Back in May of 1940, Germany took over the Netherlands and occupied Brussels. Hitler’s army also invaded Northern France and occupied Amsterdam. The stock market fell from 148.17 on May 9, 1940 to 113.94 on May 24, 1940—a drop of about 23%.
May of 2010 was not that bad but it was still not good news for investors in the Thrift Savings Plan (TSP).
The I fund lost 11.20% last month; the C fund went down 7.99% and the S fund was down 7.51%. The G fund went up 0.28% and the F fund was up 0.85%.
All of the lifecycle funds were also down ranging from a loss of 6.97% for the L2040 fund to only 1.50% for the L income fund.
So what happened? While the funds did not go down as much as the markets did during World War II, there are still problems in Europe that are impacting the United States.
Greece and economic trouble in the European union created panic among investors. Greece was bailed out by a nearly $1 trillion round of funding raised from governments in the region and the International Monetary Fund. Many analysts believe that a restructuring of Greek debt, which could involve a de facto default, is still two or three years away. In other words, it’s no threat to the European economy for now but does not bode well for the financial future of that country and the impact it will have on Europe and the United States.
Spain and Portugal announced that they would implement tougher budgets to decrease their deficits and improve their prospects of being able to fund their national debt. Spain’s debt was also downgraded to a more risky investment on May 28th. This roiled the U.S. markets on the last trading day of the month, dropping the Dow Jones index by another 1%.
So, while the month does not look good for investors, you are still probably ahead in your investments over the past 12 months. Despite the current pessimism, a number of analysts are still predicting an overall return of 10% or so for the stock market by the end of 2010 despite the turmoil in May. Of course, domestic or international events can always roil the markets. As always, you need to factor in this risk in determining how to allocate your TSP investments between the safer bond funds and the riskier, but potentially more profitable, stock market funds.