The financial market turmoil apparently has caused more Thrift Savings Plan investors than usual to shift money among the investment funds offered in the 401(k)-style retirement savings plan for federal employees, although the large majority has left their investments alone.
“The TSP is designed as a long-term investment vehicle and all of our educational efforts are intended to reinforce that notion,” TSP spokesman Tom Trabucco said in an e-mail. “There is a reason why market professionals liken transfers during tumultuous markets to trying to catch a falling knife. We consistently urge participants to develop a long-term strategy and stick with it during short periods of extreme market movement.”
Three of the TSP’s investment funds reflect major stock market indexes and have suffered drops along with those indexes. One fund tracks large U.S. company stocks, another tracks small and medium-sized U.S. companies, and a third tracks an index of international stocks.
The large company stock fund, or C fund, which tracks the S&P 500, had a share price of $15.79 at the close of trading July 29, but as of the close of trading Monday, that price had dropped to $13.69, down about 13 percent in six business days. The closing price after a positive day for stocks Tuesday was $14.39.
In addition, the TSP offers a fund of special government securities, a bond fund that tracks an index of corporate and government bonds, and “lifecycle” funds that contain mixes of the core funds that vary according to the projected withdrawal date.
Investors may change the allocation of their investments at any time, with few restrictions, and on an average day between 5,000 and 10,000 such “interfund transfers” are ordered, according to the TSP. That activity spiked to nearly 27,600 on Monday, though a Monday typically is a busy day because many investors place orders over the weekend but the orders aren’t executed until Monday. The number Tuesday was almost as high, about 25,900.
Over those two days, $3.5 billion was transferred among funds.
Last week, as the stock markets started a steep slide, the number of requests ranged from about 7,900 last Tuesday to about 25,600 last Friday.
Even the higher-than-normal level of activity represents only a small fraction of the 4.5 million account holders, who include active federal and postal employees and military personnel, retirees and those who separated before retirement but left their accounts in place.
Also, the number of investors taking action would be lower than the number of transactions ordered, since some investors order more than one.
In addition to the long-term orientation of the program, many TSP investors may sit on the sidelines during a downturn because they already have a fairly conservative investment portfolio. As of the end of July, about 44 percent of the $288 billion that investors had on account in the TSP was in the most conservative fund, the government securities fund, and another 6 percent was in the mixed bond fund.
Historically, during market slides, TSP investors have fled to safety, transferring money out of the stock-oriented funds into the government securities fund and into the bond fund, especially the former. The TSP calculates the cash flow among funds only on a monthly basis, however, so the effects of the recent transactions aren’t available.
During June and July, which also were down months for stocks, investors moved a net $7.7 billion into the government securities and bond funds from the other funds.
Under TSP policy, investors may make two unrestricted interfund transfers per month, and any additional transfers may only move money into the government securities fund.
This post has been updated since it was first published.