I’ll start the new year off by reviewing what turned out, in the end, to be pretty terrific investment performance by the Thrift Savings Plan in 2009.
In spite of what some perceive to be a difficult market to navigate, all five of the TSP’s individual investment funds – the C, S, I, F and G Funds – and the five L Funds, which are each composed of varying amounts of the five individual funds, turned in positive returns for the year. Not only did all 10 funds produce gains for the year, but the eight funds with exposure to the stock market – all but the F and G Funds – performed exceptionally well compared with their long-term historical averages.
The best performers were the three funds totally invested in the stock market: the C, S and I funds. The best performer was the S Fund, which represents the market value of a diverse group of small and medium-sized domestic corporations. Based on the closing share prices on Dec. 31, 2008, and Dec. 31, 2009, the S Fund produced a gain of about 35 percent for the year.
Based on similar valuation methods are the following total approximate returns, in order from highest to lowest : I Fund, 30 percent; C Fund, 27 percent. L 2040 Fund, 25 percent; L 2030 Fund, 23 percent; L 2020 Fund, 19 percent; L 2010 Fund, 10 percent; L Income Fund, 9 percent; F Fund, 6 percent; G Fund, 3 percent.
Considering that a reasonable expectation for the C Fund based on historical returns ought to be a return of between 10 percent and 12 percent for any given year, this is impressive performance. And during a year when many said that bonds were highly unlikely to provide positive returns, given that interest rates couldn’t really go anywhere but up from where they started the year, even the F Fund’s second-to-last 6 percent showing can’t be considered disappointing. In spite of what many perceived, based on the media’s reporting, to be the latest chapter in the ongoing economic disaster saga, the investment markets delivered strong gains during the year.
It is fair to assume, however, that many investors did suffer during 2009. In fact, I fielded many pleas from TSP investors seeking shelter from the turbulent markets and relief from the confusion they felt about what to do next. Obviously, not everyone enjoyed the year’s impressive returns that were there for the taking, at least, for those who knew how to take them.
When it comes to investing for retirement income, the secret to navigating the markets for TSP investors is simple: Stay invested in an appropriate mix of the five basic funds and rebalance your account to that target mix on a regular basis. Almost all of the complaints I’ve heard come from TSP participants who have attempted to shift out of, and into, various funds based on fear, greed and the belief in someone’s ability to predict where this or that fund’s price is headed next week, next month or next year.
Emotion is an unreliable, and unpredictable, basis for investment decision-making, and no one knows which way the markets are headed tomorrow. Still, massive numbers of investors continue to employ both irrational criteria and market predictions to manage their portfolios. This is a reckless and foolish way to manage your life’s savings.
During the last 30 years, I count only three calendar years in which the Standard & Poor’s 500 Index – the basis for the C Fund and a widely accepted proxy for the domestic stock market – produced what I would characterize as “bad” performance – losses, after dividends, of 10 percent or more. There were a handful of the remaining years that produced small losses or gains, but during the vast majority of those years, investors in the broad stock market enjoyed significant gains in their wealth.
That reality – that, historically, markets have gone up more than they’ve gone down – underpins my recommendation that you stay appropriately invested at all times. It puts the odds squarely in your favor. I don’t know whether the markets will end 2010 higher or lower than where they stand today, but I do know that the odds favor gains, and since that’s always the case, being appropriately invested is the smart play.
Written by Mike Miles
For the Federal Times
Publication January 11, 2010