Stock got off to pretty good start last week as the major indices were up sharply on Monday, and they held onto those gains as we headed into Thursday. 

 

On Thursday, Meredith Whitney, who made a name for herself correctly calling for the downfall of financials in 2007, said valuations on lender stocks are too high and what “scares” her most is the government stepping away from buying mortgage-backed securities.

The market lost ground on the comments and stocks could not recover by the close on Friday.

The C-fund held up OK, losing just 0.13% on the week.  The S-fund dropped 0.65%, and because of a rebound in the U.S. dollar, the I-fund lagged behind with a loss of 1.93%.  The Bond fund (F) picked up 0.31% as investors opted for safety.

                 
                                      
For the month, all of the TSP fund remain solidly in positive territory, but as we talked about a couple of weeks ago, during the last few months, which all started positively, we saw weakness toward the later half of the month.  So, is it time to protect your gains?

There is an historic positive bias for stocks on the Wednesday prior to, and the Friday after Thanksgiving Thursday, but the week after drops off.

You may or may not be aware that the TSP was considering adding additional mutual fund options to our current fund options, but unfortunately it is looking less likely that it is going to happen any time soon.

"Other union witnesses expressed concern that, at a time when the TSP is making so many changes, the availability of human resource officers at many federal agencies is dwindling, which means feds may have more trouble getting one-on-one financial advice regarding their investment options." [source]

I wasn't aware that anyone was being given one-on-one financial advice from their agencies, nor do I believe your employer is responsible for giving it to you.  They already provide matching funds to many employees.  I would think that managing our money would be our own responsibility. If you want help, you seek it on your own.

Anyway, here is an example of why it might be very useful to have the option of being able to invest in something like a gold fund:

When the stock market is in a bear market, or moving down for any prolonged period of time, it becomes much more difficult to actually make money in your TSP account, particularly if you are diversified and keep money in the stock funds.

By adding a fund that tracks gold, there will be opportunities to make money, even when stocks are falling.  Not all the time, but with bonds, gold and attempts to time rebounds in the stock market, you can protect your account, or actually come out ahead. 

As you can see in the chart below, the S&P 500 is currently sitting at about 1091.  It first reached 1091 back in 1998.  Any money you had invested in the C-fund back in 1998 is probably worth about the same now as it was back then.  Not a great return for 11-years of investing.

You can also see that the S&P 500 has been through two serious bear markets since about 2000, with the index twice losing between 45% and 55% of its total value.  The S and I funds did even worse.  It was a tough time to make money, to be sure.

But during those times, as well as others, gold saw powerful rallies and a gold fund would have been a nice option for your TSP balance, to either offset some of the large losses being handed out, or if you were aggressive, to actually make money during the bear market.

      
                                     Charts courtesy of www.decisionpoint.com

Just looking at the period between 2007 and today, the S&P 500 is still down over 30%  from its peak of 1576 to today's 1091, while gold is up over 60% during that same period going from $700 an ounce to  to today's $1150.

Whether you are trying to time the market or just trying to spread your money out into a more diversified allocation, having more options can be a big benefit.  Of course trying to time the market can be a risky proposition if you are wrong, but there is always risk in any investment.  You have to judge your own risk / reward tolerance. 

So, while some are trying to protect us from ourselves by expressing concerns that adding new options will increase risk to TSP participants, giving us the option to make our own decisions with additional investment opportunities - and no one is forcing you to use any new investment vehicle - is part of the risk that we may need to take if we are ever going to retire. 

The stock market has basically moved sideways for the last 11-years.  Will you be able to retire if it moves sideways for another 5, 10, or more years?

Good luck, and thanks for reading.  We will be back here next week with another TSP Wrap Up.

Tom Crowley
www.tsptalk.com