Led by remarkable returns in the S Fund (Small Cap Stock Index Investment Fund), the U.S. government’s Thrift Savings Plan (TSP) finished 2020 with a bang, and is off to a strong start in 2021.
TSP plan participants who stuck with stocks instead of fleeing for safety as the coronavirus pandemic took hold in early 2020 were rewarded with huge gains for the year. In 2020, the S Fund gained an impressive 31.85% in value, capped off by a 7.24% gain in December alone. And so far in 2021, FedSmith reported Jan. 26 that it is up 7.11% to lead a strong start to the new year for the core TSP funds.
The TSP S Fund invests in stocks of small- to medium-sized U.S. companies, seeking to match the performance of the Dow Jones U.S. Completion Total Stock Market Index, a broad market index made up of stocks of U.S. companies not included in the S&P 500 Index.
Because the S Fund is passively managed, it remains fully invested during all market cycles and economic conditions. Small cap stocks, while more volatile, have historically outperformed large cap stocks. In 2020 in particular, S Fund investors were well rewarded for taking this extra risk.
While the S Fund was the top-performing core TSP fund, there were gains across the board. The C Fund, which tracks common stocks in the S&P 500 Index, gained a healthy 18.31% in 2020.
The (international) I Fund grew 8.17% in 2020, despite a tumultuous year with the Trump Administration successfully putting a halt to a plan to invest billions of I Fund dollars in a new index fund that includes some Chinese state-owned military and intelligence companies.
The TSP (fixed income) F Fund gained 7.5% in 2020 while the G Fund, which is made up of government securities,barely kept the TSP core fund string of gains alive, gaining a slight a 0.97%.
So far in 2021, in addition to the S Fund’s 7.11% gain, FedSmith reports the C Fund is up 2.73%, the I Fund 1.85% and G Fund up 0.06%. The F Fund was down 0.52%.
Lifecycle Funds, including five new L Funds in five-year increments started in 2020, are also starting strong with three of them showing a return of more than 3% so far in 2021.
Complete yearlong performance results are not available for all of the L funds as the five new funds were established in July 2020. In 2020, the L Income Fund (for those who already have begun making withdrawals) gained 5.15%; L 2030, 11.26%; L 2040, 13.16%; and L 2050, 14.79%.
TSP reports that 46% of participants choose a Lifecycle (L) Fund, which shift to more stable investments as participants get closer to retirement. That’s up from 43% in 2019.
As of Dec. 31, 2020, the TSP, the largest defined contribution plan in the world, had 6.2 million participants with $710 billion in invested assets. It’s the first time the TSP crossed the $700 billion threshold with the Federal Retirement Thrift Investment Board attributing the milestone to contributions from a growing number of uniformed services members joining the plan for the first time.
Other notable TSP stats
- As of last December 30, the TSP had 75,420 people with accounts at or above $1 million, according to Federal News Network, almost doubling the number of participants at that level from a year earlier. There were 55,183 in the club as of June 20, 2020, and only 27,212 as of March 31 2020.
- Hardship withdrawals and loans were down 18% in 2020 compared to the previous year.
- The TSP increased automatic enrollment contributions to 5% to make sure all new, eligible participants receive full matching contributions starting with their very first paycheck.