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How to avoid a June swoon with the TSP
Friday - 6/4/2010, 10:58am EDT
Senior Internet Editor
Federal News Radio has been telling you about the TSP's performance for May and that it may not have been what you're hoping for. Arthur Stein is a certified financial planner with SPC Financial in Rockville, Maryland gave us a few tips for avoiding a repeat performance in June.
First of all, said Stein, "people who are investing should continue to invest." For example, Stein pointed to the C-fund and said that even though it's down for the year, that "might indicate it's a good time to put money in the C-fund."
And as for the I-fund, "it's down because one, a lot of international stocks are down, but it's also down because the value of the U.S. dollar has gone up relative to the euro and other currencies." That means the dollar has more buying power now, as far as the international stocks go, so makes those stocks a better buy.
If you think inflation is about to pick up, said Stein, be concerned about the F-fund. "Because usually higher inflation means higher interest rates which is going to cause the price of existing bonds to go down. Bonds are what's in the F-fund, so you could see a decline in value."
And he noted that while the G-fund itself won't go down, "higher inflation is going to reduce the value of everything you have in the G-fund, in your savings accounts, in your money market funds and your CD's, and that's before you figure in taxes."
The best thing you can do, said Stein, is diversify. He pointed out that the C, S, and I funds, over a long period of time, that have had a "high enough performance to increase your purchasing power after subtracting out taxes and inflation. Clearly, the G-fund over long periods of time has not done that, nor has the F-fund."