C Fund Investors Enjoy Best Monthly Return in 5 Years

Investors in the TSP’s C fund enjoyed their best month of returns since December 2010. So, here is a question you should ask yourself: Are you prepared for the next bear market or will you sell at a loss when the inevitable pull back occurs?

February was a good month for most Thrift Savings Plan (TSP) investors. All of the TSP funds, with the exception of the F fund, had a positive return for the month. The S fund provided the best return with a 6.05% positive return in the month. It is up 8.5% for the past 12 months. The I fund also had a strong month with a return of 5.97% although it is only up 0.26% for the past 12 months.

For the S&P 500 index (the index on which the C fund is based), it was the best one-month percentage gain since 1998. For the C fund, it was the best monthly return since December 2010 when this fund enjoyed a monthly return of 6.68%.

Here are the returns for all of the funds during the month, year-to-date and also the past 12 months:

G Fund F Fund C Fund S Fund I Fund
Month 0.13% -0.91% 5.75% 6.05% 5.97%
YTD 0.31% 1.20% 2.58% 4.09% 7.24%
12 Month 2.22% 5.68% 15.60% 8.50% 0.26%

The lifecycle funds all had a positive return in February. As is often the case during a time when the returns were significant, the most aggressive lifecycle fund, the L 2050 fund, had the best return for the month (4.99%). It is also leading all of the other funds for the year-to-date and for the past 12 months.

L Income L 2020 L 2030 L 2040 L 2050
Month 1.19% 2.95% 3.80% 4.39% 4.99%
YTD 1.11% 2.36% 2.94% 3.32% 3.75%
12 Month 4.16% 6.35% 7.42% 8.13% 8.60%

TSP Investor Data

For federal employees in the FERS system, their average balance for January 2015 was $114,001. For CSRS employees, it was $113,717. Those in CSRS have an average Roth balance of $9,231 while those under FERS have an average balance of $5,719.

TSP investors moving money in or out of TSP funds guessed right in January with regard to the G fund if their goal was to achieve a higher return on their investments in February. $781 million was withdrawn from the G fund in January while $445 million was invested in the C fund. $209 million was invested into the F fund and $304 million into the S fund. On the other hand, $180 million was withdrawn from the I fund which went up 5.97% in February.

Are You Ready for the Next Bear Market?

When will the next bear market occur? No one wants to be pessimistic but it is worth considering since it has been more than seven years since the last bear market began.

No none really knows, of course, when the next bear market will be upon us. It could happen this year or it may wait another year or two.  The possibility is worth considering, particularly for those nearing their projected retirement date or for those TSP investors who are already retired.  A new bear market—which is a 20% or greater market drop—will occur. It always has and is certain to reoccur.

The reason stocks have historically provided a greater return than cash or bonds (compare C fund returns to those of the F fund or G fund over time at TSPDataCenter.com) is because stocks are volatile. Stock prices do crash on occasion. Volatility in stock prices doesn’t mean the market is broken or that investors have been cheated out of their money.

Price volatility is the price of admission investors must be willing to pay to achieve returns greater than are offered in assets that do not fluctuate as much. Check out the annual returns of the super-safe G fund over time compared to the more risky C fund. Long-term investors have enjoyed a much better return on their money than those that put all or most of their money into the G fund—although C fund investors watched their investments fluctuate much more than the price of the G fund.

Here is a quote from an article published in 2009:

“Many investors sold stocks when the market was down. On January 2, 2008 the price for one share of the C fund was about $16.32. On January 2, 2009, the price for one share of the C fund was down to $10.77. By March 5, 2009, a share of the C fund had dropped to $7.93.”

And how did TSP investors react when the bear market hit home? Many sold their TSP shares. Many gave up and sold at or close to the lowest point of the bear market:

“It would appear that TSP investors react just about like other investors. In March 2009, TSP investors moved almost $1.5 billion into the G fund and they continued to move money out of the C fund ($565 million); the S fund ($110 million); and the I fund ($218 million).

What happened next in 2009 after these investors dumped their stock funds? The C fund returned 26.68%  in 2009. The S fund went up 34.85%. The I fund went up just over 30%.

And this was not the first (or the last time) that this has occurred. The same pattern occurred in 2000. Here is a quote from an article published by FedSmith on this event:

“When TSP participants got their December 2000 statements, many realized for the first time what was happening to the value of their stock investments. TSP participants started selling their stock funds with abandon. From June through October 2002, when stocks were at their lowest levels, TSP particpants pulled $3.8 billion out of the C fund and put their money into bond funds.

The timing of these investors was as bad as it could be. They sold their stock funds at the lowest levels just before the C fund jumped up 29% in 2003 (the I fund went up 38% and the S fund went up 43% in 2003).”

Most investors have less tolerance for a bear market than they think they do. It is easy to think you will withstand a 20% or greater drop in stock prices when the market is up. It is much harder to hang in with your investments when you contemplate a significant drop in your net worth.

Did you panic and sell your TSP stock fund shares when stocks crashed in 2008 and 2009 or in 2002?

If so, you probably have a low risk tolerance, regardless of how confident you may feel today when discussing your investment with your colleagues or your spouse. If you fall into this category, and your stock market investments are up as a result of the bull market we have enjoyed the past several years, you may want to consider reducing your exposure to stocks and raising your allocation to a diverse portfolio of the bonds in the G fund or the F fund. If you do this, and continue to watch stock prices continue to climb after you transfer some of your stock fund shares, take comfort in knowing that more of your retirement money is now cushioned against the inevitable shocks and volatility of the stock market.

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