financial planner Stephen Zelcer

TSP Planning Report October 2022

  • The G Fund rate for October 2022 increased to 4%.  It was 3.375% in September, and 2.75% in August.  
  • The Fed Funds interest rate remains at 3.25%.  It was 2.5% in August. In June in was 1.65%, and 0.9% in May. The Fed anticipates 1 more rate increase this year, in November. 
  • This month’s unemployment rate decreased back to 3.5% from 3.7%.
  • PMI (Purchasing Managers Index) continued to expand (any reading above a score of 50 means expansion). This month’s reading came in the same as last month’s, 52.8, compared to August’s 52, July’s 53, and June’s 56.1.
  • The S&P 500 (C Fund) decreased -9.21% in September, on the heels of -4.7% in August.  However, as of this writing it has recovered some of it’s losses.  YTD, the S&P 500 is down -18.6%
  • A 1st estimate of Q3 GDP has come out, showing a growth of 2.6%.  The 3rd estimate of Q2 GDP confirms a negative -.6% GDP.  This is back-to-back quarters of negative GDP which means the American economy has entered a “recession.”
The good news – G fund is 4%.  This means, to yield 4% in your portfolio you won’t need to invest in anything that can potentially lose value. 
In other possible good news, GDP showed a surprising growth of 2.6% (however, this was just the first “estimate” of Q3 GDP, so that might not be accurate).   
The bad news – 
The above energy issues are not a result of Covid & Ukraine.  They are a result of American domestic and foreign policies which has made American less self-reliant and more energy dependent.  The Oil & Gas industry has identified 10 steps that Biden can do to stop interfering with energy production.   
I pointed this out in May & June of this year.  To quote myself from the May TSP Planning Report – “The Federal Gov’t is not taking obvious steps to improve the economy, and can be argued that they are taking steps which directly cause the inflationary environment we are experiencing, from preventing the mining of oil, depleting reserves, making American energy dependent, and in the midst of all this, discussing student loan forgiveness.  I wish I was making this up.”  
This bad news is on top of the other bad new shared in previous TSP Planning Reports:
  • Major employers announcing massive layoffs.
  • China’s Real Estate market is collapsing, leaving buyers underwater and many refusing the pay their loans – reminiscent of 2008’s credit crisis and great recession, 
  • In parts of Europe, energy prices have increased 1,000% – and they’re still rising!
  • Protests of government over-reach have sprung up in Sri Lanka and the Netherlands.
  • The British pound is steeply losing value, dropping 22% of its value in 6 months.  This means the UK will experience serious loss of buying power when trying to buy international (and national) goods and services, putting even more pressure on the UK economy.   
  • In the US, mortgage rates are over 7.5%.  
It’s ugly out there, and it seems things are going to get worse before they get better.  I do not feel good about the market for the next few months.  However, it’s always hard to say when the fall and rise will happen – for example, as of today (the end of October) the S&P 500 (C fund) grew 8.8% in the month of October.  
You need to ask yourself – how soon do you need your investment money?  
Bottom Line:
The market has dropped significantly.  A rebound, when it comes, usually comes quickly. As mentioned above, the S&P500 increased 8.8% in the past 30 days. As such, it’s hard to advise to pull out of the market.  My general advice is to give it time.  Time is the ultimate risk mitigator.  
If you are seeking 4% yields, you don’t need any stock, because as of today the G fund is yielding 4%. 
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 portfolio’s below.  If you are within 5 years of retirement, you should email me to get a more customized recommendation. 

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