October was a rough month for the stock market (and other
investments). How bad was it?
October was the
worst month for the Standard & Poor's index of 500 stocks in 21 years
— since the 1987 stock market crash. (The TSP's C fund is based on this
index of 500 stocks.)
If you are looking for any good news you can find,
the final week of October was the best week for the market in 34 years.
October was the most volatile month in the 80-year history of the S&P
500. The S&P 500 index was down 16.9% in October. The week ending
October 31st was one of the best weeks for the stock mjarket coming back
10.5%. For history buffs, the best weeks of all were in the early
1930's.
Here are the results of the TSP funds for October and the
year-to-date.
As expected, the lifecycle funds are a little less volatile than some
of the underlying TSP funds.
Here are the results for the lifecycle funds for October and the
year-to-date:
When the stock market goes down, there is a tendency to want to place
blame for an individual investor's losses. In this case, some readers
have targeted the TSP for criticism for a variety of reasons ranging
from imposing trading restrictions to not offering more options to
making poor decisions that have adversely impact the return rate for
funds.
As one might expect, this stock market volatility has beaten down
most mutual funds. The TSP is an index fund which means that the money
you put into a fund is automatically invested in an index of funds--such
as the S&P 500 index fund--by the fund manager. In theory at least,
managed mutual funds will do better for an investor than an index fund
as the fund managers are selecting stocks that they think will perform
well. Those who follow TSP news closely may recall an article we ran
earlier this year in which some in Congress want to expand the options
available to TSP participants, at least in part to give investment
companies run by women or minorities greater access to fees paid for
investment advice. (See
Money, Congress and Your TSP: Watch Out for
Your Retirement Money) Not that reality will make much
difference in achieving political objectives of some in Congress, but
TSP investors may want to read the following closely while remembering
how Congress would like to "expand your options."
Here is quote from the Wall Street Journal
from its November 3rd issue:
"The scope of the devastation is nothing short of breathtaking. As of
Thursday, more than 500 stock funds--more than one out of 10 stock funds
with at least a one-year track record--had lost at least half their
value in the previous 12 months."
Here are a couple of statistics. The TSP's S fund is down 33.69% for
the year. It is an index fund. The Oakmark International Small Cap fund,
one of the top 15% of funds in this category, is down 45% for the same
time period. The average small company growth fund is down over 37% for
the year.
The average large company "core fund" is down more than 33% for the
year.
Obviously, October returns are not good as we are in a bear market.
The more optimistic news is that there are trillions of dollars
sitting outside stocks now and much of this money will come pouring back
into the market at some point. Lower oil prices will make a difference
in consumer expenses and hundreds of billions are being pumped into
economies around the world.
In short the market will come back. When it will come back and how
much it will come back is anyone's guess.
© 2008 FedSmith Inc. All rights reserved. This article may not be reproduced without express written consent of FedSmith Inc.
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