TSP returns: Who hit the down button?

For many investors, the Thrift Savings Plan will provide anywhere from one-third to half their income in retirement. Assuming, of course, there is income!

After one of the best, longest bull market runs in history, the continuing downhill trajectory of the stock market has lots of investors wondering what — if anything — they could and should be doing. At a time of an evolving pandemic, an expanding European war and major climate concerns, at first glance the answer is: probably not much!

And in financial times like this, doing nothing — either by design or inertia — may be the best choice for many. Should investors bail out of floundering stock funds and head for the ‘safety’ of the Treasury securities G fund? At least until things get better, which begs the question: when do you know that?

Those with doubts and concerns include many of the 6 million-plus people in the federal Thrift Savings Plan, Uncle Sam’s in-house 401(k) plan. People in it range from former U.S. Presidents to both the people who print our money and those who take it back in taxes. And the person who delivers your mail as well as active and retired members of the armed forces.

For many investors, the Thrift Savings Plan will provide anywhere from one-third to half their income in retirement. Assuming, of course, there is income!

So what should you do, or not do? We’ll find out today on our Your Turn show with guest host Arthur Stein. He’s a Washington-area financial planner whose clients include many active and retired feds, including several self-made TSP millionaires. The show Is at 10 a.m. EDT today, streaming at www.federalnewsnetwork.com or in the D.C.-Baltimore area at 1500 AM. It will also be archived so you can listen later, or pass it on to a friend. Meantime, here’s a sneak preview of what he’ll be talking on. If you have questions send them to me mcausey@federalnewsnetwork.com before showtime. Here goes:

Financial markets in the first six months of 2022 broke many records, all of them bad. According to the New York Times:

  • The stock markets suffered the worst January through June performance “since at least 1970.”
  • The S&P 500 Index and other stock markets are now in a bear market, meaning they have declined 20% or more from a previous peak.
  • Many bond markets suffered their worst declines in about 40 years, and 10-year Treasury bonds suffered their worst declines since the late 18th century.
  • Inflation is the worst it has been in more than 40 years.
  • Bitcoin is down more than 50%.

The table below indicates the depth of losses year-to-date and over the last 12 months. The F Fund is negative over the last three years, which is certainly unusual.

The graph below illustrates the positive effects of staying invested when times are difficult.

Note that:

  • COVID caused the most economic damage during 2020, and there was a significant bear market (-35%). But at the end of that year the C Fund had increased 18% and the F Fund 7.5%.
  • Economic damage continued during 2021, but at the end of that year the C Fund had increased another 29%. The F Fund had a slightly negative return of -1.5% but was still higher than at the beginning of 2020.
  • The C and F Funds declined significantly during the first six months of 2022. But the C Fund was still 22% higher than at the beginning of the COVID pandemic. The F Fund decline was mainly because of actions by the Federal Reserve to lower the rate of inflation.

If forecasters knew in January 2020 that there would be a pandemic and the economic damage it would cause, they would have predicted major, long lasting stock market declines. And they would have been wrong.

Successful investing is a marathon, not a sprint. It’s important to stay invested, remain patient, and stick to a plan — a plan that includes a personalized allocation target based on your financial position, risk tolerance, and investment timeline. All investments go through cycles and there will be periods of time in which the investment objectives are not met. This is one of those periods.

Nearly Useless Factoid

By Daisy Thornton

Wembley Stadium has more toilets (2,618) than any other venue in the world.

Source: Wikipedia


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