Are We Returning to Normal? Thrift Savings Plan Investors Pouring into the G Fund

TSP investors are setting records for putting money into the G fund. Does this mean we have reached a market bottom?

Have we reached a bottom in the stock market?

Every Thrift Savings Plan investor would like to know the answer.

Here is one potential indicator that we are at or near the bottom of the market: Allocations of account balances to the G fund are at record highs. 56% of the money from FERS employees is now in the G fund; 62% of investments for CSRS employees is in the G fund and 53% of money for military personnel is in the G fund.

TSP investors have been withdrawing money from the C fund for a number of months. Money has been flowing into the G fund in most months as well. But, for the month of January, there were more transfers out of the G fund ($155 million)–perhaps as TSP investors were sensing that the market was nearing a bottom.

Also in January, there was a positive flow of money into the S and I funds. During February, as the market tanked again, more than two billion dollars was moved back into the safety of the G fund and an outflowing of money from the other four underlying funds. (See Politics, Stocks and Your Thrift Savings Plan)

Is Panic Setting In?

So what do these TSP investors know and how do they know it?

What frequently happens to investors is that as the market continues to go down, many will hold onto their stocks as long as they can stand it. When they can no longer face the losses in their investments, they will accept the losses, sell their stocks or their funds, and put the remaining money into safer investments. And, on the other end of the cycle in the markets, investors will pour money into stocks as the market is providing good returns.

How Are TSP Participants Reacting?

For example, in December 1999, TSP participants put $427 million into the C fund. At the same time, they withdrew $427 million from their bond funds.

In January 2000, another $728 million was moved into TSP stock funds. This was roughly the peak of the market before it started going down in a bear market.

From June through October 2002, when stocks were at their lowest levels, TSP particpants pulled $3.8 billion out of the C fund and put their money into bond funds. They sold their stock funds at the lowest levels just before the C fund jumped up 29% in 2003 (the I fund went up 38% and the S fund went up 43% in 2003).

Thrift Savings Plan investors are not unique in this regard. Most investors did the same thing.

Where is the Stock Market Bottom?

We won’t know, of course, if the market has really hit a bottom until we have the benefit of looking back to see how we did as investors in our investment philosophy.

The general belief among analysts is that the market will start going back up when those who are itching to sell their stocks and transfer into safer investments (such as the G fund) have finally sold off the stocks that they were wanting to sell. And, with record amounts of cash sitting in money market funds, there is plenty of money that can be poured into stocks when the market does begin to head back up.

Unfortunately, there is no way to be certain of a market bottom. The best that most of us will be able to do is to keep at least some of our funds in stock funds, as well as investments in other investments such as bonds, in order to take advantage of a potential rise in the value of stocks and to protect against any further drop in the market.

Maintain Perspective and Avoid an Emotional Reaction to Stock Prices

In the midst of upheaval in the stock market, it can be difficult to have perspective. As the market has dropped from a high in the Dow Jones Industrial Average of about 14,000 to roughly half of that, our initial reaction is that it should go back to the 14,000 figure as soon as this bear market has run its course. It is normal to panic as we see the value of our stocks (and, possibly our future retirement income) dropping fast.

Here is another perspective. Despite the panic that many investors are experiencing, and the belief frequently voiced by politicians and others (who may have their own personal political or financial agendas) that we are in the midst of a major catastrophic event requiring extraordinary action by the federal government and the necessity of taking on massive new debt by the federal government,  the market is actually close to being normal as it currently stands.

Here’s why. The S&P 500 index (on which the C fund is based) is currently trading at 15.44 times the earnings of companies that make up this index. That is about the average ratio for the price of stocks to the level of earnings over the past 100 years. Stated differently, the current price of stocks is about where it should be based on the current earning results for companies–despite the rapid drop in stock prices.

We have had a bubble in the price of housing and in the value of stocks. Company earnings have dropped rapidly. The stock prices have dropped along with the earning power of companies. In the most recent issue of Smart Money magazine, author Jack Hough wrote: “Companies earned more than usual because we spent more than usual, which was made possible because stock and house prices were higher than usual.”

Will the Stock Market Rise Again?

So does this mean that stock prices will stay about where they are now?

Probably not. As companies begin to start increasing their earnings, stock prices will eventually go up to reflect this increase. Weaker companies are failing–unless the federal government bails them out. Once the weaker companies are swept aside, the better managed, more successful companies usually increase their profits and their stock prices go higher.

One big unknown factor, of course, is how all of the money being poured into the economy to prop up failing companies or spent on other projects to stimulate the economy will impact our complex economy.


Each person has to decide what is best for your own situation. For those who do not need the money invested in stocks for the next 4-5 years, this may be a good time to put more money into stocks or to rebalance your portfolio so that you still have a diversified mix between stocks and bonds. Trying to predict what the market will do in the next several weeks or months is difficult or impossible so you should consider your longer term goals and financial requirements.

But, regardless of where you stand in your career and how close you may be to retirement, try to avoid making an investment decision while panicking over the latest value of your TSP portfolio after listening to the latest proclamation of catastrophe from an elected official or analyst blathering at you from your television set. Take stock of where you stand, where you expect to be a few years from now, and then invest to meet your future needs.

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