It’s clear from the IFT regulation that the TSP Board’s primary concern is index tracking error, not costs. Since trading, if large enough, has the potential of forcing a significant deviation from the index (see the 16 Aug I Fund example), the TSP Board decided to take action, i.e. limiting trading, BEFORE the number of traders made that option politically impossible.
It is also very apparent that the TSP Board is justifiably proud of their status as the gold standard of 401K plans – very little index tracking error and extremely low costs. However, large tracking errors caused by trading could jeopardize that status. An index fund that deviates substantially from the index doesn’t make a lot of sense.
Finally, I was very surprised that the traders could impact my returns with their “free” IFTs. Although the impact is currently minuscule, their trading does impact my returns (both positive and negative) and does generate tracking error.
Previously, I didn’t have any opinion, pro or con, about the proposed IFT restriction. However, given their mandate, I don’t think the TSP Board had any choice.
---Jim
P.S. I don't understand their G Fund argument. Can anyone explain how that works?
It is also very apparent that the TSP Board is justifiably proud of their status as the gold standard of 401K plans – very little index tracking error and extremely low costs. However, large tracking errors caused by trading could jeopardize that status. An index fund that deviates substantially from the index doesn’t make a lot of sense.
Finally, I was very surprised that the traders could impact my returns with their “free” IFTs. Although the impact is currently minuscule, their trading does impact my returns (both positive and negative) and does generate tracking error.
Previously, I didn’t have any opinion, pro or con, about the proposed IFT restriction. However, given their mandate, I don’t think the TSP Board had any choice.
---Jim
P.S. I don't understand their G Fund argument. Can anyone explain how that works?
