TSP Returns Tumble in 3rd Quarter of 2023 as Interest Rates Soar

Third quarter TSP performance in 2023 was disappointing, however, TSP returns are still generally very good for the year and for the past 12 months.

TSP Returns, Inflation, and Interest Rates

Last year on October 1st, the FedSmith headline on TSP performance at the end of September read: TSP Losses Accelerate: One TSP Fund Down About 30% This Year. By the end of the year, all of the TSP Funds (except for the G Fund) were down for the year.

Despite that disappointing performance, for most of 2023, TSP investors enjoyed an upward trend in stock prices. TSP Funds were generally higher in January, March, April, June, and July. Stock market investors probably thought the year would be a year for spectacular returns. The FedSmith headline on August 1st was July TSP Performance: Longest Winning Streak for C Fund Since 2021.

Then the third quarter of the year hit the market.

In the third quarter, the return on longer-term government bonds soared. The result was a drop in stock values. The TSP’s C Fund was up about 20% for the year just two months ago. It is now showing a 13% increase for the year. That is a good return. But, after the Federal Reserve implied it may keep interest rates high for the rest of the year, investors started to think the stock market may be heading down again.

Changes in Latitudes and Changes in Attitudes

This means that the strategy for investing has changed significantly. The stock market was the place to make money as interest rates were low for years. There is less risk in the stock market when interest rates are meager. Stocks seemed (and usually were) the best investment available.

Then, government spending soared. Inflation took off quickly. Inflation hit highs we had not experienced for more than 40 years. The result is that investors are now making as much as 5% or more in interest being paid by bonds. Stocks are riskier investments now.

TSP investors can see the results. The G Fund is generally a very safe investment and is up almost 3% for the year and more than 4% over the last 12 months. This still pales compared to the return TSP investors have enjoyed in 2023 and over the last 12 months (see the chart below).

The C Fund went down 3.27% for the third quarter. The S&P 500 index (the index on which the C Fund is based) had its lowest performance since the third quarter of 2022.

TSP Returns for September 2023, 12 Months and Year-to-Date

FundSeptember 2023Year-to-Date12-Month
G Fund0.35%2.98%4.03%
F Fund-2.54%-1.05%0.66%
C Fund-4.77%13.05%21.57%
S Fund-4.90%8.84%14.42%
I Fund-3.51%6.94%26.50%
L Income-1.00%4.65%8.32%
L 2025-1.53%5.75%11.08%
L 2030-2.66%7.32%14.90%
L 2035-2.96%7.70%15.93%
L 2040-3.24%8.11%16.98%
L 2045-3.48%8.45%17.86%
L 2050-3.71%8.81%18.78%
L 2055-4.31%10.34%22.23%
L 2060-4.31%10.33%22.22%
L 2065-4.32%10.33%22.22%
Source: TSPDataCenter.com

Short-Term TSP Investor Reaction Using IFT’s

In August, TSP investors withdrew about $948 million from the I Fund and $76 million from the G Fund via interfund transfers (IFTs). They withdrew another $114 million from the F Fund. $400 million was added to the C Fund with interfund transfers and $731 million was added to the S Fund.

The result is that as of August 31st, the C Fund still had the largest percentage of TSP money from investors. 31.5% of TSP allocations are in the C Fund. Another 29.1% of TSP allocations are in the G Fund.

After the poor TSP returns of the stock funds in the third quarter, will TSP investors keep moving money into the C and S Funds or will there be a move to put more into the G Fund? We will have the answer to that late in October.

TSP Facts

The TSP has set a new monthly record for roll-ins to the TSP. In August, 4,566 roll-ins were processed.

The TSP has $804 billion in assets as of the end of August. At the end of 2022, it has $726 billion.

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