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The Thrift Savings Plan (TSP) returns for January are in. For those
who are a believer in the theory that the returns for January are a
predictor for stock market returns for the year, it is not a pretty
picture.
The TSP funds had the worst month since February 2009. The I fund was the
biggest loser with a loss of 5.17% and the C fund lost 3.60%. The S fund was
also down with a loss of 2.43%.
The big winner for the month: the F fund with a gain of 1.54%.
After a 64% gain in the Dow Jones Industrial Average between the middle of
March 2009 and January 19, 2010, it would be unrealistic to expect the large
gains to continue unabated.
Instead of pushing stock prices higher on good news as has been the case in
recent months, stock market investors have been selling their holdings after a
temporary gain in stock prices. The general belief among investors is that
economic activity will remain low for some time to come.
Chances are the bull market is not over but it is likely to have some
significant dips along the way. A number of analysts are comparing the current
market to the 1930's and the 1970's when stocks were generally not in a time
when prices were rising and the bull markets were relatively short-lived.
Here is a quote from an article we published early last year: "The current
stock market seems to be eerily similar to the stock market's performance in
1938. In that year, after hitting a bottom in the spring, the stock market went
up 62% in seven months. If the current run continues, you will add significantly
to your TSP portfolio in the next few months."
As noted above, the current bull market is up 64%. As you decide how to
invest your money for your future retirement, keep this in mind: "While the
stock market closed at just above 154 in 1938, the depression did not end. In
fact, the stock market closed lower in 1942 than it did in 1938."
As Secretary of the Treasury Henry J. Morgenthau testified before the House
Ways and Means Committee in 1939: "I say after eight years of this
Administration we have just as much unemployment as when we started…And an
enormous debt to boot." (See
Thrift Savings Plan Funds Rebounding: Are We in a New Era or Can History Tell Us Anything About Our Financial Future?)
This does not mean that your retirement investments in the Thrift Savings
Plan will be going down and that the recession will continue for another several
years as it did in the 1930's. It does provide a cautionary warning mean that
investors should avoid exuberance in predicting the future of the stock market
if you want to preserve your wealth.
The United States is setting records for deficit spending and record deficits
are predicted for the near term future. Based on past experience, the projected
deficits may be too optimistic and may turn out to be even larger than
predicted.
Perhaps the continuing frantic pace of federal spending will result in
economic good times and a rapid resurgence of the stock market. Perhaps it will
prolong the recession or lead to a double-dip recession with minimal gains or
even losses in economic activity.
If you are investing your future retirement income, keep these alternative
scenarios in mind as you project the amount of money you will have to live on in
retirement. While the more conservative funds (the G and F funds) do not shoot
up with the market advances, they also do not fall as fast when the market
declines. In 2008, the G fund was up 3.75%. That is a paltry return. The C fund
lost almost 37%. That is a major loss in your retirement income and even a
paltry return is a major benefit in a major market drop.
By diversifying, you can protect against major losses and also have the
potential for increasing your investment if the stock market goes up.
But, as always, it's your money to invest as you see fit. Make your financial
choices and enjoy the ride.
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