After years of leading the pack, or running neck and neck with its nearest rival, the stock-indexed C-fund of the TSP has taken second place in the hearts, minds and portfolios of federal and military investors.

For a number of years the C-fund, and other stock-index funds in and outside of the TSP, routinely returned 10 or 20 percent.

As of May, the C-fund, which tracks the nation’s 500 largest companies, had 29 percent of the assets in the federal 401(k) plan. By contrast, the super-safe, never-has-a-bad day treasury securities G-fund had 38 percent (more than $87 billion) of the money in the TSP.

The slippage of the C-fund is the result of a series of low to negative returns and jangled nerves of investors who bailed out of it to cut (they hope) their losses. In one day investors made 40,000 interfund transfers, moving their money out of the C, S and I funds into the G-fund. Before TSP managers imposed monthly limits on trades, nervous investors (sometimes 20,000 to 30,000 per day) were switching funds back and forth between the stock-indexed funds and the G-fund.

Just as the C-fund tracks the S&P 500 index, the S-fund follows most of the rest of the U.S. stock market (meaning both small and mid-sized companies), while the I-fund tracks international stocks.

Right now the S-fund and the F-fund (a bond index) each have about 6 percent of the TSP’s assets, and the international I-fund has about 10 percent. The Lifecycle L-funds have the rest.

Fans of pro-active investing (which means frequent-trading) are still irked by the monthly limits imposed on electronic transfers, even though they are generally more liberal than limits set by other 401(k) plans and IRAs.

Opponents of making daily trades say it can’t be done, and that people wind up selling low when the fund drops and then buying high when it rebounds and they switch back.

A growing number of readers said that during the peak period of interfund transfers (40,000 in one day) they suspected that productivity slumped as traders tracked the market via their office computers and then executed trades electronically.

An IRS employee named Al said “Silly me. I was under the impression the government paid us to do our jobs, not to make like Wall Street experts.” Al said he makes two or three interfund transfers a year to rebalance his portfolio.

“If John Bogle (the founder of the Vanguard index funds) says he can’t time the market, and doesn’t know of anybody who can time the market, what chance have I got of getting it right?”

Good question, Al.

Nearly Useless Factoid

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