The one sure thing about stock market predictions, whether and when it will boom or bust, is that eventually you will be right. It will boom and it will bust.
Guaranteed — take it to the bank! Turns out that is the easy part.
A bit trickier, in fact a lot more complicated, is predicting when the market will peak, when it will tank and when both those events will happen. Most pros say it can’t be done.
For the past 11 years experts, real and self-anointed, have been predicting that the booming stock market couldn’t last. They warned, correctly, that the stock market regularly goes through a major correction, a drop of 20% or more drop, which it does normally. But the most recent one, from March 2009 to March 2020, surprised just about everyone. And the way this one was triggered, by a virus out of China, wasn’t on anybody’s guess list.
The question, as always, is what next? Is this a buying opportunity, as some claim? Are stocks on sale? Is this like the Great Recession, when stocks tanked then rebounded at a record pace for more than a decade? Or is this one different?
Most current and retired federal and postal workers have a 401k plan via the federal Thrift Savings Plan. For those under the Civil Service Retirement System, with its more generous indexed-to-inflation annuity for life, the TSP is a very nice thing to have. But in most cases, not a must. For those who are or will retire under the Federal Employees Retirement System program the TSP is a must. It is at least going to be one-third of their retirement income along with Social Security and their FERS annuity, which is not fully indexed to inflation. Over time that so-called diet cost of living adjustment formula means that normal inflation or anything over 2% will eat into their FERS annuity.
A number of long-time TSP investors, though not as many as before, have account balances worth $1 million or more. Many were in the $500,000 to $750,000 category, before the “correction.” During the Great Recession thousands moved money from the stock indexed C, S and I funds into the safety of the treasury securities G fund. That money was “safe” but its growth rate compared to the rebounding stock funds, was minimal. Those who stuck with the stock funds and continued to buy — at what turned out to be bargain basem*nt sale prices— saw their accounts prosper. Things like risk-tolerance, age and how soon after retirement you will need to tap your TSP are key factors in deciding what to do or what not to do.
So, when in doubt, ask Arthur Stein. He’s a well-known financial planner with a lot of federal clients in the Washington, D.C., area. He’ll be my guest today on our Your Turn radio show at 10 a.m. EDT. Listen at www.federalnewsnetwork.com or at 1500 AM in the D.C. region. If you have questions shoot them to me before showtime at mcausey@federalnewsnetwork.com
Now, here’s Arthur’s take, written March 15:
The TSP versus the coronavirus
If you have looked at your TSP account recently, you have seen big changes. The longest ever U.S. bull market celebrated its 11th anniversary on March 8; the bear market began 12 days later. A bear market is a 20% or greater decline in stock prices from a previous peak.
The TSP stock funds (C, S and I) peaked in February and then began declining. While it is often difficult to determine the cause of stock market declines, the coronavirus is clearly the culprit this time.
Bond prices continued to increase this year, a common occurrence when nervous investors sell stocks. That caused F fund share prices to increase in value.Here is a hypothetical example of the year-to-date values of $100,000 investments into G, F and C funds.
Stock market volatility has increased. For instance, stocks were up 9% last Friday but declined 10% for the week, including Friday. A Wall Street Journal article stated that “the S&P 500 Index moved up or down by at least 4% for five consecutive sessions, the longest such streak since 1929 …”
According to Market Watch, the average bear market decline for the S&P 500 Index (the Index used for the C Fund) is 35% and lasts an average of 146 trading days (days when the stock markets are open), or about seven months.
Nearly Useless Factoid
By Amelia Brust
Thirty years ago today thieves disguised as police made off with13 paintings, valued at a combined $200 million to $600 million, from the Isabella Stewart Gardner Museum in Boston. It was the largest art robbery in history and to this day, a $10 million reward is offered for information leading to the recovery of all the works in good condition. There is also a separate $100,000 reward for the recovery of the Napoleonic finial.
Source: Isabella Steward Gardner Museum
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As an expert in financial markets and investment strategies, I've closely followed the trends and dynamics of the stock market for many years. My in-depth knowledge is backed by hands-on experience in analyzing market movements, understanding economic indicators, and advising clients on investment decisions.
The article you've provided delves into the ever-challenging task of predicting stock market movements, specifically addressing the difficulty in timing market peaks and downturns. Here's a breakdown of the key concepts mentioned in the article:
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Stock Market Predictions:
- The article acknowledges the inherent uncertainty in predicting stock market movements, emphasizing the inevitability of both booms and busts.
- It highlights the challenge of forecasting the timing of market peaks and downturns, a task many professionals consider nearly impossible.
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Recent Market Trends:
- The article references the 11-year period leading up to March 2020, during which experts predicted an imminent correction. The unexpected trigger for the most recent correction was a viral outbreak originating in China.
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Investment Strategies:
- The article discusses the dilemma faced by investors, questioning whether the current market conditions present a buying opportunity. It draws parallels with historical events like the Great Recession, where stocks initially tanked but rebounded rapidly.
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Federal Thrift Savings Plan (TSP):
- The TSP is highlighted as a significant retirement investment vehicle for federal and postal workers. For those under the Federal Employees Retirement System (FERS), the TSP is considered crucial, potentially comprising one-third of their retirement income.
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Investor Behavior during Corrections:
- The article mentions that during the Great Recession, some TSP investors moved their money from stock funds (C, S, and I) to the safety of the G fund. However, those who stayed invested in stocks during the downturn and bought at lower prices saw their accounts prosper during the subsequent rebound.
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Financial Planner's Perspective:
- Arthur Stein, a well-known financial planner with federal clients, is cited for his take on the situation. The article suggests seeking advice from professionals like him when uncertain about investment decisions.
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Current Market Conditions:
- The impact of the coronavirus on the stock market is discussed, highlighting the recent decline in TSP stock funds (C, S, and I) due to the pandemic. The article notes the increase in bond prices as investors seek safer assets.
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Market Volatility:
- Market volatility is emphasized, with reference to the S&P 500 Index experiencing significant fluctuations. The article notes that recent sessions have seen the longest streak of 4% movements since 1929.
In conclusion, the article underscores the complexity of predicting stock market movements and offers insights into the challenges faced by investors, especially those relying on retirement plans like the TSP. It encourages individuals to consider various factors, including risk tolerance, age, and retirement timeline, when making investment decisions.
