Dumping Those Nasty 2008 Losses From Your TSP Statement

When you look at your TSP returns for the past twelve months, it will make you feel good to see how much money you have made. But you need to be realistic. Your investment may still be down despite the rosy figures. Here’s why.

After seven straight months of gains in the federal Thrift Savings Plan, the inevitable slowdown has occurred.

For October, which is often a month in which stock investments go down, most of the TSP funds did show a negative return. The S fund was the biggest loser for the month with a loss of 5.51%; the I fund went down 2.41% and the C fund lost 1.86%. For the past twelve months, all of the TSP funds are showing a significant gain.

For the past twelve months, the C fund is up 9.98%; the S fund is up 13.34%; and the I fund is up 24.80%.

Here is an interesting quirk. Last month, I noted in this column that "The C fund is showing a negative return of -6.79% and the S fund is down -5.23% over the past twelve months."

The TSP stock funds are now up for the year. This is despite the fact they were down for the year at the end of September and they also show negative returns for October. So how can they now be showing a significant gain for the past 12 months?

While the current twelve month return may improve your mood and give you a thrill when looking at your investments, you need to understand how your funds are doing over a longer time frame to know if your investments are up or down.

In effect, you have made money for the past twelve months. But, if you were invested in the TSP funds prior to this twelve month period, you may still be showing a negative return on your overall investment despite the rosy outlook for the past 12 months. Since the returns for the previous 12 months only show how the stock market has done since October 30, 2008 – October 30, 2009, all of those losses you may have seen in 2008 have now gone away—at least on paper. Take a look at the red ink displaying losses in the TSP funds for much of 2008. Most of these losses are not now considered in your 12 month return.

Most Thrift Savings Plan investors will find that their returns have not brought your fund holdings back to their values at the start of 2008 and even fewer will be back to their value at the peak of the stock market in October 2007.

the C fund was down 36.99%. The S fund was down 38.32%. The I fund was down 31.53%.

A fall in your investment of one-third requires a stock market rebound of 50% just to break even. If your stocks fall 20%, you need a return of 25% to break even. According to Dan Weiner, who writes an investment newsletter for investors in Vanguard mutual funds and who has done this type of investment math for a living: "While it’s nice to see some bullish, rather than bearish, numbers up on the one-year charts, don’t let this sudden turn lead you to give up on the prudent course you’ve set for your portfolio."

Here is how the Wall Street Journal summarizes the situation when your stocks incur big losses such as occurred in 2008: "The recovery percentages grow exponentially because you have so few dollars working for you after a big loss."

But, keep in mind, if you have been investing money into the TSP stock funds over time, some of your money was invested in the TSP funds when the stock prices were much lower back in 2008. Many TSP investors invest money on a regular basis rather than trying to time the market by jumping in or out of funds. And, if you do try to time the market and you pulled money out in late 2007 and got back in early in 2009, you are probably way ahead in your investments.

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