Federal Thrift Savings Plan investors whose account balances went south last October are probably in for some good news. Depending on how you look at it, the new data will be either a sign of good things to come or a statistical quirk that doesn’t forecast anything — good or bad.
There are many ways to track market performance. You can take the long view (10 or 20 years) or see how it has performed over five years. Many people check the year-to-date returns (a calendar-year measurement) and others look at performance over the past 12 months. That yardstick changes each month, dropping one month and adding another to the calculation.
All of the yardsticks measure past performance over a given time period. Some people use them as possible indicators of future performance. However, most pros say long-term investors (which is what most TSP participants are) shouldn’t buy or sell by trying to time when the market is up or down. As viewers of those cable financial gurus know, the markets are always going either up or down. Every few minutes.
Most financial planners say long-term investors shouldn’t sweat the ups and downs of the stock market on a short-term basis. Their view is that you don’t win or lose based on the ups and downs of the market. The only dollar figure that counts, they say, is the balance in your account when you start spending it. As you get close to retirement, you have, hopefully, invested most (but not all) of your TSP funds in things like the G Fund (guaranteed U.S. Treasury securities) that are not subject to wild swings in the stock market.
So watching the market (or worrying about it or reacting to it) on a daily, weekly or monthly basis is not a good idea for most folks.
However, if you like to track your TSP investments and you would like to measure performance over the popular last 12-month period, this is how it looks as of Nov. 1:
The S&P 500 index C Fund is up 9.98 percent for the 12-month period from November 2008 through October 2009. The small and midcap index S Fund is up 13.34 percent, and the high-risk-high-reward I Fund (indexed to international stocks) is up — are you ready? — 24.80 percent for the 12-month period. That’s including the I Fund’s 2.41 percent decline last month.
Those numbers, and a lot more TSP data for different time periods, are available at the TSP Web site, www.tsp.gov.
After being down 20 percent to 30 percent earlier this year, the C, S and I funds appear to be coming back with a vengeance. That’s partly because good returns generally have replaced a period of bad returns as some of the bad months are dropped from the 12-month calculation and replaced by months when there was growth or at least smaller losses.
After last year’s stock-market nose dive, many Thrift Savings Plan investors moved money out of their stock funds and into the supersafe, if unexciting, G Fund of Treasury securities. For the past 12 months ,the G Fund is up 3.02 percent, while the bond-index F Fund is up 13.89 percent. They have been the only consistent bright stars in the TSP lineup for a while.
However, if you use the 12-month scale to measure your TSP’s worth, happy days may be here again. That’s because it’s highly unlikely that this month will be as bad as the month it will replace (October 2008) in the ever-changing 12-month countdown.
Obviously the 12-month returns reported next month will be better if the C, S and I funds rise even slightly during this month. But even if there are modest losses, your TSP account should look much, much better this time next month. How come?
Because October 2008 was one of the worst ever for TSP investors. That month, the C Fund dropped 16.83 percent, the S Fund fell 20.99 percent, and the I Fund was down 20.59 percent.
When October 2008 is dropped from the 12-month calculation, it will be replaced by the returns for November 2008, which, while not so hot, were a vast improvement over the previous month.
Last November, the TSP’s stock-index C Fund was down 7.18 percent, the small- and midcap S Fund was down 11.13 percent and the I Fund fell 6.72 percent.
Replacing those miserable months of 2008 with whatever modest gains the TSP manages to produce this month and next will do wonders for your 12-month rate of return.
Bottom line: Successful investing depends on having nerves of steel when times are bad. It also depends, quite literally, on how you look at it.
• Mike Causey’s Federal Report runs Mondays. Contact him at mcausey@federalnewsradio.com or 202/895-5132.
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