thedrifter
10-17-08, 05:57 AM
Military update:
Military ‘thrift savers’ stung like most investors
By Tom Philpott
Mideast edition, Friday, October 17, 2008
With 36 percent of servicemembers participating in the government-run Thrift Savings Plan, and nearly 60 percent of their money tucked into stock index funds, military investors are seeing nest eggs shrink like those of other American investors.
For these servicemembers, and for 3 million federal civilian TSP participants, this is a time for “prudence not panic,” advises Gregory T. Long, executive director of the TSP program.
Long noted, during a phone interview, that most military TSP participants won’t reach an age when they must draw down their investment accounts for 20 to 40 years. Therefore, as tough as it is to watch the value of stock funds decline these days at an alarming pace, most military investors might want to perceive the drops as investment opportunities.
“The old adage of trying to buy low and sell high remains true,” Long said. “And in order to buy low you have to have stocks that are on sale. That does appear to be what’s going on right now,” Long said.
From Oct. 10, 2007, through Oct. 10 this year, the value of shares in TSP stock index funds fell more than 40 percent. The Common Stock Index or "C" Fund, which matches the performance of Standard & Poor’s index of 500 stocks, dropped 41 percent as did the Small Capitalization Stock Index Investment or "S" Fund. The International Stock Index or "I" Fund fell by 46.8 percent.
During the same period, returns on government securities in the “G” Fund, which are protected against declines, had a gain of 3.9 percent.
The volatility of stock indexes, caused mostly by distressed banks and a freeze in credit markets, has created some of the sharpest one-day drops since the Great Depression more than 70 years ago. That is rattling many TSP participants, especially those close to retirement.
“Understandably, as TSP account balances decline, some participants are concerned about the future,” Long said in a recent note to TSP investors.
A combination of declining stock fund values and transfers into the G Fund has changed the investment profile of participants. At the end of September, 42 percent of dollars invested by servicemembers were in the G Fund, up from 34 percent a year ago.
Federal civilians also became more conservative investors, either by choice or because of declines in stock fund values. Employees under the newer Federal Employees Retirement System (FERS) had 43 percent of TSP dollars in the G Fund, versus 32 percent a year ago. The older population of employees under the Civil Service Retirement System saw their G Fund allocation jump to 51 percent in September, up from 38 percent last year.
Long cautioned investors to keep a long-term view if they are years from retirement and still making regular payroll investments.
“When the equity markets are down, like they certainly were last week, you purchase a greater number of shares than you would have a few months earlier. Over time, with 20-, 30- or 40-year time horizons, you end up purchasing average shares at a lower cost,” Long said. “That’s the logic of dollar-cost averaging. While it may be difficult to see right now, this is, for the younger investor, an opportunity.”
TSP was established in 1987 as a critical element of FERS. Those who contribute to TSP as part of FERS receive some government matching. Their retirement also includes a fixed annuity formula and social security. Service members have been able to participate in TSP only since March of 2002 but see no government matching. As of Sept. 30, military participants had an average balance of $8,959 versus more than $60,000 for federal civilians.
Three years ago, TSP began offering new Life-Cycle or "L" funds, designed to maximize returns and minimize risk based on when investors expect to retire and begin to draw down accounts. The “L 2040” fund, for example, invests more heavily in stock index funds than does “L 2010.”
The performance of L funds over the past year of declining markets shows how risk is dampened based on time horizon. Since October 2007, share values in the L 2040 Fund fell by 35.9 percent versus drops of 31.9 percent for L 2030, 27 percent for L 2020 and 13.6 percent for 2010.
Long acknowledged that former “day traders” of TSP funds are unhappy that, starting last May, participants have been barred from executing more than two interfund transfers per month – the exception being transfers into the G Fund, which can be made at any time.
Tom Crowley, who runs an Internet blog, TSP Talk, for TSP investors, said the interfund transfer limit “could not have come at a worse time. With the volatility so high, it is difficult to pick two days during the month to make a change because you have no idea what will come tomorrow, let alone a week or two from now.”
Long defended the transfer limit, saying TSP is for long-term investors, not traders. Every fund transfer, he said, raises the cost of administering TSP a small amount. The costs being generated by three to four thousand “very active traders” was being paid by all TSP participants.
“We have to look out for the interests of everybody. We went through a lengthy process of research, then regulatory proposals, a period of feedback and response, which eventually ended up in us instituting the interfund transfer limit. That limit is serving us well,” Long said.
Fund transfers are one measure of how nervous TSP investors have become. In August, there were 67,000 transfers. In September, that number had jumped to 166,000. A year ago, however, because of active traders, TSP fund transfers were surpassing 200,000 a month, Long said.
To comment, e-mail milupdate@aol.com, write to Military Update, P.O. Box 231111, Centreville, VA, 20120-1111 or visit: www.militaryupdate.com.
Ellie
Military ‘thrift savers’ stung like most investors
By Tom Philpott
Mideast edition, Friday, October 17, 2008
With 36 percent of servicemembers participating in the government-run Thrift Savings Plan, and nearly 60 percent of their money tucked into stock index funds, military investors are seeing nest eggs shrink like those of other American investors.
For these servicemembers, and for 3 million federal civilian TSP participants, this is a time for “prudence not panic,” advises Gregory T. Long, executive director of the TSP program.
Long noted, during a phone interview, that most military TSP participants won’t reach an age when they must draw down their investment accounts for 20 to 40 years. Therefore, as tough as it is to watch the value of stock funds decline these days at an alarming pace, most military investors might want to perceive the drops as investment opportunities.
“The old adage of trying to buy low and sell high remains true,” Long said. “And in order to buy low you have to have stocks that are on sale. That does appear to be what’s going on right now,” Long said.
From Oct. 10, 2007, through Oct. 10 this year, the value of shares in TSP stock index funds fell more than 40 percent. The Common Stock Index or "C" Fund, which matches the performance of Standard & Poor’s index of 500 stocks, dropped 41 percent as did the Small Capitalization Stock Index Investment or "S" Fund. The International Stock Index or "I" Fund fell by 46.8 percent.
During the same period, returns on government securities in the “G” Fund, which are protected against declines, had a gain of 3.9 percent.
The volatility of stock indexes, caused mostly by distressed banks and a freeze in credit markets, has created some of the sharpest one-day drops since the Great Depression more than 70 years ago. That is rattling many TSP participants, especially those close to retirement.
“Understandably, as TSP account balances decline, some participants are concerned about the future,” Long said in a recent note to TSP investors.
A combination of declining stock fund values and transfers into the G Fund has changed the investment profile of participants. At the end of September, 42 percent of dollars invested by servicemembers were in the G Fund, up from 34 percent a year ago.
Federal civilians also became more conservative investors, either by choice or because of declines in stock fund values. Employees under the newer Federal Employees Retirement System (FERS) had 43 percent of TSP dollars in the G Fund, versus 32 percent a year ago. The older population of employees under the Civil Service Retirement System saw their G Fund allocation jump to 51 percent in September, up from 38 percent last year.
Long cautioned investors to keep a long-term view if they are years from retirement and still making regular payroll investments.
“When the equity markets are down, like they certainly were last week, you purchase a greater number of shares than you would have a few months earlier. Over time, with 20-, 30- or 40-year time horizons, you end up purchasing average shares at a lower cost,” Long said. “That’s the logic of dollar-cost averaging. While it may be difficult to see right now, this is, for the younger investor, an opportunity.”
TSP was established in 1987 as a critical element of FERS. Those who contribute to TSP as part of FERS receive some government matching. Their retirement also includes a fixed annuity formula and social security. Service members have been able to participate in TSP only since March of 2002 but see no government matching. As of Sept. 30, military participants had an average balance of $8,959 versus more than $60,000 for federal civilians.
Three years ago, TSP began offering new Life-Cycle or "L" funds, designed to maximize returns and minimize risk based on when investors expect to retire and begin to draw down accounts. The “L 2040” fund, for example, invests more heavily in stock index funds than does “L 2010.”
The performance of L funds over the past year of declining markets shows how risk is dampened based on time horizon. Since October 2007, share values in the L 2040 Fund fell by 35.9 percent versus drops of 31.9 percent for L 2030, 27 percent for L 2020 and 13.6 percent for 2010.
Long acknowledged that former “day traders” of TSP funds are unhappy that, starting last May, participants have been barred from executing more than two interfund transfers per month – the exception being transfers into the G Fund, which can be made at any time.
Tom Crowley, who runs an Internet blog, TSP Talk, for TSP investors, said the interfund transfer limit “could not have come at a worse time. With the volatility so high, it is difficult to pick two days during the month to make a change because you have no idea what will come tomorrow, let alone a week or two from now.”
Long defended the transfer limit, saying TSP is for long-term investors, not traders. Every fund transfer, he said, raises the cost of administering TSP a small amount. The costs being generated by three to four thousand “very active traders” was being paid by all TSP participants.
“We have to look out for the interests of everybody. We went through a lengthy process of research, then regulatory proposals, a period of feedback and response, which eventually ended up in us instituting the interfund transfer limit. That limit is serving us well,” Long said.
Fund transfers are one measure of how nervous TSP investors have become. In August, there were 67,000 transfers. In September, that number had jumped to 166,000. A year ago, however, because of active traders, TSP fund transfers were surpassing 200,000 a month, Long said.
To comment, e-mail milupdate@aol.com, write to Military Update, P.O. Box 231111, Centreville, VA, 20120-1111 or visit: www.militaryupdate.com.
Ellie