TSP Performance Reflects Inflation Concerns
January was generally a good start for investors in the Thrift Savings Plan (TSP). For the month, the S&P 500 was up 1.6%, and the C Fund, based on the S&P 500, was up 1.8%.
Stock market indexes are up at the start of the new year, but the market is jittery. While there is growing confidence in the U.S. economy, inflation is still a major concern. This concern was reflected in analyzing actions the Federal Reserve will take on interest rates.
One economist observed that the Federal Reserve is being cautious due to the high inflation that occurred suddenly earlier in the Biden administration. He noted the “Fed was badly burned in late 2021 and 2022 when they thought high inflation would be transitory.” They want to avoid making the same mistake here.”
On the last day of the month, the stock market dropped significantly. The S&P 500 was down 1.6% after the Federal Reserve indicated it was unlikely there would be a further rate cut in March. When interest rates go down, it lowers the cost of borrowing money for businesses and consumers nationwide.
The target for inflation is two percent, which is still elusive. While higher interest rates can slow the economy, which dampens inflation, the interest rates can also lead to an economic slowdown. Navigating the path to lower inflation to the 2% target without triggering an economic recession is tricky.
TSP Returns in January 2024
The chart below displays how the TSP Funds performed for the first month of the new year. Among the core stock funds, the C Fund had a return of 1.68% despite a significant drop on the last trading day of the month.
The other core TSP stock funds did not end up in positive territory as the S Fund was down 2.41%, and the I Fund declined by .22%. All of the Lifecycle Funds had a small gain for the month.
The G Fund had its usual positive return, finishing up at 0.34%, and the F Fund declined by 0.19%.
The S Fund is often more volatile (in either direction) than other TSP Funds. Just over one week ago, the S Fund was down 0.96% but ahead of where it finished the month at -2.41%.
Here are the monthly TSP returns for all of the TSP Funds in January.
| Fund | YTD |
|---|---|
| G Fund | 0.34% |
| F Fund | -0.19% |
| C Fund | 1.68% |
| S Fund | -2.41% |
| I Fund | -0.22% |
| L Income | 0.36% |
| L 2025 | 0.37% |
| L 2030 | 0.41% |
| L 2035 | 0.41% |
| L 2040 | 0.41% |
| L 2045 | 0.40% |
| L 2050 | 0.41% |
| L 2055 | 0.45% |
| L 2060 | 0.45% |
| L 2065 | 0.45% |
Elections and the Stock Market
National elections are coming up late this year. Federal employees work in a political environment. Throughout the year, headlines and news programs will be touting the latest events in political campaigns. It is easy to get caught up in the political trivia and the negativity can be contagious.
With this background, some voters assume that if the “other party” wins, the economy will collapse. Perhaps that is the case but usually not. Policies and political ideology are important but companies are usually resilient and react to events to preserve their market share and prosperity.
Voters have a myriad of reasons for casting their vote. The stock market does not care about elections as much as individuals do. History provides a good reference point, even though one could argue that the parties are much different than they were in our history.
According to a report in MarketWatch, stock market investors did especially well over the following 10 years if you invested in 1952 (when Dwight D. Eisenhower, a Republican, was elected), 1980, and 1984 (Ronald Reagan, a Republican), and 1988 (George H.W. Bush, a Republican).
This research also shows investors did well investing in 1944 (Franklin Roosevelt, a Democrat), 1948 (Harry Truman, a Democrat), and 2012 (Barack Obama, a Democrat).
Starting in 1936, if you had invested in the U.S. stock market in an election year and just left your money alone, reinvesting the dividends, after 10 years you’d have made an average return of 10.5% a year if a Republican had been elected president — and 11.2% if a Democrat had been elected.
These are also pre-inflation numbers. Overall, there is not much of a difference.
Whether an investor thinks his favorite candidate will win or lose is probably not a good reason to stop investing. The most successful investors invest for the long term and not based on results in one election year.
We wish your readers continued success in achieving their retirement goals through their TSP investments!
