Cheers! New Record for One TSP Fund: Up 42.8% in 12 Months

The TSP core funds recovered in October and the C Fund hit a new high. How did the L Funds compare and what do the titles stand for in these funds?

New TSP Record for C Fund

On the first trading day of 2021, the C Fund in the Thrift Savings Plan (TSP) closed at $55.08. On the last trading day of October, the C Fund traded at $69.34.

When was the last time the C Fund traded above $69.34? It never has. The stock market’s S&P 500 index, tracked by the C Fund, has set a new record high along with the TSP’s C Fund.

Stocks Rebound from September Drop

Last month, the stock market dropped significantly. The C Fund lost 4.65%, the worst-performing month for this fund since March 2020. Investors and stock analysts were voicing concerns about the rapid growth of inflation and how far the drop in property values in China would impact the market. Those fears subsided when companies reported solid earnings in October.

The losses in September were not limited to the C Fund. Each of the core stock funds in the TSP went down. The S Fund went down 4.0%, and the I Fund went down 2.81%.

As can be seen from the chart below, with the exception of the F Fund, all of the core funds in the TSP are back up in October.

Inflation and Federal Employee Pay Raise

Inflation is still a concern. The personal consumption expenditures price index (PCE) was up 4.4% in September from the same month in 2020. This means that Americans are paying more for goods and services. The PCE price index reflects inflation (or deflation) across a range of consumer expenses and reflects changes in consumer behavior. In other words, people are still buying things but paying more as a result of inflation.

In January 2022, it is widely anticipated that federal employees will have an average pay raise of 2.7%. The cost of living adjustment (COLA) for Social Security recipients and federal retirees will be 5.9%—the largest in almost 40 years as a result of the rising inflation rate.

Consumers, including federal employees, are likely to feel the pinch of inflation as a bigger percentage of their income will be going out for a variety of goods and services as the raise will likely be less than the rise in the inflation rate.

Lifecycle Funds With Best Returns in October

When the stock market goes up, the Lifecycle Funds (L Funds) that are the most aggressive usually go up more than the others. October reflected this same pattern.

For the past month, the L Funds geared to potential retirees in 2060 and 2065 were up 5.11%. The L Funds for 2055, 2060, and 2065 are also the best performing L Funds for the year with a return of 18.41%.

What Do the Dates Mean in L Fund Names?

For those who may have missed it, the L Funds have target dates reflecting an employee’s retirement target date. When an employee’s retirement target date is farther into the future, the percentage of stocks in the fund is larger. As an example, the L 2065 Fund is designed for people who plan to retire and begin withdrawing money within a few years of 2065. Younger participants can take more risk, seeking a higher return, because they have time to recover from any market downturns before they retire.

L 2065’s target allocation includes more of the aggressive C, S, and I Funds and very little of the conservative G and F Funds.

TSP Returns for October, 12 Month Returns and Year-to-Date Returns

Here are the returns for all of the TSP Funds for September, the past 12 months, and the year to date (YTD):

G FundF FundC FundS FundI Fund
12 Month1.26%-0.33%42.88%49.31%34.48%
L IncomeL 2025L 2030L 2035L 2040
12 Month9.15%18.66%23.68%26.08%28.52%
L 2045L 2050L 2055L 2060L 2065
12 Month30.66%32.84%40.68%40.68%40.68%

More federal employees are retiring on average in 2021 than in recent years. The trend continued through September and the number of federal employee retirees will be significant for the year.

For these new retirees, the increase in the value of their TSP investments will be useful as they adjust to their new status as a “retired federal employee.”

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