Federal investors yanked $3.5 billion out of their stock market funds last month and tucked it into the safer haven of the Thrift Savings Plans\' treasury...
Slightly more than 166,000 federal TSP investors moved some or all of their optional retirement nest egg money out of stocks into treasury securities last month.
During the month of September, nervous feds transferred $3.466 billion mostly from the stock-indexed C, S and I funds and into the low-yield but super-safe Treasury securities G-fund. At the end of last month the total value of the TSP was $218 billion.
The C-fund (S& P 500 index), the S-fund (small cap stock index) and the I-fund (international stock index) have been hammered in recent months. While some feds see this as a buying opportunity – getting shares when their price is down – many others believe their optional retirement nest egg is cracking.
The guaranteed, indexed to inflation annuities (pensions) of federal and postal workers are not affected by the ups and downs of the stock market. Nor is the cost of living adjustment due federal-military retirees in January.
Interfund activity for the month of October could be higher if large numbers of feds fled the stock-index funds for the Treasury fund. And if the markets rebound, the number of IFTs could be even higher as investors who moved into the Treasury fund decide to move back into stocks.
One thing the numbers do show is that people who have invested in the self-adjusting Lifecycle funds are, by and large, sticking with them. There are 5 L-funds which invest in the C, S, I, F and G funds. The L-income fund is the most conservative. The L-2040 fund (for people who will begin withdrawing their money around that time) is the most aggressive with the largest percentage of stocks. Each portfolio is rebalanced daily, growing slightly more conservative each time.
The L-2040 fund, for example, has only 5 percent of its portfolio in the treasury G-fund and 10 percent in the bond F-fund. The rest is in stocks in the C, I and S funds, in that order. By contrast the more conservative L-income fund has 74 percent of its holdings in the G-fund, 6 percent in the F-fund, 12 percent in the C-fund, 5 percent in the I-fund and 3 percent in the S-fund.
During the 1990s the stock-index funds routinely provided double-digit returns. The account balances of some investors doubled thanks to earnings and their own (and government) contributions.
After the markets dropped following the 9/11 attacks it rebounded so that in 2003 the I-fund returned 38 percent, the S-fund returned 42 percent and the C-fund returned 28.5 percent. That compared to a 4.11 percent return for the G-fund.
In 2004 the C fund returned 10.8 percent, the S-fund returned 18 percent and the I fund returned 20 percent. Investors grew accustomed to modest-to-big returns which continued through 2007.
But since November of 2007 the index funds have been up and down but mostly down. The chart below shows the various fund returns as of September on a monthly basis, as well as the year-to-date and 12-month returns for the funds, including the F-fund which is a bond index.
Here’s an e-mail from an investor who, thanks to the L-funds, has found peace in a not so tranquil investing enviroment:
Awhile back I decided I had enough of trying to babysit my TSP so I stuck half into G and the rest into an L fund… I have no idea if I lost my shirt or not last week and I love it. Like spending all day watching Geraldo get blown around in a hurricane, I could watch the market crash with detached curiosity. I’m still 10 or more years away from retirement (more if the market mess continues) so I shouldn’t be paying attention to the market right now. ‘Oh the humanity!’ from http://sadguysontradingfloors.tumblr.com/
Yet, like everyone else I can’t stop myself from taking a glance every hour or so to see the bloodied and battered stock brokers staring up at their monitors. Fortunately (or maybe unfortunately), being ignorant of how my L fund is behaving makes the event more like watching a low budget disaster movie than watching my life saving evaporate. It also helps that I couldn’t remember my account number when I tried to log into my TSP. I took that as divine intervention to make me get back to work and stop worrying about it. When I do retire, I might discover that I have to work at Wendys, but at least I’ll have spent the intervening years blissfully expecting to spend my old age on the beach. Drew
Investing Advice
Financial planner Bill Losey will be our guest today on Your Turn With Mike Causey. The show begins at 10 a.m, and Bill, who is also a resident expert for CNBC, will be happy to answer questions either by phone, 1-866-468-1050, or email. You can send them to me at: mcausey@federalnewsradio.com
According to the Associated Press, lobsters in the San Diego area do not have pincers. This came up in conversation after a man was arrested there for stuffing live lobsters down his pants in an attempt to smuggle them out of a marine conservation area.
