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TSP Corner by FedSmith

Volatility Continues in Stocks As TSP Investors Flee Stock Funds

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by , 01-04-2012 at 08:22 AM (2778 Views)
Stock market investors, including those in the Thrift Savings Plan, are probably unhappy with the continuing volatility of stock prices. Watching your future retirement assets going up substantially in a day can be exhilarating. But, for most of us, watching those assets drop substantially over a period of several days is emotionally draining.


According to the Wall Street Journal, there have been 92 days with swings in the stock market of more than 100 points as measured by the Dow Jones Industrial Average. 61 of those days have occurred in the second half of the year. In 2010, there were only 74 days with swings of 100 or more points.


Many investors have been trying to time the market. That makes sense because of the wild swings but it also means that many investors sell when stocks are down and they are not invested when the market jumps up 4.2% as it did one day last week.


Actions by the TSP investors continue to reflect a “flight to safety” as $159 million was transferred into the G fund in October and $156 million was transferred into the F fund. On the other side of the transfers, $173 million was transferred from the C fund; $66 million from the F fund and $84 million from the I fund.


This is the same general trend that has existed throughout the year.


It isn’t too surprising that more TSP money is also flowing into the lifecycle funds. At the end of December 2010, there was just under $34 billion in the L funds. At the end of October 2011, this amount had climbed to over $36 billion.


It isn't hard to see why this has happened. The overall rate of return for lifecycle fund investors has generally been better than many of the underlying funds. In effect, there is automatic diversification for your TSP investments. The longer the time until your future retirement, the more aggressive the fund. That has resulted in a net loss for the lifecycle funds that are the most aggressive.


Here is how these funds have fared for the year to date. The F fund is obviously the big winner in this list:

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For November, the I fund was the big loser with a loss of 2.46%. The S fund also lost going down 0.51% and the C fund was down 0.21%. The F fund was up 0.01% and the G fund was 0.14%.


For the lifecycle funds, the L Income fund was up 0.02%. The L2020 was down 0.34%; the L2030 fund was down 0.49%; the 2040 fund lost 0.62% and the 2050 fund was down 0.78%.


The volatility is likely to continue. With the huge federal debt that is continuing to accumulate, the debt problems of the various countries in Europe, and the high unemployment that is continuing to persist in the U.S., there is plenty of reason for investors to be nervous. In all likelihood, TSP investors will continue to move money into the F and G funds and the lifecycle funds until there is an indication that the uncertainty has passed.

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S&P 500 (C fund)
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Dow Completion (S fund)
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EFA (I fund)
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Bonds (F fund)
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