As stocks nose-dive, TSP interfund transfers increase slightly

Monday - 8/8/2011, 5:04pm EDT

Tom Trabucco, director of external affairs, Federal Retirement Thrift Investment Board

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Allan Roth, founder, Wealth Logic LLC

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By Jolie Lee
Federal News Radio

It may be tempting to change your investments in the Thrift Savings Plan after stocks took a dive today in the first day of trading since the S&P downgraded American debt.

But the majority of TSP participants are not jumping to action, said Tom Trabucco, director of external affairs for the Federal Retirement Thrift Investment Board.

"Most people are reacting as they should, under the old adage: Don't just do something, stand there," Trabucco said.

Trabucco said FRTIB did notice more interfund transfers in the past few days.

"People are getting a little bit anxious," Trabucco said. "They've been holding on until now."

A typical day sees 4-5,000 interfund transfers and sometimes as high as 9-10,000, he said. Last Wednesday, there were 12,000 interfund transfers, 11,000 on Thursday and 25,000 on Friday and the weekend, Trabucco said.

The bulk of these transfers was movement into the G Fund, he said.

"If you're not using something like the L Fund or an allocation you are carefully monitoring to balance your risk at a level at which you're comfortable, then these jolts can really send you reeling," Trabucco said.

Human psychology plays a large role in how people respond to stock days like today, said Allan Roth, founder of Wealth Logic LLC, author of the book "How A Second Grader Beats Wall Street," and columnist for CBS MoneyWatch.com.

"When you think what money is, it's our financial freedom to allow us to do whatever we want with our lives, whatever is important," Roth said. "When we see that nest egg shrink dramatically - and it's shrunk 19 percent in stocks over the last 11 trading days - it hurts; it causes a lot of pain."

He added, "The human reaction to pain is to try to make it stop, and the one way to make it stop is to get out of the C, S and I and run to the G Fund. It's the wrong thing to do, but it's a natural human reaction."