TSP Investors Failed to Benefit from 2017 Emerging Market Gain

Many Thrift Savings Plan investors benefited in 2017, but many also failed to take advantage of the 37.2% emerging markets gain. The reason is that they couldn’t access these markets through the plan’s collection of funds.

In 2017, there was a 2.3% increase in the G Fund and a more than 3.8% increase in the F Fund. The C Fund had a 21.8% increase and the S Fund had an 18.2% increase. The biggest increase was the 25.4% that the I Fund had. Despite all this good news for 2017, the I Fund stayed behind in numerous other international index funds. One of these funds was the Vanguard Total International Stock Fund. The I Fund lagged due to being too concentrated in Europe and Japan.

You can benefit from I Fund exposure, but if there are shortcomings in it, you need to use other investments to balance the I Fund out.

Exposure to the Emerging Markets and its Importance

The emerging markets have roughly 24 countries that are developing more with thriving capital markets, like India, China, South Korea, South Africa, Brazil, Taiwan, and so on. These countries make up most of the global population and they have fast-growing economies that are actually surpassing the economies of developing countries.

Between the 5 years of 2002 and 2007, investors received a 500% return from the emerging markets. In 2008, during the global recession, these gains were lost for a brief time but were quickly gotten back. However, there were flat returns in the emerging markets for almost 10 years.

All of this fluctuation in the markets was because of valuation changes. The performance of stocks depends on the financial success of companies and the affordability of stock prices in relation to the fundamentals of buying and selling them.

The economies of these countries gradually increased over the last 10 years, which meant companies in these countries continued to see bigger profits. But since the average valuations had a reduction, the gains were offset and their performance became flat as a result.

Now, in 2018, the emerging markets are probably not going to have as successful a year as they did in 2017. The markets could even decline under specific conditions. On the upside, the valuations show that the performance of the emerging markets will probably be much better within the next 10 years than they were within the previous 10 years.