Speed Limits For The TSP?
by Mike Causey
09/05/07
In late August, in a single day, 25,000 Thrift Savings Plan investors
moved tens of thousands of dollars from stock market funds into the
super-safe treasury securities fund. Most of the IFTs (interfund
transactions) involved taking money out of the international
stock-indexed I fund and putting it into the G fund. And that wasn't
even a record day...
In early March about 35,000 investors moved $1.7 billion from stocks to
treasury securities and bonds. Again most of the IFTs involved
I-to-G-fund transactions.
While all this was going on, the half millions feds who are in target
date Lifecycle or L-funds were buying the I fund, and the other
stock-indexed S and C funds to maintain the target balance of their
portfolios. A major difference, in addition to the short-term vs.
long-term outlook, is that the L-fund transfers were made by daily
computer rebalancing whereas the individual stock-to-treasury
transactions were done on an individual basis.
The folks that run the federal 401(k) plan, and most financial planners,
say it's a long-term investment and that participants shouldn't be
emotional (scared or euphoric) about the short-term ups and downs of the
market. But they are also concerned because they say there are "some
large expenses" involved in mass movements of I-fund participants. Those
expense are now spread across the total TSP group of investors.
The federal TSP has the lowest administrative expenses in the 401(k)
business. Congress likes it that way and wants it to stay that way. Low
expenses, over a long career of investing, translate into in some cases
tens of thousand of extra dollars in your account. To that end, TSP
officials, are studying private sector 401(k) plans to see how they
handle IFTs of their employees.
Some private sector 401(k) plans (most of who do NOT have any matching
contributions for employee participants) limit the number of
transactions investors can make in a month or over the year. In some
cases investors simply cannot make more than the limited number of IFTs.
In others they are charged extra fees for exceeding the IFT speed limit.
Is that going to happen to the TSP? If so is it a good idea?
Stay tuned.
To reach me:
mcausey@...
I wonder why 25,000 people moved from the I fund to the G fund? Any theories?