"This war so far has not had a major effect on the stock and bond markets. It's had a minor effect," said Art Stein.
Interview transcript
Terry Gerton There’s a lot of unsettling news these days that might be making investors of all kinds pretty nervous. So when investors hear headlines about war and they see that markets are down or volatile, what’s the first thing you want TSP participants to understand about what they’re seeing right now? Art Stein Okay, well, first of all, I mean, I have to say that war is unpredictable, among the many unpredictable things. War is very unpredictable, and this one, the war with Iran, which I know the administration doesn’t want to call a war, at least parts of the administration, but the war with Iran is especially unpredictable because maybe it’ll be over very quickly, either because we decide not to prosecute it anymore, because the Iranians have a regime change or in some other way give up. In which case what’s happened now would be a very minor blimp as far as investors are concerned. And remember, please, I’m only speaking about the investment effects of this, not the human and the so many other political and philosophical issues. Defense leaders from DLA and the Navy share how real-time visibility, data at the edge and modern tech are closing readiness gaps and reshaping military supply chains in our new ebook, sponsored by Zebra Technologies. Terry Gerton Of course. Art Stein But the effect on investors would be very small or it could become a just much, much, much wider war as Iran attacks countries all over the Middle East and maybe Europe and everything else. And that would be a different scenario. Historically, in past performances, no guarantee of future performance, wars were not a major negative for the U.S. Stock market. They tended to have a short-term negative effect, and this is all on average. I’m not saying that there are not exceptions, but a short term negative effect followed by continued positive returns for the stock market. And there are just a lot of reasons for that, one of which is the US is so isolated geographically that it tended not to suffer a lot of damage from wars. There’s that. This war so far has not had a major effect on the stock and bond markets. It’s had a minor effect. So, year to date, so we’re starting about a month before the war started. The F Fund, this intermediate term bond fund, is down a tenth of a percent, not a meaningful change. The C, N, E, S Fund, the U.S. Stock funds, one’s down 2.9%, one’s down 2%, which over a two and a half month period is, it’s not positive, but it’s not a huge change. And the I Fund, the international stock fund, is actually up 2.3%, which to me was the most surprising. So as far as TSP investors are concerned though, what I would say is this, that you have to decide which part of your portfolio is a long-term investment and which part is a short-term investment, which Terry, as you know, I pretty much say every time we speak because long-term, there’s no current reason to think that this is going to be a big negative for the U.S. stock market. And it also, I think, helps to look at employees versus retirees. For employees, they’re investing every two weeks. I would really urge them to continue their current stock investments, and if the stock market goes down, that is good for them over the long term, because they’re buying cheap and who knows what’s going to happen to the bond market for retirees. They really have to distinguish between their short and long-term investments, and short-term investment should be in something that’s relatively safe, which certainly the G Fund qualifies there, and the F Fund may, over a slightly longer period of time, that may also qualify. Of course, the disadvantage with the TSP is if you’re taking money out, you cannot decide to just take it out of the G fund or the F fund. You have to take it out in proportion to how you’re invested. So there are ways around that, but they’re somewhat complicated. And I don’t know of anyone who does that, actually. They just tend to take that out. And of course, anyone who’s in an L fund, this is not going to affect their allocation anyway. And that could be good or bad, depending upon how stocks do. But I don’t blame people to be nervous. Wars are scary. They should be scary. But the really huge declines that we’ve had in the stock market were typically not because of wars. They were because of either some kind of financial catastrophe or COVID, which was a tragedy in a lot of ways, but turned out to be a financial tragedy as well because it shut down the entire world economy. Those caused huge declines. The mortgage crisis of 2007, ‘8 and ‘9 caused a huge decline. Wars typically have not. Terry Gerton I’m speaking with Art Stein, certified financial planner. Art, let’s come back to the market for a minute because wartime does have a different effect on different segments of the market. So, typically we see defense contractors do pretty well as their orders go up. Energy firms, it’s uncertain in this war how that’s going to play out. AI certainly is leading the market and getting a lot of coverage now for the average TSP investor. If they’re in one of the general equity funds, are they diversified enough to offset those different sector impacts? Art Stein Well, let’s take the S&P 500 index that the C Fund uses. That is invested in 500 companies. And it’s in proportion to the value of their stock in the market. So the majority — not the majority but well over, I think it’s 20% is in 7, 8, 9 high tech firms, Apple, Google, et cetera. And things like Amazon, which is partly a high-tech firm and partly something else. But some of it is invested in oil producers. Of course, what you can’t do in the TSP is say, well, I feel like oil producers in defense are really gonna do well as a result of this. So I’m gonna switch some money to that. If you were investing outside the Tsp, you could. And to a limited extent in the TSP, if you want to go into the mutual fund window, then you definitely could. But the amount of money you can put into that is limited and it’s very high cost. So not much that TSP investors can do as a result of a feeling that a certain sector of the market is gonna do well. And of course, the problem with this is that the two sectors we’re speaking about probably have already gone up a lot in value. You know, like at the beginning of the year, it would have been a much better idea, you know, if you knew that this was coming than it is now. Terry Gerton In some ways then, does that make it a little easier for the average TSP investor to just stick with that standard, disciplined buy-every-two-week approach and wait to see how the diversified market allocation plays out? Art Stein I think so because the fact that oil producers, really better to say energy producers, are probably going to do extremely well this year and defense producers are probably going to do extremely well for many years, doesn’t mean that they’re going to as well as, say, Amazon and Google and Apple and all these other companies, NVIDIA, which three Years ago was not on the radar for many investors. And now it’s like the most incredible investment that we’ve ever seen or something. You know, and this is the nature of it. So I just think, you know, the advantage of a diversified portfolio is that, you know, you have some security knowing that if something does really poorly, it’s just a small part of your portfolio. And if something all of a sudden does really well. You know, if you’re diversified enough, then it’s gonna do, you will benefit from that. And Terry, the best example, and it is in the TSP, is the I Fund, which way outperformed last year, almost twice the rate of return, I think, of the C FUND. And this year, you know, the C Fund’s down 2.9%, and the I Fund’s up 2.3% year to date. So it continues to do very well, but it’s also one of the least popular funds in the TSP. Most people, you know, so most people have not invested in that, but that is a good way to diversify. We always have a significant component for our clients because you can’t just go by, you know recent performance, you want to be protected against various things. And the I Fund has done very well this year, even though the U.S. Dollar has not fallen in value. I mean, you know, it’s just maybe a little technical, but to me, I was impressed that, one, bonds have not changed very much in value and that the U.S. Dollar’s not really changed much in the value this year. And I would have guessed — see it would be a guess, that’s why I don’t do it — in terms of taking that guess and trying to invest on it, that, you know, the dollar would rise quite a bit, which, for complicated reasons, lowers the price of the I Fund.
Terry Gerton There’s a lot of unsettling news these days that might be making investors of all kinds pretty nervous. So when investors hear headlines about war and they see that markets are down or volatile, what’s the first thing you want TSP participants to understand about what they’re seeing right now?
Art Stein Okay, well, first of all, I mean, I have to say that war is unpredictable, among the many unpredictable things. War is very unpredictable, and this one, the war with Iran, which I know the administration doesn’t want to call a war, at least parts of the administration, but the war with Iran is especially unpredictable because maybe it’ll be over very quickly, either because we decide not to prosecute it anymore, because the Iranians have a regime change or in some other way give up. In which case what’s happened now would be a very minor blimp as far as investors are concerned. And remember, please, I’m only speaking about the investment effects of this, not the human and the so many other political and philosophical issues.
Defense leaders from DLA and the Navy share how real-time visibility, data at the edge and modern tech are closing readiness gaps and reshaping military supply chains in our new ebook, sponsored by Zebra Technologies.
Terry Gerton Of course.
Art Stein But the effect on investors would be very small or it could become a just much, much, much wider war as Iran attacks countries all over the Middle East and maybe Europe and everything else. And that would be a different scenario. Historically, in past performances, no guarantee of future performance, wars were not a major negative for the U.S. Stock market. They tended to have a short-term negative effect, and this is all on average. I’m not saying that there are not exceptions, but a short term negative effect followed by continued positive returns for the stock market. And there are just a lot of reasons for that, one of which is the US is so isolated geographically that it tended not to suffer a lot of damage from wars. There’s that. This war so far has not had a major effect on the stock and bond markets. It’s had a minor effect. So, year to date, so we’re starting about a month before the war started. The F Fund, this intermediate term bond fund, is down a tenth of a percent, not a meaningful change. The C, N, E, S Fund, the U.S. Stock funds, one’s down 2.9%, one’s down 2%, which over a two and a half month period is, it’s not positive, but it’s not a huge change. And the I Fund, the international stock fund, is actually up 2.3%, which to me was the most surprising. So as far as TSP investors are concerned though, what I would say is this, that you have to decide which part of your portfolio is a long-term investment and which part is a short-term investment, which Terry, as you know, I pretty much say every time we speak because long-term, there’s no current reason to think that this is going to be a big negative for the U.S. stock market. And it also, I think, helps to look at employees versus retirees. For employees, they’re investing every two weeks. I would really urge them to continue their current stock investments, and if the stock market goes down, that is good for them over the long term, because they’re buying cheap and who knows what’s going to happen to the bond market for retirees. They really have to distinguish between their short and long-term investments, and short-term investment should be in something that’s relatively safe, which certainly the G Fund qualifies there, and the F Fund may, over a slightly longer period of time, that may also qualify. Of course, the disadvantage with the TSP is if you’re taking money out, you cannot decide to just take it out of the G fund or the F fund. You have to take it out in proportion to how you’re invested. So there are ways around that, but they’re somewhat complicated. And I don’t know of anyone who does that, actually. They just tend to take that out. And of course, anyone who’s in an L fund, this is not going to affect their allocation anyway. And that could be good or bad, depending upon how stocks do. But I don’t blame people to be nervous. Wars are scary. They should be scary. But the really huge declines that we’ve had in the stock market were typically not because of wars. They were because of either some kind of financial catastrophe or COVID, which was a tragedy in a lot of ways, but turned out to be a financial tragedy as well because it shut down the entire world economy. Those caused huge declines. The mortgage crisis of 2007, ‘8 and ‘9 caused a huge decline. Wars typically have not.
Terry Gerton I’m speaking with Art Stein, certified financial planner. Art, let’s come back to the market for a minute because wartime does have a different effect on different segments of the market. So, typically we see defense contractors do pretty well as their orders go up. Energy firms, it’s uncertain in this war how that’s going to play out. AI certainly is leading the market and getting a lot of coverage now for the average TSP investor. If they’re in one of the general equity funds, are they diversified enough to offset those different sector impacts?
Art Stein Well, let’s take the S&P 500 index that the C Fund uses. That is invested in 500 companies. And it’s in proportion to the value of their stock in the market. So the majority — not the majority but well over, I think it’s 20% is in 7, 8, 9 high tech firms, Apple, Google, et cetera. And things like Amazon, which is partly a high-tech firm and partly something else. But some of it is invested in oil producers. Of course, what you can’t do in the TSP is say, well, I feel like oil producers in defense are really gonna do well as a result of this. So I’m gonna switch some money to that. If you were investing outside the Tsp, you could. And to a limited extent in the TSP, if you want to go into the mutual fund window, then you definitely could. But the amount of money you can put into that is limited and it’s very high cost. So not much that TSP investors can do as a result of a feeling that a certain sector of the market is gonna do well. And of course, the problem with this is that the two sectors we’re speaking about probably have already gone up a lot in value. You know, like at the beginning of the year, it would have been a much better idea, you know, if you knew that this was coming than it is now.
Terry Gerton In some ways then, does that make it a little easier for the average TSP investor to just stick with that standard, disciplined buy-every-two-week approach and wait to see how the diversified market allocation plays out?
Art Stein I think so because the fact that oil producers, really better to say energy producers, are probably going to do extremely well this year and defense producers are probably going to do extremely well for many years, doesn’t mean that they’re going to as well as, say, Amazon and Google and Apple and all these other companies, NVIDIA, which three Years ago was not on the radar for many investors. And now it’s like the most incredible investment that we’ve ever seen or something. You know, and this is the nature of it. So I just think, you know, the advantage of a diversified portfolio is that, you know, you have some security knowing that if something does really poorly, it’s just a small part of your portfolio. And if something all of a sudden does really well. You know, if you’re diversified enough, then it’s gonna do, you will benefit from that. And Terry, the best example, and it is in the TSP, is the I Fund, which way outperformed last year, almost twice the rate of return, I think, of the C FUND. And this year, you know, the C Fund’s down 2.9%, and the I Fund’s up 2.3% year to date. So it continues to do very well, but it’s also one of the least popular funds in the TSP. Most people, you know, so most people have not invested in that, but that is a good way to diversify. We always have a significant component for our clients because you can’t just go by, you know recent performance, you want to be protected against various things. And the I Fund has done very well this year, even though the U.S. Dollar has not fallen in value. I mean, you know, it’s just maybe a little technical, but to me, I was impressed that, one, bonds have not changed very much in value and that the U.S. Dollar’s not really changed much in the value this year. And I would have guessed — see it would be a guess, that’s why I don’t do it — in terms of taking that guess and trying to invest on it, that, you know, the dollar would rise quite a bit, which, for complicated reasons, lowers the price of the I Fund.
Sign up for our daily newsletter so you never miss a beat on all things federal
Copyright © 2026 Federal News Network. All rights reserved. This website is not intended for users located within the European Economic Area.
Terry Gerton is host of the Federal Drive and has been working in or with the federal government for more than 40 years.
