumulates more in the I fund than in other funds because the rate of return is so much higher.
But here is the reality. At the end of September 2007, 9% of money in the TSP from CSRS employees was in the I fund. Among FERS employees, 11% of their money was in the I fund. 33% of CSRS employee investments is in the C fund while FERS employees have 35% of their money in the C fund.
And what happened when the stock market went down dramatically for a few days in August? Over a billion dollars was traded out of the I fund and about 1.1 billion was traded from the C fund. TSP investors put about $2.5 billion more into the G fund in that same month.
Risk is a matter of perception. Americans trust their own companies and American stocks more than foreign stocks. Most Americans keep their money invested in American companies just as their grandparents did.
Here are a couple of considerations. Probably most TSP participants own their own home in the United States. Most of your investments are in the United States. Your job is also here and your spending power is determined in large part by the performance of the American economy. In effect, you are almost totally invested in the economic and political future of one country.
And, when there is a market downturn, many investors dump their international stocks. When you consider the value of your home and your other investments, your investment in the global economy through the I fund is probably very small. In effect, you are betting your retirement future on the performance of our economy–even though other countries are growing faster and foreign markets often present better investment opportunities. The European market is starting to grow with the addition of smaller, more aggressive countries discovering the power of capitalism. Many European countries are starting to cut tax rates for corporations and a country like Ireland is growing fast.
No one can predict years into the future. But, with American politicians seriously discussing raising corporate tax rates in this country to levels that will exceed most European countries, and with the earnings growth in Europe–which is much slower than the growth in countries like China and India–putting more of your retirement investments into the I fund may be worth consideration.
How much should you have invested in overseas stocks? According to Wharton Professor Jeremy Siegel, who has authored numerous books and articles on the stock market over a number of years, the percentage is much higher than the vast majority of TSP investors. Siegel suggests putting 60% of your stock portfolio in American stocks and 40% in overseas stocks.
That would be a bold move for many TSP participants. It flies in the face of our tendency to look inward and is contrary to years of tradition for American investors. It also seems very risky. That perception, perhaps, is how we choose to define risk.
Each person needs to make his or her own investment decisions. No doubt, some TSP participants will procrastinate, debate, hesitate and decide not to make a decision. That may result in leaving all your retirment money all in the G fund because it is not a risky investment. If that is your position, just that it will at least keep up with inflation and that you will not outlive your retirement money.
In the meantime, regardless of how you have decided to invest your TSP funds, you can be happy by looking at the October returns and the year-to-date returns because everyone’s portfolio has gone up this year.