TOPICS
TOPICS
International fund outperforms other TSP options for 2006
Of the five basic funds in the Thrift Savings Plan, the one investing in international stocks posted the strongest returns for both last month and the whole of 2006.
The international (I) fund earned 3.11 percent for December, and 26.32 percent for the year. The four remaining basic options in the 401(k)-style federal employee retirement savings plan all had positive but more modest returns for the year.
With the exception of the I Fund, the basic funds performed worse in December than they did the previous month. One even lost money in December.
The second-place showing for both December and all of 2006 went to the C Fund, which tracks the Standard & Poor 500 Index of stocks in large and medium-sized domestic companies. That fund gained 1.42 percent last month and 15.79 percent for the year.
The fund invested in small- and midsized firms (the S Fund) put in a similarly strong performance for the year, growing 15.30 percent. But it lagged last month, with returns of 0.11 percent.
The G Fund, made up of government securities, earned 0.34 percent in December and 4.93 percent for 2006.
At the bottom of the pack, the F Fund invested in fixed-income bonds lost 0.54 percent last month. Its yearlong gains were still positive, however, at 4.40 percent.
The TSP's five life-cycle (L) funds, which invest in a blend of the basic funds that grows more conservative as employees near retirement age, performed well for the month and year. Those designed for younger employees with far-off retirement dates posted the largest gains, with increases getting progressively smaller the closer the target retirement date.
The L2040 fund for workers anticipating retirement in 2040 earned 1.31 percent in December and 16.53 percent for 2006. The L2030 increased 1.18 percent last month, and 15 percent for the year; the L2020, 1.17 percent and 13.72 percent; the L2010, 0.90 percent and 11.09 percent; and the L Income, for employees planning to retire in the near future, 0.63 percent and 7.59 percent.
In a recently completed survey, TSP participants signaled support for making the L funds the default option for investors who don't specify how they'd like their money allocated. A switch from the G Fund, which is the current default, to the L funds would require legislation.
COMMENTS
- Naturally, as soon as I invest in the I Fund, it will drop like a rock. GovExec.com reader Posted January 11, 2007 10:14 PM
- The I Fund has done well and probably will continue to do well into 2007. The basic reason is that the dollar has fallen in value on the world markets. The international fund increased by 26 percent but the value of the dollar fell by about 11 percent during the year. Therefore, the real increase in the international fund was about 15 percent which is the same as that achieved by the C Fund over the year. However, you only will realize the gain in the I Fund when you convert base to a dollar-based investment. I advised moving into the I Fund over a year ago and continue to feel the I Fund will outperform the C Fund for at least the first half of 2007 based on existing conditions and federal spending levels. However, if George W. increases the troops in the Middle East the level of U.S. spending by the federal government will increase significantly and that will drive the international value of the dollar to lower levels from already weak levels today. If we increase government spending to increase troops in the Middle East you may expect the dollar to fall and the I Fund to increase in value accordingly -- even if the investments hold steady. Growth in China is not likely to hold steady nor is it Japan, which has again started to grow. The increase return on Asian stocks and the drop in value of the dollar will cause the I Fund to outperform the C Fund again in 2007 and any increase in government spending will cause the dollar to decline even more. Countries already are beginning to price oil in terms of Euros and not dollars so the dollar drop may even be greater than expected causing the I Fund to grow much faster than any other TSP choice during 2007. Taxpayer Posted January 9, 2007 7:38 AM
- Right on I Fund. This fund has kicked butt the last two to three years, and most analysts expect international stocks/mutual funds to outpace domestic U.S. funds in 2007. It’s a crapshoot, yes, but one that has paid off quite handsomely for those with the patience to add this fund to their portfolio. The U.S. economy, while impressive, is still only a part of the global investing market. Those TSP investors not investing some of their stock portfolio in the I Fund will be sorry they didn’t in the long run. Too much business and commerce today is global -- not regional. If you need proof, look at Toyota Motors which sadly may be overtaking powerhouse GM as the world's largest automaker, possibly in 2007. Mark J Acton Posted January 4, 2007 5:19 PM
