The seeming lockstep price of Crude Oil and the Morgan Stanley Capital International EAFE based TSP 401k retirement I Fu
Below is a MRR and PLR article in category Finance -> subcategory Investing.
The Connection Between Crude Oil Prices and the TSP I Fund
Overview
A colleague of mine made impressive gains with the I Fund, which is tied to the Morgan Stanley Capital International EAFE index. He noticed that as oil prices rose, the I Fund followed suit. Intrigued, I decided to explore this pattern myself.
Analyzing the TSP Funds
I examined the five funds available in the Thrift Savings Plan, a 401k retirement plan:
- C Fund: Linked to the S&P 500
- F Fund: Mirrors the bonds in the Lehman Brothers U.S. Aggregate index
- G Fund: Invested in short-term U.S. treasuries
- S Fund: Follows the Wilshire 4500 index
- I Fund: Tracks the EAFE index
Starting from May 1, 2005?"a significant starting point due to a notable increase in oil prices?"I noted the trends.
Observations
During this period:
- The C Fund experienced a slow and steady rise.
- The S Fund saw a more significant increase.
- The I Fund, however, nearly mirrored the movements of NYMEX Light Sweet Crude oil prices. As oil prices rose, so did the I Fund, and vice versa. While the match wasn't exact, the correlation was clear.
Possible Explanations
The I Fund's portfolio includes foreign oil companies like BP and Royal Dutch Petroleum, which might explain part of this link. However, the fund's investments are diverse, extending beyond oil companies.
Could rising oil prices negatively impact the U.S., prompting investments to move overseas? Perhaps. Even so, the C and S Funds also grew during this time, suggesting oil money influences those too.
Strategic Considerations
Typically, I avoid heavy stock allocations from summer through mid-October. However, the possibility of an active hurricane season threatening Gulf of Mexico oil fields and refineries, alongside tensions in the Middle East, might prompt me to quickly reallocate back into the I Fund.
You can find the original non-AI version of this article here: The seeming lockstep price of Crude Oil and the Morgan Stanley Capital International EAFE based TSP 401k retirement I Fu.
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