First Half of 2014: All TSP Funds Are Up

All of the TSP funds are higher so far this year, led by the C fund with a gain of more than 7%.

Many stock market investors started 2014 with concerns about how their investments would fare. One reason for this is that the C fund had a return of more than 32% in 2013 so it would not be surprising if many stock market investors took profits and cashed in their stocks. Other investors were convinced that the very slow improvement in the U.S. economy would send bond prices even lower (the F fund was down 1.68% in 2013). (Check out annual, monthly and daily returns in the TSPDataCenter.)

But, halfway through 2014, the C fund is up 7.18% so far this year, the S fund is up 6.21% and the I fund had advanced 5.06% so far. Here is how all of the Thrift Savings Plan funds have performed for the month,  year-to-date and for the past 12 months:

G Fund F Fund C Fund S Fund I Fund
Month 0.19% 0.14% 2.07% 4.45% 0.99%
YTD 1.17% 4.37% 7.18% 6.21% 5.06%
12 Month 2.30% 5.00% 24.71% 26.95% 23.97%
L Income L 2020 L 2030 L 2040 L 2050
Month 0.58% 1.19% 1.52% 1.77% 1.96%
YTD 2.46% 4.14% 4.91% 5.43% 5.89%
12 Month 6.74% 13.99% 17.30% 19.70% 22.03%

For those who were expecting a negative return in 2014, the investment gains are a welcome relief and certainly will enhance your future retirement income. But the news is not all good. The stock market gains were largely propelled by low interest rates and a lack of other alternatives for investors. A rising stock market based on creation of more wealth and enthusiasm over the corporate profit outlook would be preferable to a stock market that is going up based on the Federal Reserve keeping interest rates low through its bond buying program.

The increase in bond market prices (reflected in the per share price of the TSP’s F fund) is a surprise. Bond prices have gone up this year. The increase in bond prices means bond yields have gone down.  The per-share value of the F fund is therefore higher as indicated in the chart above. Much of the reason for this is that the Federal Reserve has indicated that it will gradually reduce its purchasing of bonds but is not rushing to raise interest rates. Raising interest rates would reduce prices on outstanding bonds so the value of mutual funds and existing bonds will fall as the yields being paid on new bonds will go higher as well.

Outlook for the Rest of the Year

What will stock prices do in the rest of 2014? Market analyst Mark Hurlburt observes that when the stock market goes up in the first half of the year, 71% of the time it also goes up in the second half of the year (based on the Dow Jones Industrial Average). But, for those looking for a reason to invest more heavily in stocks, he concluded the data are not statistically significant.  On average, the stock market goes up 67% of the time in the last half of most years.

For those with an interest in forecasting the future of the stock market, Forbes columnist and money manager Ken Fisher notes that “Since 1925 the S&P 500 (on which the C fund is based) has risen in 19 of 22 midterm-election-year fourth quarters.” Moreover, he says that the midterm fourth quarter effect is significant because midterm years overall had a positive return only 63.6% of the time.  It has gone up 86% of the time in the fourth quarter of a midterm election year.

What Does This Mean?

Every investor is different. Someone with considerable money in the Thrift Savings Plan who is retiring soon will invest much differently than a young federal employee who may work for Uncle Sam for several more decades. On the other hand, some federal employees in the older CSRS system are not relying on the TSP to provide much of their income during retirement and they may investment more aggressively in stocks despite their proximity to retirement.

Check with your financial adviser or analyze your own situation carefully in setting your personal investment goals and strategy.

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