A new investor class is entering the market now. One dedicated to long term investment principles, dollar cost averaging, the whole nine yards; just the kind of investors that markets love. And they�re coming into the market by the thousands.
It�s been underreported and under the radar of most investors, but it�s happening all the same� and it�s bad news for short sellers. Who are these new investors?
Yes, military members are the new investor class that is creeping into the market. How so? Well last year (Jan 2002) military members and those called to active duty became eligible to participate in the thrift savings plan (TSP). For those not familiar, it is a program that federal employees have been able to participate in for years and falls under the same rules as a 401k.
Word on the deckplates is that military members are signing up in droves. Why? The recent somewhat biased surveys being carried out regarding retention rates offer a clue; many members don�t plan on making a career out of the military. The TSP offers them a way to save a bit of a nestegg that they can take with them when they move on. In so being, it is a bit of a safety net (since they won�t be receiving a military retirement). So is the TSP really not in the interest in a DoD that is trying to retain servicemembers? No, it is also a powerful retention tool for large subgroups within the military.
How does the TSP work? Like most 401k programs, there are options. There are five ways to allocate money in the TSP. One is a usual bond fund, one is basically a federal guaranteed bond fund (principal is guaranteed but returns many not be as high � G fund), an international fund (I fund), a fund that tracks the S&P 500 (C fund), and a small cap fund that tracks the Wilshire 4500 (S fund). The Wilshire 4500 fund, for those not familiar, is the Wilshire 5000 without the S&P 500 subgroup. The S and I funds have only been available as options since May 2001.
How much money is in the TSP? $118 BILLION with 3.2 million participants according to the latest easily available figures. As of Aug 03 allocated as the following: G Fund: $53 B, C Fund: $49B, F fund: $12B, I fund: 1B, S fund: $3B.
- As a group all contributors, both civilian and military, quite predictably invests heavily in America (3:1 ratio of S/I).
- The vast majority of the money in the TSP is from civilian federal employee contributors. In the past, this has been a group of conservative investors. Having most of their money split between a fund with essentially guaranteed principal and currently yielding about 5% per year and the S&P 500 has proven to be not a bad allocation.
- The new investor class, the military subgroup, is a completely different demographic group. They are younger, more comfortable with computers, and have the usual concerns of Generation X and Y�ers related to retirement. They may well prove to invest differently also. Having grown up with such computer games as MechWarrior, Doom, Diablo, Half-life, TombRaider, etc., combined with their younger age, they may prove to be more risk tolerant than their civilian counterparts. The best educated military in the history of the U.S., may also be more apt to take advantage of the plethora of online investing articles and other tools that older investors could only dream of a decade ago.
There is another wrinkle to the story of the TSP. Last year many military members did not sign up for the TSP. Why? Word of its deployment came somewhat late in the season and, despite an extension of the sign-up period, some were put off by factors related to a lawsuit with AMS, the contractor for the TSP record keeping system. Those issues are now past history; the lawsuit has been settled recently and the opportunity of participating in the TSP is well know amongst throughout the military.
Enrollment is increasing across all ranks. Many senior military members now close to retirement only wish that the program were available earlier in their careers when they could have taken advantage of it.
So new money from a new investment class IS flowing into the market.