what should I do with my TSP for the election?

TSP Planning Report October 2020

Facts:

  • Unemployment continued to drop.  This month’s unemployment rate came in at 7.9%, compared to last month’s 8.4%.
  • PMI (Purchasing Managers Index) continued to expand. This month’s reading came in at 55.4, compared to last month’s 56.
  • The S&P 500 (C Fund) dropped 3.8% during the month of September.  The YTD return is 5.5%
  • The Fed Funds interest rate remains between 0% – 0.25%, and the Fed suggested that such rates will hold thru 2023.  
  • The 3rd Q2 GDP estimate shows GDP dropping – 31.4%, as opposed to the original estimate of -32.9%.
 
Assessment:
The GDP numbers were not a surprise.  The market already knew this and is looking beyond the immediate drop, into the future. The above performance suggests the economy is healing from its wounds, although this month’s numbers were slower than expected.  
 
As I’ve said already for the past 4 months, Coronavirus is no longer impacting the economic outlook. This, however, can be changed if governments impose new lockdowns.  Within the USA, some states are tightening up, but most states are easing their restrictions, so I’m not concerned.  Here’s a look at how the various states are moving forward: (source: https://www.nytimes.com/interactive/2020/us/states-reopen-map-coronavirus.html)
tsp and covid
 
Concerns:
The presidential election is not a concern.  But a botched presidential election with delayed results will invite uncertainty into the market which will cause a panic sale.    
This panic sale will be a great opportunity to buy in, so be prepared for both the drama and opportunity.  The drop, if it happens, will be somewhat short-lived, assuming the elections will be resolved in short time.  You will need to be actively managing your portfolio for the next month or so.  
 
For those who want to participate in the opportunity, you need to set clear guidelines before you act. Otherwise, you will be shooting from the hip based on emotions and media hysteria.  
 
If you want to know my personal guidelines, feel free to send me an email and I’ll share them with you.  
 

Another point I am concerned with and monitoring is housing.  A couple of real estate stocks have already started declining. The reasoning is this: 

The amount of defaults, evictions, and foreclosures is being stalled by the government. The government stalling may expire in the near future.  That’s not a problem, unless people are still being prevented from working.  If that happens, many unemployed people will be evicted with no place to go (unable to rent because they are still being prevented from working), and/or landlords may not be able to find tenants, and thus unable to collect rents, causing them to default on their loans.  If both of these happen, we will have a weird situation of plenty of empty properties but no one employed to rent them.  This will cause many properties to be put on the market, an over-supply, which in turn will cause housing prices to go down.  This may also cause a credit crunch, as lenders will ultimately feel the burn of defaults, leading to tightening of lending and increased costs of borrowing.  

Hopefully, the government can coordinate their efforts and allow people back to work before releasing the pent-up housing forbearance rules.  It’s too soon to know which way this will go.  I’ll keep track of new market-impacting policy and keep you posted.
 
Below are my recommended portfolios for the month:
Click here to download.
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