A decline in stock prices on the last day of March indicates we have just finished the worst quarter for the Dow Jones Industrial Average (DJIA) since 1987.
For those who were not investing in 1987, between October 14 and October 19, 1987, major stock market indices dropped 30 percent or more. On October 19, 1987, a date that is now known as “Black Monday,” the Dow Jones Industrial Average dropped 508 points, losing 22.6% of its total value.
Earlier this year, stock investors and money managers were optimistic about the global economy. The U.S. and China were making progress on a trade agreement, central banks were keeping interest rates steady, and then the nature and extent of COVID-19 hit the markets. The longest bull market in American history ended abruptly, with sharp declines resulting in using programs to halt trading of stocks across the entire market on a few occasions.
Biggest Decline Since 2008
The S&P 500 (the index on which the C Fund is based) lost 20% in the first quarter of the year—its biggest quarterly decline since 2008. The C Fund lost 19.65% in the first quarter and was down 12.4% in March.
The C Fund did not suffer the worst declines for the month or the quarter. That distinction went to the S Fund which lost 21.4% in March and is down 28.14% for the year-to-date. (The DJIA is a different stock market index.)
Best Performing TSP Fund in 2020
The F Fund is ahead 3.10% for the year and is up 8.84% over the past 12 months. That puts the F Fund ahead of any other TSP Fund for the first quarter of the year and also the best performing fund over the past 12 months.
TSP Performance for March 2020
Here are the results for each fund in the Thrift Savings Plan (TSP) in March 2020. The rates of return are available for all TSP funds by day, month or year at TSPDataCenter.com.
| | G Fund | F Fund | C Fund | S Fund | I Fund |
| Month | 0.11% | -0.64% | -12.40% | -21.40% | -13.87% |
| YTD | 0.40% | 3.10% | -19.65% | -28.14% | -22.70% |
| 12 Month | 1.97% | 8.84% | -7.06% | -20.72% | -14.01% |
| | L Income | L 2020 | L 2030 | L 2040 | L 2050 |
| Month | -3.09% | -3.52% | -8.72% | -10.42% | -11.90% |
| YTD | -4.56% | -5.23% | -13.35% | -15.92% | -18.13% |
| 12 Month | -0.47% | -0.57% | -5.61% | -7.25% | -8.74% |
How to Love a Bear Market
A bear market is when a stock market experiences a prolonged decline in stock prices. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment—such as the current concern and fear over COVID-19.
Most investors do not like bear markets for the obvious reason that we lose money when stock market prices go down. Losing money is not a good way to fund your future retirement.
Emotional Selling
Most investors are probably below average with their stock market returns. As we pointed out in a previous article, the most selling of stocks often occurs at the height of a bear market. In other words, when prices are their lowest, many investors decide to sell and take a financial loss by selling stocks as they get more discouraged.
Even if investors are not initially discouraged, what often happens is investors start buying stocks as the market is dropping. That has worked out well over the past decade. But, in a bear market, when stocks go down a lot from the top of the market, that does not mean they cannot continue to go down a lot more. And, in a prolonged bear market, that is what happens.
Dealing With the Tricks of a Bear Market
The stock market is sometimes described as a market in which people run away when there is a sale going on. Many investors often sell when prices are at or near their lowest point in a lengthy bear market and then buy back into the market when prices are higher. That is not their intent, of course, but emotional selling is real and impacts all of us.
Timing the market is often an exercise in futility and usually leads to a decline in returns for an investor. It is virtually impossible to sell when the market is at its high water mark and then to again time the market correctly and buy back into the stock market at the deep end of a bear market.
We do not know if the current stock market will turn around quickly and head back up or if the bear will give us head fakes with a couple of up days in the market before dropping another 30% – 40%. Keep in mind, another drop is a real possibility.
If that happens, and there is another significant drop, will you wait and sell your stocks if they continue to go down? If you think that will be your emotional reaction as you watch your TSP investment get smaller while you are getting nearer to retirement, you may want to cut back on your risk permanently and put more of your investments in the TSP bond funds or the TSP’s Lifecycle funds.
If you are a long term investor, and you are waiting for the bear market to tell you it is time to buy stocks again, invest more of your assets in the stock market and pray that you have made the right decision. Bigger profits are typically made when a bear market actually ends and actually does go up again. For a long term investor, investing when people are the most scared is often the advice provided by successful investors.
We wish all of our readers the best of luck in funding at least part of their future retirement with their Thrift Savings Plan.
As an aside, FedSmith does not offer individual financial advice as we are not a financial advice company. A financial advisor is in the best position to review your entire personal and financial information and to provide advice and guidance on how to invest in the changing conditions of the stock and bond markets.
