Because the mutual funds that comprise the federal government’s version of a 401-k, the Thrift Savings Plan (TSP), are essentially index funds that mirror large indices like the S&P 500, Wilshire 5000, and others. The TSP has been in lock step with the current stock market downturn and many members of the federal government and the military have seen their retirement portfolios significantly decline like most civilians.
S Fund. The small capitalization fund, or S Fund, is designed to closely follow the Wilshire 4500 completion index. The Wilshire is a broad index that tries to capture the shares of smaller companies that are not included in the Standard & Poor’s 500 index. The fund has lost 18.9% over the past twelve months.
I Fund. The I Fund, TSP’s international mutual fund, was established to follow and benchmark the Morgan Stanley Capital International EAFE (Europe, Australia, Asia, & Far East) Index. The fund has lost 29.0% over the past twelve months.
G & F Funds. The TSP’s G & F Funds invest in government bonds and cash equivalent funds and are the safest and lowest interest earning funds in the group that are offered to investors. These funds have been the only ray of light during the market upheaval returning 4.05% and 3.89% respectively over the past twelve months. That is no surprise since they are ultra-safe, boring, and can barely keep up with inflation. The F Fund is for fixed investments such as high grade bonds. The G Fund is full of short-term government treasuries.
So, what should you do with your TSP balance and contributions? Keep investing!
- Now is the perfect time to pour money into the retirement program. The stocks that make up the indices that are followed have never been cheaper.
- Use your January pay raise to boost your contributions. I’m actually raising my contribution level right now by 1% to take advantage of the low share prices. I figure that I was going to do it any way in January, and I will barely notice an extra 1% missing from my paycheck.
- Keep the right asset allocation. The end of the year is the perfect time to rebalance your funds inside your TSP. In order to be diversified, you should consider investing in a mix of the funds that are offered depending on your age and risk tolerance. I am a huge fan of having a solid mix between the C, S, and I Funds in TSP.
Try not to panic about the recent downturns of the market and the federal Thrift Savings Plan. They will both bounce back over the long term. Keep investing!
*** All percentages were calculated through October 1st, 2008.