Rebalancing Is an Issue

One reason for the growth of lifestyle funds in the private sector is that numerous studies have shown that relatively few investors in similar plans there actively work to keep their investments split according to their preferred ratios. Thus, when stocks do well, portfolios tilt toward a more aggressive stance, and when stocks do poorly, the portfolios become more conservative. The pattern is much the same with the TSP. At the end of 2000, for example, after generally strong C (common stock) fund returns of the late 1990s, TSP investors had 63 percent of their money in the C fund and 33 percent in the ultra conservative government securities (G) fund. But by the middle of this year, after the poor stock market performance of 2001 and 2002, 48 percent of funds were in the G fund and 38 percent were in the C fund (transfers of previously invested money from the C fund into the G fund over that period also contributed to the shift). The bond (F) fund, which generally performed well during that time, meanwhile rose from 4 to 12 percent of the TSP investment total. The international stock (I) and small company stock (S) funds, which were introduced in mid-2001, account for about 2 percent of TSP investments.