Most investors are probably in a state of confusion.
The American economy is anemic. The jobless rate is still very high and 28 states added more jobless people in June.
On top of that, there is obviously confusion about the debt ceiling. Will it be raised? Will taxes go up when a deal is reached on top of other new tax increases that will kick in after the election when new portions of the health care bill are initiated.
What should an investor do?
In May, many TSP investors made a decision. They moved $1.756 billion dollars into the G fund and $574 million into the F fund. At the same time, $897 million was taken out of the C fund; $844 million out of the S fund and $332 million was transferred out of the I fund.
In retrospect, some of this movement was good timing. In June, the S fund was down 2.35% after losing 1.27% in May. The C fund was down 1.67% in June after losing 1.13% in May. The I fund was down 1.16% in June.
Perhaps TSP investors were being patriotic as the G fund was used to help pay for government operating expenses as the debate about the debt ceiling goes on as we near the end of a major deadline on August 2nd. (See The “Debt Issuance Suspension Period” and $186 Billion of Your Retirement and TSP Funds) No one knows for sure. My guess is that the movement had more to do with people deciding the stock market had gone up too far too fast and was due for a fall. For many investors, the thought of the government using their G fund as a bank of last resort was probably not in the forefront of their thinking.
Most investors were probably trying to decide how to preserve their assets. The G fund is usually a good bet for safety, if you don’t worry about inflation eating up the purchasing power of your investment over time, and it probably still is one of the safest investments around. And, as we quoted in a recent article: Thomas Trabucco, the director of External Affairs for the TSP wrote that despite the current uncertainty about the debt limit, “there is no investment that I am aware of that is safer than the G Fund.”
The confusion over the debt ceiling could lead to a significant fall in the stock market. Gold is continuing to hit new highs (the safety factor again) and there is a good chance that investors will flee stocks until we know how the government is going to resolve the debt ceiling. The debate will then begin over whether the debt ceiling decisions made the correct moves to cure America’s massive spending deficits or just moved the problem down the road for a short time.
Some G fund investors are skittish about the government’s use of their money during the current financial uncertainty. But, this time around at least, there is a very good chance you will get all of your money back, with interest. Stock investments may yield good returns also but the investment climate for stocks isn’t for the timid. We can expect significant volatility in the near term.
We will find out in the next several weeks how TSP investors reacted as we near the debt limit deadline of August 2nd. But, for June at least, TSP investors moved into the G fund.