Thursday, July 5, 2007

Rocketing Markets and Retirement Plans

5 Year Dow Chart
1 Year Dow Chart
Gadabout has been sitting on edge, watching as all major USA stock indices have soared over the past 5 years. The DOW is up over 20% the past year alone, and up nearly 90% from 5 years ago. This rather rapid growth is not slowing and has a different feel from the late 90’s dot com boom. The 90’s were frenzy years, highlighted by throwing money at the markets based upon emotion where fortunes were made and lost over just a few years. Today, despite war and contentious relationships in DC, the markets are silently jogging up smooth pathways. No hype, just pure money making, and it is not a newsworthy event.

Gadabout believes that part of the resilience is attributed to government employees and their supplemental retirement plans. These plans are called Thrift Savings Plans (TSP), and most employees maximize their allowed deposits of around $15,000 annually. TSPs offer only a handful of options ranging from government securities to index funds. There are over 22 million government employees (the statistics are more difficult to break down than I thought, so errors are expected in the numbers I am throwing about, but they are close) and if only half are maxing out their accounts $165 billion dollars is being invested in US stocks and bonds annually.

The uniqueness of these deposits is that they are stable. Stable in the sense that they are not likely to be liquidated since penalties would be applied if withdraws are made. They are essentially 401Ks for governmental employees. These accounts are also invisible to their owners. Once set up, deposits are automatic and continue to pump cash into the markets regardless of market performance. The word “predictability” comes to mind.

We started off with the IRA experiment in the 70’s, 401Ks and there similar instruments in the 80’s, and rocketing TSP participation in the 90’s and the new millennium. The middle class is joining forces with the upper classes through active participation in these programs, and future outcomes may prove dramatic. Consider that as retirements increase over the upcoming decades, retirees will likely have IRA, 401K, legacy retirement plans and social security to pay the bills. Even low level government employees making less than $45,000 per year, will be retiring with 3 retirement plans—excluding social security. I think that is real progress and this may be the most remarkable story not being told—except by Gadabout Jack that is.

I am keeping my humble assets invested in the markets, and if I take a fall, no matter because it feels so good at the moment! Why say no, when it feels so good to say yes?


Anonymous said...

Capitalism is at the heart of why the stock market in the US is a good bet. The US economic engine, fueled by capitalism, is a strong force to stop. My money and confidence in continued performance are going to remain in the market.

Alusna said...

My money will remain in equities as well, but as I get older, those equities will consist of more and more bond funds.

Long live the TSP!

Gadabout Jack said...

Great points! Viva La TSP!