After a couple of years of what seemed like reliable monthly increases in the value of the C Fund, the TSP’s large-cap domestic stock fund has once again shown signs of volatility. During a November, December and January, the fund’s value rose by 12 percent, and then fell nearly as much over the following two weeks. If the C Fund’s rise in late 2017 was impressive, its subsequent fall was spectacular. A investment security that gives you 12 percent over 2 1⁄2 months and then takes it all back over 2 1⁄2 weeks can only be described as highly volatile. And, so it is with the C Fund of late.
But is this really anything new? Hardly. A look at the history of the C Fund proves that this is the nature of this beast. Sustained upward trends, severe downward corrections and short periods of aimless wandering have been the norm for this fund over both long- and short-term periods of its history. So, what should a TSP investor who wants and needs rising value do with this roller- coaster of an investment. Here are few suggestions for handling the C Fund’s volatility:
Remember that the history of the C Fund has been positive, in a big way. Since, it’s inception, the C Fund has produced impressive returns. Moreover, the large company domestic stocks that are the drive the C Fund’s performance have provided returns averaging about 11 percent over the past 100 years. So, far, any losses produced by the C Fund have been temporary, and the bulk of the gains have been permanent.
Don’t bother with trying to predict the unpredictable. One of the odd characteristics of stock investment returns is that, unlike the weather and most other variable things, they are less predictable in the short-run than in the long-run. You should be more confident that the return on your C Fund investment will be positive over the next ten years, than over the next ten days. Whether the C Fund’s return over the next day is basically a coin toss.
Ignore your emotions. When it comes to investing, your emotions are your enemy. Rather than deciding whether to buy or sell based on recent events or predictions about the future, use a systematic approach. Choose a target for the share of your account to be devoted to the C Fund and then keep it there by rebalancing your account periodically. Doing this will force you to sell shares after they have risen in value and buy them after their price has fallen in comparison with the other funds in your account.
Written by Mike Miles
For the Federal Times
Publication April 16, 2018