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TSP: Cruel nanny or lifeguard?
Tuesday - 12/13/2011, 2:00am EST
Earlier this month an angry, frustrated Thrift Savings Plan investor had a very bad hair day.
After eight months in the safe harbor of the super-safe treasury securities G Fund, he moved roughly $425,000 — at one time — into the C, S and I funds of the federal 401(k) plan. The C Fund tracks the S&P 500, the S Fund is invested in the rest of the U.S. stock market and the I Fund is in international stocks.
The G Fund never has a bad day. Tens of thousands of federal workers have parked money in the G Fund over the last few years. By contrast, the stock-market indexed funds have lots of bad days. Also some very good ones.
The angry fed said the government (TSP) failed him because it didn't execute his trade quickly enough. He figures he lost $20,000 and said if a private broker had failed him that way, he would sue.
CBS Marketwatch columnist Allan Roth looked at the TSP complaint and had this comment:
"This person is using extreme market timing and must be right far more than 50 percent of the time just to equal what he would have returned if he just stayed at a constant asset allocation. The delay in the TSP change could have just as easily worked for him as against. If he wants to protect against the extremes, he should stick to an asset allocation and then only small amounts for rebalancing will be at risk of a 35-hour delay.To see the full column, click here.
This person has an enemy when it comes to his TSP plan. He need only look in a mirror to see who it is." A.R.
A small but well-organized and vocal group of TSP investors believe they should be able to make immediate trades as often as they like. Or that they should be able to invest outside of the TSP in gold or precious metal funds, IT-funds, social funds, funds that invest in individual countries or minority-owned firms. They think the TSP is too slow and overly paternalistic by limiting the number of trades they can make and the investment options they have.
In response to that column, a reader/listener said I left out the self-adjusting L Funds, which many investment experts say are the smart way to go. The L Fund allocation is based on the date you plan to start withdrawing them. They are constantly rebalanced and become more conservative in allocation over time. Here's what he said:
" So you say the key to investing is 'Buy low, sell high. Repeat as necessary.' If there were only a way to do that. Oh wait! There is! They are called the L Funds.
"Consider the L2030 Fund. It has a target of 35 percent of its money in the C Fund. Suppose one day the C Fund drops in value in such a way that it is now only 34 percent. The L2030 Fund will buy enough to get the C Fund back to 35 percent. (I just bought low!) On another day, suppose the C Fund increases in value in such a way that it is now 36 percent of the L2030 Fund. The L2030 Fund will sell to get the C Fund target back to 35 percent. (I just sold high!)
"As far as the repeat as necessary, L Funds repeat this daily Here is a quote directly from the L Funds Information Sheet. 'The L Funds are rebalanced to their target allocations each business day.'
"So I buy low, sell high, repeat daily without lifting a finger. According to Allan Roth's Dare To Be Dull motto." James at USDA
NEARLY USELESS FACTOID
By Jack Moore
What's better for you? Watching a brainless comedy or a heartfelt drama? Watching a funny movie or a sitcom has a positive vascular effect, according to ScienceDaily — which is the exact opposite of movies that cause "mental stress." That's according to the latest research from the University of Maryland School of Medicine in Baltimore. The researchers had volunteers watch segments of "There's Something about Mary" and "Saving Private Ryan." Comedies had a more positive effect on endothelium, the lining of blood vessels. In fact, a good hearty laugh has as positive reaction on the endothelium as aerobic exercise, researchers said. So, be sure to pop in National Lampoon's Christmas Vacation, this holiday season!
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