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TSP Corner by FedSmith

How Did Your TSP Funds Fare in 2011?

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As 2011 ends, it is a good time to check out your Thrift Savings Plan (TSP) investments and see if you are on the right track to accumulating future assets for your retirement. Or, if you are retired, you should be checking to see if you are on track to have at least enough money to last as long as you are likely to live.

Overall, it was not a great year for investors but, looking for a more positive perspective, it could have been much worse. TSP investors who diversified between the different funds available to them may have done better than those who put too much money in just one of the underlying funds.

For example, the F fund was the big winner for the year with a 12 month return of 7.89%. While that is not a record for this fund, this is a very good rate of return for the F fund. The second biggest gainer for the year was the G fund with a return of 2.45%.

The S&P 500 index finished down for the year. But, even though the TSP's C fund is based on the S&P 500 index, the C fund returned 2.11% for the year. No doubt, the reason is because of dividends paid out by the companies that are in this index. These dividends helped push the C fund shares into positive territory. Dividend paying stocks did better in 2011 than many others and those holding shares in the TSP's C fund came out ahead as a result. (Here are the historical monthly rates of return for all of the TSP funds.) These 2011 figures are based on the year-to-date return rates posted by the TSP.

The losers for the year among the underlying TSP funds were the S fund (-3.38%) and the I fund (-11.81%). Here are the historical annual rates of return for all of the TSP funds.

Taking a broader perspective, TSP investors have generally not fared poorly despite the volatility of investments during the past several years. For example, in 2010, the C fund was up 15.06%; the S fund was up 29.06%; and the F fund was up 6.71%. The I fund also finished in positive territory in 2010 going up 7.94% last year.

This chart displays how each of the underlying TSP funds did in December and for all of 2011:
I fund-fusioncharts-png

And how about the lifecycle funds?

Here is a chart displaying how these funds fared in December and also throughout 2011. The L2050 fund does not have total 2011 return rates as it was not available throughout the entire year:

I fund-fusioncharts-png

While the L2050 fund did not show any returns until February 2011, this fund had a negative return for eight of the eleven months of the year reflecting the more aggressive nature of the longer term lifecycle funds.

Of course, no one can predict what will happen in 2012 with any certainty. But, with the American federal government debt continuing to increase at a rapid rate; with the Federal Reserve continuing to print more paper money to fund the debt; the fragility of the Euro; and the possibility of another recession looming both here and overseas, investors can probably count on continuing turmoil in your investments.

Here is one piece of advice from the issue of The Independent Adviser for Vanguard Investors released this week that may be worth considering: "Market declines represent a great opportunity to add to your savings, as they give you (and the fund managers you invest with) the ability to buy more shares at lower prices. Down the road, when prices presumably rise, you'll be in a much better place with those shares purchased at lower prices showing the biggest returns on your equity."

That is apparently the philosophy followed by many investors in the country's largest retirement plan provider (Fidelity Investments). That company recently reported that amounts contributed to retirement plans were up to record highs and that in each quarter over the last 2.5 years, more investors have increased their retirement savings contributions than have reduced them.

While we do not have the final figures on the total investment in the Thrift Savings Plan for 2011, it is a safe bet that TSP investors are following a similar investment philosophy. TSP contributions are continuing to go up each month, as they have have for the past few years.

We wish all readers many happy returns in the TSP investments in 2012!

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