Most successful investors, including most of those who have the biggest Thrift Savings Plan balances, do it for the long-haul. They do not try to time the market. Nor do they track or react to daily ups and downs of the U.S. large-cap, small-cap or the international markets to compare them with the TSP’s C, S and I funds. Here’s why.

We recently got a question from a TSP investor who said:

“Someone should be looking into the TSP funds, especially the company tasked with administering the (small-cap) S fund. Last week, the Dow set records for multiple days, yet the S fund has lost 0.54 cents a share over the last four days. The Dow (Tuesday of last week) was at 21579 and the S fund was at 45.14 a share. The Dow finished the week at 21830 and the S fund finished at 44.6047. Does anyone see anything wrong with this picture, since the S fund is supposed to track the Dow?”

Short answer, yes.

The problem is that the investor was tracking the wrong index, which is easy to do.

A spokesman for the Federal Thrift Retirement Thrift Investment Board said the questioner “should remember that the Dow Jones Industrial Average (DJIA) tracks 30 companies, while the S fund tracks the Dow Jones U.S. Completion TSM Index, which is a broad market index made up of stocks of U.S. companies not included in the S&P 500 Index. There are thousands of companies that make up the Dow Jones U.S. Completion TSM Index.”

Bottom line: It is very easy to see how the DJIA, tracking 30 companies, which are leading companies, will differ with a broad index tracking thousands of companies — hence the name Small Capitalization Stock Index Investment Fund, or S fund.

Arthur Stein, a Washington-area financial planner familiar with the TSP, agrees that it can be like comparing apples and oranges:

“The S fund does not track the Dow Jones Industrial Average,” he said. “The S fund tracks the Dow Jones U.S. Completion TSM Index.”

“The Dow Jones Industrial Average tracks a small number of large U.S. stocks. The Dow Jones U.S. Completion TSM Index is a broad index of small and medium-sized U.S. companies. Sometimes they move in the same direction and sometimes they do not.”

As of Dec. 31 of last year, the small-cap S fund had assets of $55.6 billion. That is up considerably this year. Over a one-year period, the S fund was up 16.136 percent, compared to 15.75 for the Dow Jones U.S. Completion TSM Index. Over three years, it averaged 6.78 percent compared to 6.36 for the Dow Jones TSM Index and, since inception, the S fund has returned 8.82 percent on average compared to 8.73 percent for the DJ Index.

Since the S fund was introduced, through Dec. 31 of last year, a $100 investment had grown to $376 according to the FRTIB.

How “safe” is the G fund? The super-safe treasury securities G fund is the most popular with investors, with 36 percent of investors having some, or all, of their retirement nest egg money in it. But is that too much? While many pick it because it is “safe,” Stein says that when someone retires and starts withdrawing funds from his/her TSP account, the G fund’s low rate of return can be eaten up by inflation. Check this out and look at the charts.

Stein will be our guest today, 10 a.m. EDT on the Your Turn radio show.

Nearly Useless Factoid

By Michael O’Connell

McMurdo Dry Valleys in Antarctica receives less than 4 inches of precipitation per year and has an annual mean temperature of -4 degrees Fahrenheit.

Source: Guinness World Records

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