Thrift Saving members also stung

By Tom Philpott: CNJ columnist

With 36 percent of service members participating in the government-run Thrift Savings Plan, and nearly 60 percent of their money tucked into stock index funds, military investors are seeing nest eggs shrink like those of other American investors.

For these service members, and for 3 million federal civilian TSP participants, this is a time for “prudence not panic,” advises Gregory T. Long, executive director of the TSP program.

Long noted, during a phone interview, that most military TSP participants won’t reach an age when they must draw down their investment accounts for 20 to 40 years. Therefore, as tough as it is to watch the value of stock funds decline these days at an alarming pace, most military investors might want to perceive the drops as investment opportunities.

“The old adage of trying to buy low and sell high remains true,” Long said. “And in order to buy low you have to have stocks that are on sale. That does appear to be what’s going on right now,” Long said.

From Oct. 10, 2007, through Oct. 10 this year, the value of shares in TSP stock index funds fell more than 40 percent. The Common Stock Index or “C” Fund, which matches the performance of Standard & Poor’s index of 500 stocks, dropped 41 percent as did the Small Capitalization Stock Index Investment or “S” Fund. The International Stock Index or “I” Fund fell by 46.8 percent.

During the same period, returns on government securities in the “G” Fund, which are protected against declines, had a gain of 3.9 percent.

The volatility of stock indexes, caused mostly by distressed banks and a freeze in credit markets, has created some of the sharpest one-day drops since the Great Depression more than 70 years ago. That is rattling many TSP participants, especially those close to retirement.

“Understandably, as TSP account balances decline, some participants are concerned about the future,” Long said in a recent note to TSP investors.

A combination of declining stock fund values and transfers into the G Fund has changed the investment profile of participants.