Stocks Setting Record Highs for Investors While Some TSP Participants Bail

Some TSP investors headed for the safety of the G fund in April and May as the volatility the stock market continues and the market reaches new highs.

The U.S. stock market has stretched the bull market and reached new high points this week. The new record high ended the longest stretch without setting a new record since the period from October 2007 to March 2013. The last record for the Dow Jones Industrial Average was set on May 19, 2015.

Since the record was set, there have been two significant down periods in the market. The market dropped last summer and again early this year.

No doubt, many investors thought we were heading for another downturn shortly after the United Kingdom voted to break away from the European Union. And, in fact, the stock market dropped dramatically after the vote. Stocks in the Dow Jones Industrial Average (DJIA) fell 610 points shortly after the vote and put the market in the red for the year as of late June. (See Stocks Drop: Is This the Time to Sell Your TSP Stock Funds?)

The TSP sent out a message to its investors when stocks dropped. It read:

Once you’ve established your retirement goals and a savings strategy that fits your needs, you’ll have the best results if you stick to your plan. Don’t get sidelined by distractions. Make adjustments to your strategy only after careful consideration.

In effect, the message was don’t panic and start selling your TSP stock funds because the market just dropped.

With the benefit of hindsight, even with the drop shortly after the vote in Britain to leave the European Union, the C fund was up for the year at the end of June with a return of 3.87% for the year-to-date.

In May 2016, which is the latest data available, investors in the Thrift Savings Plan (TSP) moved $973 million into the G fund. They moved $613 million out of the C fund, $174 million out of the S fund and $186 million out of the I fund. Presumably, these investors were seeking the safety of the G fund and trying to avoid the possibility of the stock market falling dramatically. Initially, that seemed like a good move before the market took off again to set another record in July.

In April 2016, TSP investors followed a similar path. $491 million was transferred from the C fund in April and $412 million was moved from the S fund. Another $145 million was moved from the I fund. In the other direction, $617 million was moved into the G fund and $234 million into the F fund. $198 million went into the Lifecycle funds. (See Following the Herd: TSP Investors Headed for Safety in April)

In effect, investors who decided to cash out of the TSP stock funds and put most of the money that was withdrawn into the G Fund may have slept better at night (a reasonable consideration by the way) but their money may have missed out on the positive returns over the last several months. Of course, no one knows what will happen to stock prices by the end of July. Now that a new record has been set, it would not be unheard of for the market to consolidate and move down as investors take profits as a result of the recent gains.

TSP Facts

The FERS participation rate at the end of May was 89.4%. The FERS participation rate was 82.1% back in 2009. It had been 85.8% in 2006 but went down each year through 2009 as investors sold their shares in TSP stock funds when the market was down. Some of these investors bought shares again as the market headed back up again and the participation rate jumped up to 85.5% in 2011.

The participation rate from active duty military personnel is also up and stood at 44.9% at the end of May.

For FERS participants, their average TSP balance now stands at almost $118,000 ($117,932 at the end of May). For CSRS participants, their average balance is now $121,152.

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