financial planner Stephen Zelcer

TSP Planning Report March 2022


  • The G Fund rate for March 2022 was increased to 2% , from February’s 1.825%.  It was 1.325% in March 2021.  
  • This month’s unemployment rate decreased from 4% to 3.8%.  Unemployment was at 6.2% a year ago, in Feb 2021.
  • PMI (Purchasing Managers Index) continued to expand (any reading above a score of 50 means expansion). This month’s reading came in at 58.6, compared to last month’s 57.6.
  • The S&P 500 (C Fund) decreased -2.99% in February, compared to -5.18% in January.  The S&P 500 is down -5.29% TYD.
  • The 2nd estimate of Q4 GDP shows growth of 7%, significantly improved over the previous Q3’s reading of 2.3%.
  • The Fed Funds interest rate increased to 0.4% from last month’s 0.25%, and they anticipate a few more rate increases over the remained of this year.   
Consumer Sentiment
The University of Michigan Consumer Sentiment Index (MCSI), a monthly survey of how consumers feel about the economy, personal finances, business conditions, and buying conditions, ended March 2022 at 59.4%, representing a 5.4% decline from the final reading of 62.8% in February 2022 and a 30.0% decline from the index’ reading of 84.9% one year ago in March 2021.
This means people are really not confident about the economy.  
However, economists debate whether consumer confidence is a “leading” indicator – meaning it forecasts what will happen in the future – or a “lagging” indicator – meaning it tells an old story and is no indicator of future economic activity.  
If you view consumer sentiment as a “leading” indicator, then people will be spending less money, which means companies will be less profitable, which will drive down the value of stocks.  If you view it as a “lagging” indicator, then it does not point to future stock drops, but instead merely explains why the market dropped in the past few months.  
Interesting to note, the stock market as of today (March 25, 2022) is up about 8% in the 14 days since this University of Michigan report was released on March 11, 2022. 
Also, interesting to note, consumer sentiment started declining in April of 2021.  At that time, the S&P 500 (C fund) was valued at $3,900.  As consumer sentiment continued to decline, the S&P500 continued to rise, reaching $4,800 by December 2021.  
Bottom line here – consumer sentiment doesn’t clearly forecast market declines, so please don’t panic sell.  
The stock market is starting off 2022 very volatile, mostly due to the anticipated rise in interest rates, however the new concern is the escalation between Russia & Ukraine.  
Yes, certain industries will feel the turbulence.  Food & Energy prices will likely spike.  This stinks, and nobody likes it. 
But, to put into economic perspective, this threat, intrinsically, is tiny compared to the economic threat of Coronavirus.  Coronavirus affected every country and every economy, and when one economy shut down there was no backup economy in place.  Here, there will be only a few counties directly impacted, and only a few industries directly impacted, and there are backup economies to pick up the pieces. 
To quote the New York Times“Italy, with half the people and fewer natural resources, has an economy that is twice the size (of Russia’s economy). Poland exports more goods to the European Union than Russia.”
However, that doesn’t mean investors won’t be spooked, which will drive the stock market down during this conflict.  This, again, may be an amazing opportunity to invest. 
Rising Interest Rates:
Rising interest rates are not a problem.  
Let me quote myself from numerous prior reports: “inflation will be countered by rising interest rates.  This may cause a temporary dip, but keep buying as it goes down.  Eventually, it will stabilize and come back up.”
Bottom Line:
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. 
As I said last month, both G fund and F fund are poor options in this environment.  G fund is under-performing inflation (inflation is 5.9% while G fund is 1.825%).  F fund is exposed to interest rate risk.  Inflation leads to a rise in interest rates which will crush the F fund.  
Of the two, the G fund is the lesser of the two evils, because the F fund will have a double-whammy: It’ll lose principle and the remaining principle will be deflated, meaning less valuable.   G fund can’t lose principle. 
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 portfolio’s 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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