August Ends: Four Months of Decline for TSP Stock Funds

The TSP stock fund returns are now final for August and, for those who follow the market closely, it is not a big surprise that the underlying TSP stock funds are down for the fourth month in a row.

After the compilation of the stock funds for August, we now know that the TSP stock funds are down for the fourth month in a row. Moreover, all of the stock funds, including all of the lifecycle funds other than the L income fund, are also down for the year with the exception of the L Income fund which is ahead 1.24% so far in 2011.

August was a month of significant events. The United States lost its AAA credit rating. Worries about financial stability of several European countries increased. Throw in the possibility of a double-dip recession in the U.S. and slowing global growth, a rare East Coast earthquake and a hurricane in the Northeast, and there is plenty of turmoil to make investors nervous. 

Here is a quick summary of how the underlying TSP funds fared in August. Please note that we have included the stock returns for the past twelve months which are still all showing a decent return. 

Those with accounts in the lifecycle funds will be delighted to see a positive return for the past twelve months as well. The highest return is the L 2040 fund with a gain of 14.67%.

There is little doubt we are still in for volatility in the stock market. With recent economic data showing no job growth, there is a growing possibility of a double-dip recession. Along with concerns about the economy, investors will soon start to see more political events as the presidential campaign starts and the congressional super committee debates how to rein in the federal deficit.

Discussions about stock market performance in the summer of 2008 have intermingled with discussions of the stock market performance in 1937 and 1938. Obviously, neither time period was a favorable one for stocks. (The stock market declined about 49% between March 10, 1937 and March 31, 1938.)

The Christian Science Monitor has a chart in an article that shows how the stock market performed in the 1930’s that puts the double dip recession from the 1930’s into perspective

Stocks in 2011 will not necessarily look like the market did in 1937 and 1938. It is a warning that, as happened during the Great Depression when the federal government intervened in the economy and spent a great deal of money as an attempt to boost the economy, the economic malaise lasted longer than many expected with significant volatility in the stock market. Of course, we won’t know how attempts to revive the economy with the stimulus appropriations will fare but continued volatility in the stock market is likely to be significant.

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