Bear-proof portfolio: Stocks, bonds or G Fund?
By Mike Causey | @mcauseyWFED
April 20, 2016
Some experts are predicting a big-time correction, maybe even another great recession, this year. Some of them made the same prediction last year. One thing is sure. They will be right some day, some year.
Recessions happen. We (they) just don't know when they'll happen or how long they'll last. If you google something like "dangers ahead for world economy," you will get dozens of stories, from reputable economists and financial journalists, predicting an imminent collapse. Only the dates differ.
In a story headlined "Danger Ahead For World Economy," the Washington Post said, "The world economy is nearing what international policymakers fear could be a dangerous turning point, as populist uprisings in the U.S. and Europe threaten to unravel 'current alliances and damage free trade.'" Meantime, what's a federal or postal investor supposed to do with his or her Thrift Savings Plan? How about the hundreds of thousands of retirees who also have TSP accounts?
Should people play it safe and stay in the G-fund? Or move into the super-safe (but low yield) Treasury securities fund until the recession — when it hits — is over? Then there is the question of if and when to come back into the stock market? Folks who rode out the last Great Recession and kept buying the C, S and I stock funds did very well. Many people who headed for the G-fund (and stayed there) wound up selling low and missing out on the rebound.
Financial planner Arthur Stein describes the long-term stock market like this: Picture someone walking up a slight incline, yo-yo in hand. The yo-yo (stock market) goes up and down but (based on past performance) the trajectory is gradually upward. That's a good argument for buying and holding.
Stein will be our guest today on the Your Turn radio show here on Federal News Radio. We'll talk about the pros and cons of the TSP lifecycle funds that invest in the stock (C, S and I) market vs. the F-fund (bonds) and the G-fund (special Treasury securities).
After a nice post-recession recovery, Stein said for TSP stock investors the first quarter of this year was not a fun ride. It was up and down, "and started horribly, with C, S and I funds suffering double-digit declines," he said.
But,"TSP investors who held their positions saw those losses gradually erased. The end-of-quarter results for the C (large cap) S (small cap) and I (international stocks) funds were either slightly positive, or slightly negative," he said. Not great "but much better than they were in February."
Over the long-haul (the 10-year period ending in December, 2015), Stein said the G-fund return was 2.9 percent; F-fund 4.7 percent; C-fund 7.4 percent; S-fund 8.0 percent and the I-fund 3.2 percent. That includes the period of the Great Recession, which sent so many investors back to the safe harbor of the G-fund. But looking at those returns, the question is how safe is safe?
Stein points out that past performance is no guarantee of future performance. "But the historical evidence is clear," he said. "Stocks outperformed over long periods of time.
For most federal workers — those under the FERS retirement program — the TSP is critical to a happy retirement. As in having enough money to live a normal, comfortable life. The TSP will probably provide at least one-third (and maybe 50 percent) of the income most FERS retirees have to live on. Some will need to tap their TSP accounts as soon as they retire. Others may be able to wait. But what you have in your account on those critical dates depends on what you are putting in now. And where you are putting it.
Posted by: sarah_oz@yahoo.com
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