The funds in the Thrift Savings Plan generally finished higher in 2014 despite negative returns for some funds in December. The fund with the best return for the year was the C fund with a return of 13.78%. The fund with the worst return was the I fund which finished the year down 5.27%.
This is the 6th year in a row that the C fund has had a positive return. The best return during this run was in 2013 when the C fund had a return of 32.45%. (See the annual returns section in the TSPDataCenter)
Here are all of the TSP fund returns for December and for all of 2014:
|G Fund||F Fund||C Fund||S Fund||I Fund|
|L Income||L 2020||L 2030||L 2040||L 2050|
The stock market did well in 2014 propelled by an economic recovery and strong earnings growth for many companies. And, while the Federal Reserve began to wind down its “quantitative easing” program, low interest rates allowed companies to borrow money for less than in most years. Predictions of a 10% drop in stocks did not happen and concerns about rising interest rates paid by bonds did not occur either.
The I fund has been more volatile and has often provided returns lower than the C fund since the current bull market began in 2009. The I fund has provided more lower returns (or losses) than the C fund in four of the last five years.
While stock markets in many foreign countries are still facing more problems than in the United States, for those who like to take a more contrary approach to investing, values for foreign stocks are now generally lower than domestic U.S. stocks as a result in the returns in U.S. stocks over the past several years. Foreign stocks are now offering better values than many American stocks and it is only a matter of time before foreign stocks lead in returns for investors. This could happen in 2015 although we will not know that until some months after the turnaround has occurred. Those who pay attention to changes in trends will recall that the foreign stocks in the I fund provided higher returns for investors than the C fund from 2003 – 2007 and that turnaround will occur again at some future date.
2015 is likely to be more volatile and a correction of 10% or more in the bull market would not be a big surprise. For readers who choose to predict the performance of the stock market in 2015 and to invest your money accordingly, good luck to you in making the right investment decisions. Many readers will continue to invest in a diversified mix of the TSP funds, or the appropriate lifecycle fund, and ride through the ups and downs on the way to a future retirement.
Smart Savings Act
The Smart Savings Act was signed into law in December of 2014. This is legislation which changes the default TSP allocations for newly hired federal employees from the G fund to an age-appropriate Lifecycle fund.
The purpose of the legislation is to provide federal employees saving for retirement a chance to achieve better investment returns than they would get by just leaving their money in the ultra conservative G fund and instead automatically enrolling them in one of the Lifecycle funds that is closest to their projected retirement date. The Lifecycle funds follow the asset allocation theory – they start off investing in more aggressive funds when the employee is at a younger age and gradually move into more conservative investments as the employee nears retirement.
TSP investors have generally enjoyed positive stock market returns since the market bottomed in 2008. We are enjoying the longest bull market since the 1990’s—when the market went up for nine years through 1999—which has boosted the value of the TSP funds for many TSP investors. We everyone continued success in their investment decisions in 2015.