October 2008: Worst Month in 21 Years

October was the worst month in 21 years for the index on which the TSP’s C fund is based. The good news: The last week of October was one of the best weeks for the C fund index. Here is a summary of the TSP results for October.

October was a rough month for the stock market (and other investments), including your Thrift Savings Plan portfolio. How bad was it?

October was the worst month for the Standard & Poor’s index of 500 stocks in 21 years — since the 1987 stock market crash. (The TSP’s C fund is based on this index of 500 stocks.)

If you are looking for any good news you can find, the final week of October was the best week for the market in 34 years.

October was the most volatile month in the 80-year history of the S&P 500. The S&P 500 index was down 16.9% in October. The week ending October 31st was one of the best weeks for the stock mjarket coming back 10.5%. For history buffs, the best weeks of all were in the early 1930’s. 

As expected, the lifecycle funds are a little less volatile than some of the underlying TSP funds.

When the stock market goes down, there is a tendency to want to place blame for an individual investor’s losses. In this case, some readers have targeted the TSP for criticism for a variety of reasons ranging from imposing trading restrictions to not offering more options to making poor decisions that have adversely impact the return rate for funds.

As one might expect, this stock market volatility has beaten down most mutual funds. The TSP is an index fund which means that the money you put into a fund is automatically invested in an index of funds–such as the S&P 500 index fund–by the fund manager. In theory at least, managed mutual funds will do better for an investor than an index fund as the fund managers are selecting stocks that they think will perform well. Those who follow TSP news closely may recall an article we ran earlier this year in which some in Congress want to expand the options available to TSP participants, at least in part to give investment companies run by women or minorities greater access to fees paid for investment advice. (See Money, Congress and Your TSP: Watch Out for Your Retirement Money) Not that reality will make much difference in achieving political objectives of some in Congress, but TSP investors may want to read the following closely while remembering how Congress would like to "expand your options."

Here is quote from the Wall Street Journal from its November 3rd issue:

"The scope of the devastation is nothing short of breathtaking. As of Thursday, more than 500 stock funds–more than one out of 10 stock funds with at least a one-year track record–had lost at least half their value in the previous 12 months."

Here are a couple of statistics. The TSP’s S fund is down 33.69% for the year. It is an index fund. The Oakmark International Small Cap fund, one of the top 15% of funds in this category, is down 45% for the same time period. The average small company growth fund is down over 37% for the year.

The average large company "core fund" is down more than 33% for the year.

Obviously, October returns are not good as we are in a bear market.

The more optimistic news is that there are trillions of dollars sitting outside stocks now and much of this money will come pouring back into the market at some point. Lower oil prices will make a difference in consumer expenses and hundreds of billions are being pumped into economies around the world.

In short the market will come back. When it will come back and how much it will come back is anyone’s guess.


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