- The Washington Times - Tuesday, January 29, 2008

About 63,000 federal investors last week bailed out of the stock market funds offered by their giant 401(k) plan. Most opted for the safe haven of their low-yield but safe Treasury securities fund that is exclusive to the Thrift Savings Plan.

Investors fearing a market freefall probably hoped their interfund transfers would take place immediately or at least the same day. But the action was complicated by Martin Luther King Day, which covered computer-ordered trades that were requested as early as noon on Jan. 18 to as late as noon last Tuesday.

Whether the investors were smart and cut potential losses or shortsighted selling low when they should have been buying “on sale” stocks remains to be seen.

Feds normally make between 9,000 and 12,000 interfund transfers each day. Officials said last week’s actions, triggered by fears of a market meltdown, were significant but didn’t indicate widespread panic in the TSP, which has 3.9 million accounts.

Federal investors reacted drastically to bad economic news in August, when they made 271,000 interfund transfers, and again last month, when 133,000 get-me-outta-here trades were made. Most of the action last year involved reaction to economic news — like a one-month jump in the inflation rate — or a big downturn in the Chinese stock market, which appeared to take place in seconds because of a computer glitch on Wall Street.

Paul Yurachek, a financial adviser and former fed, said long-term investors — people who won’t be touching their TSP funds for five or more years — need to “sit tight” on the market roller coaster. “Making the decision to get out is easy,” he said. “Deciding when to come back is the hard part.” But you must be right both leaving and returning to the market to maximize returns and/or cut losses.

Mr. Yurachek said he had a client who got out of the stock market completely just before the crash of 1987. He was elated. But when the market roared back with years of double-digit returns in the 1990s, the investor missed it because he couldn’t decide when to come back in. So he didn’t.

The market typically has only a few really “good” and really “bad” days each year. Mr. Yurachek said that in the 20-year period between 1986 and 2006 the S&P; 500 average annual return was 11.7 percent. But if investors miss the best days because they are out of the market, their returns drop.

“Those best days are almost always when [the market] is coming off the bottom. You have to be there when it hits bottom to catch those good days,” he said.

Watching the stock market, and in particular a single stock or mutual fund share, can be exciting — and scary. When you crank in 24-hour financial networks with sometimes screaming “analysts,” even the toughest can come unglued. Example: Pick three dates at random and compare the price of a single share of the I Fund. That is the international stock index fund that has some of the best and worst returns.

On Dec. 13, a share of the I Fund cost $25.60. By Wednesday, it was on sale for $21.45. The next day, it picked up another 80 cents in value.

So is the I Fund a mutt or a potential blue-ribbon winner that is on sale?

The definitive answer will come in, say, five years.

Mike Causey, senior editor at Federal News Radio AM 1050, can be reached at 202/895-5132 or mcausey @federalnewsradio.com.

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