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TSP 2016: So far, not so good …

2015 wasn’t a very good year for the federal Thrift Savings Plan. But it looks like the good old days, a vintage year, compared to the TSP’s stock fund performance year-to-date. By any measure — and three weeks is not a long time — stocks are having a rough time. The low price of oil, once a good thing, is now bad. And with Iran about to come on line, oil prices could drop even further.

China, the world’s second largest economy, is transforming from a manufacturing country to a services nation. It’s so big that when it gets a cold its neighbors (including us) sometimes sneeze.

Closer to home, the broad range of domestic and foreign stocks in the TSP’s C, S and I funds is not doing well. The small-cap S and the international stocks I-fund were the TSP’s only losers last year. But the fact that the dull-but-durable Treasury securities G-fund beat out the F, C S and I funds shows the said state of the market in 2015.

The daily barrage of news from Wall Street has some federal investors feeling the way they did in 2008 when the big recession hit. Many are switching money from the C, S and I funds — because they are down — into the G-fund. While it may make them feel better in the short haul, the fact is that they sold low and, if they wait for signs of a true recovery, will be buying high (as in higher than stock prices now) when they do return to the market.

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Financial planner Arthur Stein was our guest last week on our Your Turn radio. We got lots of good questions and he gave out lots of good information. The show is archived so you can listen anytime by clicking here.

Meantime, here’s a review of what he had to say about timing the market: Getting out when things are bad to prevent further losses, then returning when the markets are rising.

  • Historically, investors in the C and S funds who ignored the declines and didn’t sell were eventually rewarded with sufficient growth to leave them with solid gains in investment values. After some period of time, the investments were worth more than before the decline.
  • Unfortunately, the average investor doesn’t (can’t) ignore the declines. The average investor judges long-term stock market investments by short-term performance.
  • Average investors become enthusiastic when C and S Funds increase in value. They start buying. When those funds subsequently decline, they become discouraged and start selling.

That’s too bad. C and S fund investors didn’t need to buy and sell at the right time to profit. They needed to buy and hold for a sufficiently long period of time. Patience was rewarded.

Past performance is no guarantee of future performance. But do you expect the market to decline and never rise again?

Stein says one of his favorite market-related quotes is from Warren Buffett: “The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.”

Many callers asked what he thought about the Lifecycle funds. Many people like them because they are self-adjusting, getting more conservative (more bonds and G fund, less stocks) as they approach their target date. But he makes an important point about confusing the L-fund target date with your planned retirement date. The two events — when you’ll leave and when you’ll start tapping your TSP account — can be years, even decades apart.

Also, Stein is concerned that the L Income Fund is too conservative. L Income is fixed at 74 percent G, 6 percent F and the remaining 20 percent in C, S and I. So, 74 percent of L Income is invested in the fund (G) with the lowest rate of return and the greatest likelihood for loss of purchasing power (after taxes and inflation).

Stein thinks increased purchasing power should be one goal for your investments. Historically, stocks have increased purchasing power. As he said, “Investing in the stock market is risky but not investing in the stock market may be riskier for long-term investors.”

Nearly Useless Factoid

By Michael O’Connell

In 2014, there were 21 winter storm fatalities, which was below the 10-year average of 27 deaths per year.

Source: NOAA

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