Interfund transfers (IFTs) in the federal Thrift Savings Plan (TSP) were down in April. That is not a surprise since the TSP recently implemented trading restrictions. According to Tracey Ray, the TSP’s Chief Investment Officer, the number of interfund transfers fell to 108,103 in April. That is the lowest it has been since October 2004.
In January 2008, there were 260,044 IFTs and the highest month in recent months was 271,447 in July 2007.
In addition, the number of TSP investors with money in the L funds is continuing to grow. At the end of April 2007, there were 492,781 participants with L fund balances. At the end of April 2008, this number grew to 586,284.
The number of lifecycle fund participants has continued even (or perhaps especially) during a time when the stock market has had negative returns. Many investors in the TSP have never experienced a bear market, or even a market with running negative returns from month to month,. The advantage of automatic diversification often seems like a better idea after having watched overall fund values declining as the stock market headed into negative territory from November 2007 – March 2008
As we noted in an article earlier this month, the TSP had a positive return rate in April for all of the funds with the exception of the F fund. And here is even better news: All of the TSP funds are up so far in May—even the F fund which is up two cents from May 1 – May 19. The C fund is up 22 cents and the I fund is up 77 cents through May 19th.
Since March 10, 2008, the leading stock market indicator is up about 11%. This index is now down about 8% since the record close in October 2007. In effect, this means that TSP investors who decided to bail out of the C, S and I funds and put their money into the safety of the G fund have missed out on the latest run in stocks.
There are several warning signs for stocks though. There is an election coming in November and many observers predict that the outcome will be a close call. May-September is an historically weak period for U.S. stocks, especially when there is a close presidential election. Consumer spending may also be an issue with mortgage foreclosures higher than normal.
One other indicator that could lead to lower stock prices: the price/earning ratio for S&P 500 stocks (the C fund is based on this index) is now trading at about 15 times projected earnings for the year. If earnings forecasts for the rest of 2008 are too optimistic, the outlook for stock prices could change quickly.
On the other hand, unemployment is still low and interest rates are also low. Progress in various conflicts in the Middle East could heat up or look better as well.
The question to ask then is this: Is the stock market rally in the past few weeks a short-term rally in the midst of a bear market? Or is the market going to continue going up?
We will continue to tell you how your TSP investment have done each month and throughout the year but won’t pretend to be able to predict the future direction of stocks.
One prediction that is fairly certain: There will be more investors moving into the lifecycle funds as TSP participants continue to seek automatic diversification of their retirement funds.