financial planner Stephen Zelcer

TSP Planning Report December 2022

TSP planning report image for December

TSP Planning Report December 2022


  • The G Fund rate for December 2022 actually decreased to 3.875%.  It was 2.75% in August.  
  • The Fed Funds interest rate increased to 4.33%.  It was 3.83% last month.  It was .08% last year. 
  • This month’s unemployment rate remained at 3.7%.  
  • PMI (Purchasing Managers Index) contracted for the first time in 30 months, since May 2020).  This month’s reading came in at 49. (Any reading below a score of 50 means contraction). 
  • The S&P 500 (C Fund) increased 5.58% in November, on the heels of 8.1% in October, and -9.21% in September.  As of this writing, the S&P 500 is down -20% YTD.
  • A 3rd estimate of Q3 GDP has come out, revising the growth upward, from 2.6% to 3.2%.  
It seems analysts unanimously agree the economy will be sluggish in 2023.  They identify myriad causes of this: Rising Interest Rates, Persistent Inflation, Global Unease, Weather.  All of the above will, in turn, impact the following:
  • Housing – Interest rates have climbed from 2.5% to 7% in about a year (and the Fed has said it’s not done raising rates).  As a result, most measures of housing activity—affordability, builder sentiment, housing starts and turnover—have dropped sharply.   Interestingly, JP Morgan noted, based on past research, that total home sales decline by about 10% for each 1% increase in mortgage rates. Given the roughly 4% increase in mortgage rates this year, we could still see a 40% decline in home sales.  (Home sales are already down about 16%.)  This does not mean that home prices will drop by 40%, rather the number of homes being sold will drop compared to last year.  This is because there will be fewer buyers who can afford the higher payments (aka. lower demand).  This may result in sellers having to lower their asking price (to get higher demand), or fewer houses coming on the market lower supply). If fewer houses come on the market, we will still have a supply issue.  
  • Consumer spending – Higher interest rates means the cost of borrowing money is more expensive.  This usually reduces the buying power of consumers (think auto loans, loans for various home improvement projects, personal loans).  Furthermore, continues from outside causes such as bird-flu, war, and in some countries, I’m sad to say, there are still Covid lockdowns. These forces limit production of goods, which keeps inflation high, despite the rising interest rates.  High inflation has eroded the buying power of most consumers, so their money is likely going toward essentials and less toward discretionary spending, which means companies focusing on consumer staples should weather better than non-consumer staples.  
  • Corporate Spending – As in the previous note, higher interest rates & persistent high inflation means the cost of borrowing money is more expensive and the cost of goods & services is also more expensive.  This reduces the buying power of corporations, which limits their ability to buy goods, machinery, R&D.  Also, limits their ability to expand (no offices, locations) and limits their ability to hire. 
  • Jobs – If companies are spending more on goods and have limited ability to expand, this will certainly limit their need and ability to hire additional employees, and may even prevent them from continuing to afford their current employees.  This should put downward pressure on the job market.   We’ve already noted in the past two reports how many major employers are having massive layoffs.
Bottom Line:
I was pretty pessimistic for 2022, and I continue my pessimism for 2023.  
The market has already dropped significantly, 20% in 2022.  A rebound will come, but I don’t know how soon.  Unlikely to be in the beginning of 2023. 
You need to ask yourself – how soon do you need your investment money?  My general advice is to give it time.  Time is the ultimate risk mitigator.  
If you are seeking 4% yields, you don’t need much stock, because as of today the G fund is yielding 3.875%. 
However, for higher yields you will still need stock exposure.    Keep investing, and go on with your business. In fact, you may want to introduce some more money into the C & S funds to capture the bounce-back.  Your new TSP contributions should go 70% C fund, 30% S fund to catch a bounce-back.  If your G fund is overfunded (if you don’t know what overfunded is, contact me asap), consider doing an inter-fund transfer from G into C & S to participate in the bounce-back. 
See this month’s recommended portfolios.  DON’T JUST LOOK AT RATE OF RETURN. Always view the target return of each portfolio in context of its ranges of fluctuation.

Anyone who has more than 5 years before drawing income from their TSP should consider taking a more aggressive posture going forward and use my aggressive portfolios below.  If you are within 5 years of retirement, you should email me to get a more customized recommendation. 

If you have any questions, feel free to contact me.

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Click here to download my portfolios.

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