When readers begin sending emails questioning or complaining about the TSP return rates posted on our site, it is usually a sign that the stock market is not faring well for the month.

That is certainly the case for June. Last week, we published an article explaining how the year-to-date (YTD) figures are compiled for posting on the site after several readers questioned why the figures we so much lower than the YTD figures posted on the TSP site. Unfortunately for these investors, the figures on our site were correct. The stock market was sinking throughout the month and the declining prices were reflected in the YTD figures for all of the TSP stock funds.

The popular C fund went down 8.41% in June. The S fund was down 7.63% and the I fund was down 8.15%. You will have to go back a few years to find a comparable month for a drop as rapid as this for the C fund. It was down 10.87% back in September 2002. As it turned out, savvy investors who took money from the G fund that month, and transferred the money into the C fund, made money as the C fund jumped up almost 9% in October 2002. A big rebound after a big drop is not uncommon but, of course, it does not always happen that way.

At the close of the markets for the first half of the year, the TSP stock funds are all in the red. The big winner for the first six month is the G fund with a positive return of 1.79%. The largest gainer for the past twelve months is the F fund with a gain of 7.28%. The C fund is the biggest loser for the first six months of 2008 with a loss of 11.90%. It is also the biggest loser for the past 12 months with a loss of 13.05%.

For those investors who are pondering their most recent stock market losses, check out "Riding Out a Volatile Stock Market." The chart in this article displays a history of how stock have performed after a big drop. For long term investors, this chart may provide a form of solace for your bleak mood after seeking the June TSP returns.

Here is a quick summary of returns for this past month:

When the stock market has been as volatile as it has been in recent months, we also receive email from readers asking for financial advice. Generally, the request is something along the lines of: "My TSP stock funds are down. Should I sell them and put the money into the safety of the G fund until the market recovers?"

I am not a financial adviser and everyone's situation is different. But, in general, if you sell your stock funds when the market is down, and buy them back when the market goes back up, you are hurting your financial future. It is better to buy the stock funds when they are lower in price. When the market goes back up, as it always has done in the past, you will have a larger nest egg for your retirement because you bought the shares at a lower price.

Most readers probably put more money into the TSP funds with automatic withdrawals from their paycheck. Whether the market is up or down, you are buying more shares of the TSP funds. That makes more sense than selling all of a substantial portion of your TSP funds after the price has dropped. It is painful to look at your losses. But, when you sell and then look at your investment results a couple of years later, you will see that you have accentuated your losses by selling at a low price when it would have been wiser to have been buying at that level--despite the emotional reaction of seeing your fund prices sinking.

For those who have not been investing for a number of years, this may be the first experience with a stock market that has sustained losses for several consecutive quarters. The Dow Jones Industrial Average is just shy of an official bear market (meaning the market has dropped 20% from its previous high mark). If you have not felt this emotional tug generated by watching your stock fund values plummet, welcome to the reality of investing in stocks.

If you persist in following your TSP returns on a daily or weekly basis, remember that those who buy or sell based on an emotional response to daily price changes often lose money in the long run. Markets often go down hard (check out the annual TSP returns for 2001 and 2002) and the patient investor has always been rewarded in the long run with higher returns. No one can reliably predict what will happen in the near future and continuing weakness in stocks is certainly a strong possibility. But, if you are looking at retiring a few years into the future, chances are your investments will be profitable. If you are planning on retiring in 2008, especially if you are under the FERS system, hopefully you have diversified your investments to take advantage of the 7.28% increase the F fund has provided over the past twelve months.

© 2008 FedSmith Inc. All rights reserved. This article may not be reproduced without express written consent of FedSmith Inc.

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