TSP Stock Refunds Reflect Faltering Stock Market

TSP returns for the month of January reflected the faltering stock market as all of the TSP stock funds showed negative returns for the month of January. Here is a summation of what happened in significant market moves from 1929 – 2001 to help you put the current market turmoil into perspective.

The TSP stock funds all have something in common this month: They all lost money. The International stock fund, which has been so successful in the past several years, is the big loser for the month with a negative return of -8.52%. The small company fund (S fund) is down -6.27% and the C fund is down -5.98%. And, for the past twelve months, the S fund is the biggest loser with a return of -4.13%.

Keep in mind, these losses could have been larger; in fact, earlier in the week the losses were larger. The Dow Jones Industrial Average moved up 4.4% last week. Much of that sudden move is reflected in the overall TSP returns for January. The sudden move surprised some people as a new jobs report showed payroll numbers for non-farm employment dropping for the first time since 2003.

But, in what often makes the stock market very difficult to predict, many investors thought that much of the bad news was already factored into stock prices. The change in rates by the Federal Reserve also had a positive impact on the market.

The negative returns of the stock funds in recent weeks are not a big surprise as there have been five straight years of positive returns beginning in 2003. This month’s biggest loser (the I fund) has provided the biggest gains over that five year period with annual gains of 11.45%, 26.32%, 13.63%, 20% and 39.74%.

The problem, of course, is that no one likes to lose money and, when a stock goes down about 8.5% in one month, we notice the hit in or portfolio return–perhaps even more than we notice a month in which it goes up the same amount.

Here is a quick summary of how the TSP funds fared in January and for the past twelve months.

TSP Returns for January 2008
Fund G F C S I
Jan. Return 0.33% 1.76% -5.98% -6.27% -8.52%
YTD Return 0.33% 1.76% -5.98% -6.27% -8.52%
12 Month Return 4.76% 8.98% -2.26% -4.13% 0.62%


LifeCycle Fund Returns for January 2008
Fund LIncome L2010 L2020 L2030 L2040
Jan. Return -0.97% -2.07% -3.90% -4.71% -5.37%
YTD Return -0.97% -2.07% -3.90% -4.71% -5.37%
12 Month Return 3.89% 3.27% 1.46% 0.67% 0.06%

The United States may be in a recession. We won’t know this for sure until we are just about out of a recession but the talk of the recession possibility has the stock market in turmoil.

How long with the market go down with a bear market? No one knows. Some analysts say that the panic selling has not yet begun and that the prices will continue down for some time. Selling your stock funds can be risky because it is also possible that there will be a significant turnaround in a short time and you will miss out on the rally when that happens. Note also that the more conservative funds (the Lifecycle Income Fund, the G fund and the F fund) have actually provided a positive return for investors. While leaving all of your money in the G or F funds can be risky because low returns are a sure thing, these funds can also cushion your portfolio return when the market goes south as it has in the past few weeks.

How will you know when the stock market is going to start heading back up? Perhaps it already has. Or, on the other hand, perhaps the sudden change in stock prices is a a temporary diversion from a bear market that may be settling in for a few months or more. Here is a chart from Business Week that shows how the stock market has done during and the year after a recession has ended.

One fact should become obvious when you look at this chart. The market does not always behave the same when it is emerging from a recession or a bear market. This chart goes back to 1929 and includes the stock market reaction to the most recent bear market that ended about five years ago.


How Stocks Have Done During and the Year After a Recession
Period Change During Recession Change One Year Later
August ’29 – March ’33 -84.20% 81.07%
May 1937-June 1938 -23.18 -2.43
Feb. ’45 – Oct. ’45 21.33 -9.35
Nov. ’48 – Oct. ’49 -0.12 18.71
July ’53 – May ’54 21.57 29.73
Aug. ’57 – Apr ’58 -9.95 36.83
Apr. ’60 – Feb. ’61 7.48 6.94
Dec. ’69 – Nov. ’70 -1.36 4.69
Nov. ’73 – Mar. ’75 -19.04 30.11
Jan. ’80 – Jul. ’80 11.51 1.82
Jul. ’81 – Nov. ’82 7.40 22.78
Jul. ’90 – Mar. ’91 1.15 11.04
Mar. 01 – Nov. 01 -5.73 -9.70


The bottom line: The market does not always act in the same way. Knowing how the current volatility will play out won’t be known until after it has already happened. From comments sent by readers to recent articles, and e-mail that has been sent in to us by some TSP participants, some TSP participants have decided to roll all of their money into the G fund where it will turn a small positive return. The usual rationale is that they are sick of seeing their TSP funds go down and putting it into the G fund makes them sleep better at night.

That approach may be good if the stock market continue to go down. Of course, it it rises rapidly, someone who has put all of his money in the G fund may miss out on rapid gains when the market begins to go up again. If (or when) it goes back up, there will be a good return for anyone who bought more of the TSP stock funds while the prices were down. The trick, of course, is knowing when the market will really be moving back up. For those who do not want to stay awake most nights worrying about the future of their federal retirement funds, keeping some money in the various funds may be the surest way to take advantage of the market swings.

For those who want to try and time the market by betting a good portion of their TSP funds on the market swings, the fact that some in the TSP are capitulating and putting all of their funds into the security of the G fund may be good news. The bottom of a market often occurs when a number of investors suddenly sell all or most of their stocks–with almost perfect timing for the absolute bottom of a market move. Check out Timing the Market with Your TSP Funds? Here’s What Happened in Recent Bull and Bear Markets to see what happened with TSP funds in the last bear market.

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