Has the past year gone by quickly for you? Has your memory dimmed about what happened one year ago on March 23, 2020? Sometimes we push bad news into the recesses of our memory.
Interfund Transfers in March 2020
One year ago today, the stock market hit bottom. The S&P 500 (the index on which the C Fund is based) fell 34% in a span of five weeks. This was one of the quickest and steepest bear markets we have experienced. Many investors, including those in the TSP panicked. The G Fund received billions in new investments as investors sold their stock funds—at least in part to quell further losses.
Here are the TSP Interfund Transfers (IFT) data from last March:
- G Fund: $15.1 billion
- F Fund: -$1.51 billion
- C Fund: -4.72 billion
- S Fund: -$1.85 billion
- I Fund: – $926 million
- L Funds: -6.02 billion
Fund With 135% Return in One Year
What has happened since this same day last year? The S&P 500 has gained 76%. That is the best 12-month performance for this stock index since February 1934. The S&P 500 index fund contains a large number of big companies. Small companies sometimes go up (or down) much faster than large ones do.
The result was a 79% increase in one year for the C Fund. But, by far, the best performance was the S Fund which features smaller companies. The S fund rebounded in a spectacular way with a return of more than 135%.
Here is how each of the main funds in the Thrift Savings Plan (TSP) have performed in the past year:
|Fund||3/23/20 Price||3/22/21 Price||Percentage |
If you were among those who may have bailed out of stocks at or near the bottom and put your money in the G Fund to preserve your capital, in retrospect that was not a good decision. Those who may have added to their investment in the TSP stock funds at or near the bottom last year are probably feeling much better about their current or future retirement income.
Obviously, the S Fund has made the best recovery in the past year. A return rate of more than 135% in any one year period is very hard to achieve. Of course, this figure represents the return from a very low point in the stock market. The datapoint does illustrate how an investor can make or lose money by investing based on an emotional event—such as a dramatic drop in the stock market.
Saving the Planet with the TSP
As previously reported, a bill has been introduced to “protect federal pensions from the economic consequences of climate change”. This bill would require changes in how the TSP is managed:
- Commissioning the FRTIB to establish a “Federal Advisory Panel on Climate Change” to conduct a thorough examination of the financial risks posed by climate change to federal employee retirement benefits and report those findings to Congress.
- Instructing the FRTIB to immediately plan in place to divest from corporate polluters if the FRTIB determines that pension yields would be both financially profitable and consistent with fiduciary duties if divestment strategies were implemented.
- Implementing a “Climate-Choice” investment option to allow federal pension holders to invest in a fund completely divested from fossil fuels if the FRTIB is unable to make a conclusive determination on whether divestment strategies align with their fiduciary responsibilities to pensioners.
- Requiring the Federal Reserve and SEC to jointly issue annual reports on the financial risks of climate change to ensure the federal government is doing its due diligence to fully understand and account for these risks and costs in future projections.
Gutting the TSP Funds
In the latest meeting of the Federal Retirement Thrift Investment Board (FRTIB), there was a “legislative update” by Kim Weaver, Director of External Affairs. The main item of discussion was the proposed legislation referred to as the Respond Act.
The FRTIB is discussing this bill with those working in Congress. The concern is that if this bill were to become law it would essentially create a new type of Thrift Savings Plan. The TSP now consists of index funds. The changes this bill would require would result in the FRTIB choosing winners and losers as the TSP would be forced to move in the direction of becoming an actively managed fund.
There is also a project to implement a mutual fund window in 2022 that would enable TSP investors to choose funds such as those envisioned by the Respond Act. The progress of this bill is worth watching for TSP investors as the impact on the Thrift Savings Plan would be significant.
For more information on this bill, see Saving the Planet with the TSP.
FedSmith will publish a summary of the monthly TSP returns on April 1st. In the meantime, check out TSPDataCenter.com for daily updates on your TSP investments.