All TSP Funds Show Positive Returns for Federal Employees in 2016

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By on January 3, 2017 in Retirement with 0 Comments

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The S&P 500 index was up 9.5% in 2016. The Thrift Savings Plan’s C fund is based on the S&P 500 index. The C fund was up 12.01% in 2016. It had a higher rate of return than the S&P 500 index because, in part, the pricing of the TSP funds includes dividends added into the value of the fund.

Returns in 2016 were actually close to an average year as the annual rate of return for the S&P 500 index since 1928 has been about 10%. When adjusted for inflation, the average return since 1928 has been about 7%. Readers can check out the annual rate of return for all TSP funds at TSPDataCenter.com.

A Rocky Road to Achieving the Overall Average Return

But, an investor who thinks the average rate of return translates to putting money in the S&P 500 Index and watching it double about every 10 years will be very disappointed. There are years when the rate of return has been dismal. Watching the value of your stock fund drop more than 10% (2000), another 13% in 2001 and another 23.3% in 2002 will discourage anyone invested in the stock market.

Investors who dumped their stocks during those years probably felt better for awhile. Unfortunately, those that sold stocks at or near market lows may have missed the positive returns of the S&P 500 index occurring in 11 of the next 14 years.

In short, the road to an average return of 10% a year is very rocky. When the stock market starts to drop and keeps on dropping, many (or most) investors will sell and wait for the market to go back up before buying stocks again. Buying stocks at a high price and selling them at a low price, which is what many investors do in actuality, means the average gain will be much less than 10% a year.

TSP Stock Fund Returns in 2016

Most of the gains in the stock market came in the latter half of the year. In fact, 2016 started off with the worst start ever in a year for the stock market. The C fund was down more than 5% in the first five days of January. It was also down 4.9% for the month of January.

The stock market rally took off after November 8 with the election of Donald Trump. Investors were apparently betting his administration and a Republican controlled Congress would support and pass policies friendly to business. The S&P 500 index gained about 7% after election day until the end of the year.

The C fund had positive returns for five of the last six months of the year. As noted above, it finished the year with an overall yearly return of just over 12%.

TSP Funds With Best Returns in 2016

The S fund came out ahead of all TSP funds for 2016. It finished with a return of 16.35%. The C fund was in second place with a return of 12.01%. The lifecycle funds with the highest percentage of stocks did the best among these funds. The L 2050 fund finished the year with an 8.65% return while the L 2040 fund provided investors with a return of 7.90%.

The lowest rate of return for the year was the G fund which finished up for the year with a return of 1.82%.

Rates of Return for All TSP Funds

G Fund F Fund C Fund S Fund I Fund
Month 0.20% 0.16% 1.98% 1.81% 3.44%
YTD 1.82% 2.91% 12.01% 16.35% 2.10%
12 Months 1.82% 2.91% 12.01% 16.35% 2.10%
L Income L 2020 L 2030 L 2040 L 2050
Month 0.64% 1.13% 1.59% 1.82% 2.04%
YTD 3.58% 5.47% 7.07% 7.90% 8.65%
12 Months 3.58% 5.47% 7.07% 7.90% 8.65%

G Fund vs. the L Income Fund

TSP investors, of course, can allocate their funds however they choose. For the most conservative investors, the G fund is usually the fund of choice. 36% of TSP assets are in the G fund. The G fund is the safest fund but often has the lowest rate of return. (See How TSP Investments Have Changed: 2009 – 2016 ) For these investors, they may want to consider the L Income fund.

The L Income fund is also a conservative investment. It has performed better than the G fund in four of the past five years—sometimes by a wide margin—because the fund holds some stocks in addition to bonds. For those with a longer term perspective, the L income fund was established in 2006. It has outperformed the G fund in 8 out of those 11 years. About 80% of the L Income fund is in bonds and 20% in the TSP stock funds.

There have been and will continue to be years in which the G fund does better because the stock market is more volatile than the G fund. Those with some of their assets in stocks have a better rate of return over time. The question of how to invest your TSP money will depend on a number of factors including willingness to accept risk, your age and other sources of income you will have in retirement.

In the beginning of a new year, some investors decide to rebalance their funds to meet their asset allocation goals. For example, if your stock funds have gone up, as all TSP stock funds did in 2016. You may find your asset allocation is out of balance with more money in stocks than you have planned.

Predicting what the stock market will do for the next year is tricky and probably impossible to do with a high rate of accuracy. We wish all of our readers the best of luck in making their investment decisions.

© 2017 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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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

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