GovernmentExecutive.com

Four out of the five basic funds in the Thrift Savings Plan lost money in May, with only the fail-safe government securities (G) fund making gains.

The G Fund, which is invested in short-term U.S. Treasury securities specially issued to the TSP, gained 0.44 percent last month, bringing its 12-month total growth to 4.6 percent.

Administrators of the TSP, a $180 billion 401(k)-style retirement savings plan for federal employees, designed the G Fund to provide investors with a higher return than the rate of inflation without any serious risk from market fluctuations. Often, this means the G Fund is the lowest earner, but in down-cycle months such as May, its stability makes it a star.

Despite a poor-performing month, most of the TSP funds retained positive gains for the year. The F Fund, however, composed of fixed-income bonds, fell 0.09 percent in May and now has a 12-month loss of 0.38 percent.

The biggest loser last month was the S Fund, which invests in the stocks of small- and mid-sized American companies. That fund lost 4.36 percent in May, though its 12-month total earnings are still at 17.73 percent, making it the second highest-earning fund. A somewhat volatile pick, the S Fund was the highest earner just two months ago, when it brought in 3.84 percent growth for March.

International stocks, represented in the I Fund, also performed poorly in May, losing 3.87 percent. The fund, which invests in stocks in Europe, Australia and some countries in Asia, is still the highest 12-month earner with a 28.92 percent growth.

The C Fund, or common stocks fund, which tracks Standard & Poor's 500 Index of stocks in the largest domestic companies, lost 2.87 percent in May. The C Fund's 12-month earnings are at 8.68 percent.

Since last summer, the TSP also has offered life-cycle (L) funds, which are blends of the five basic funds that automatically grow more conservative as investors age. All L funds lost ground in May, with the riskier-mixed funds designed for younger investors losing the most.

L 2040, intended for employees with a target retirement date around the year 2040, lost 2.87 percent. The L 2030 Fund dropped 2.45 percent; the L 2020 lost 2.06 percent; the L 2010 decreased 1.31 percent; and the L Income, designed for employees with planned retirements in the very near future, was down 0.33 percent.

COMMENTS

• If you are in TSP for retirement purposes you should probably follow a pattern as follows: 1. Within three years of retirement annuity from TSP you should have at least 85 percent of your money in the G Fund and the rest in equities (my preference is international, particularly China). 2. Within five years of retirement you should have 70 percent in the G Fund and the rest in equities. 3. Ten years from retirement you should have 70 percent in equities and 30 percent in the G Fund. 4. Fifteen years from retirement you should have 95 percent in equities and 5 percent in the G Fund. While these are generalizations they follow a typical pattern. Generally, the return on equities takes about 10 years to stabilize around the long term return of 12 percent-14 percent. In a five-year period you should expect something closer to 10 percent but with much greater variation. If you cannot stand variation, you should not be in equities! Taxpayer Posted June 6, 2006 7:17 AM
• Are you paying attention folks? This is why FERS is a raw deal over CSRS. Ronny successfully switched us from a sure thing (a set retirement annuity for X years) to forcing us to gamble for our retirement. Now they want to give us National Shaft the Personnel system. Why do federal employees hate change so much?????? Because the Republicans are in office?? Dis-gruntled. GovExec.com reader Posted June 2, 2006 1:11 PM
• I believe last month's performance illustrates why a REIT should be added to the TSP. Major R. Coleman Posted June 2, 2006 2:11 PM