grandma
Market Veteran
- Reaction score
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QUESTION: Is this article all true, partially true, or just plain slanted?Or is it even pertinent to the question at hand? Underlines, italics, etc, are mine. I don't want to pay a fee, but if they could move the closing time to the same as the fee-based brokers, that may not be too disconcerting...??
Retirement Plan Lucked Out the Day After Markets Fell
By Stephen Barr
Thursday, April 19, 2007
It was a lucky day at the Thrift Savings Plan.
On March 5, the overseas markets were falling, and worried federal
employees filed orders to sell shares they held in the international
stock index fund, known as the I Fund, at the TSP.
In the biggest transaction ever for the I Fund, the employees liquidated
stock valued at $865 million.
The Asian and European markets were closed when the TSP sent the sell
orders to the fund manager in San Francisco at 2 p.m. Eastern time, the
standard practice. But overnight, the U.S. stock market looked brighter,
and the overseas markets opened strongly.
The I Fund shares sold on March 6 were up a percentage point, not down
as expected, and reaped $8 million in trading credits. By the time the
books were settled, the $8 million earned that day erased almost all of
the fund's year-to-date trading costs.
"We got very fortunate," said Tracey A. Ray, the TSP's chief investment
officer.
Normally when selling stocks, the TSP absorbs commissions, price
differences and other transaction costs. All holders of I Fund accounts
pay for the trading costs, even if they did not sell or buy. To give a
sense of the stakes involved in such transactions, Ray noted that the I
Fund had trading costs of $13 million in 2006.
The $8 million credit last month "could have easily gone the other way"
and could have been "money out the window," she said.
The TSP does not restrict government employees' rights to sell and buy
stocks and bonds offered in their retirement program, but officials
clearly wish they could educate more employees that overreacting to
market changes can be risky and that investors come out ahead when they buy and hold for the long term.
Although the I Fund hit a low March 5, it is up 11.3 percent since then
-- and as a result, employees getting back into the I Fund in recent
weeks ended up paying higher prices that could have been avoided if they
had decided to stand pat.
The churning in the I Fund was substantial. Ray said TSP participants
pulled $1.5 billion out of the fund in the first three days of March,
then transferred $1.2 billion into the fund over the rest of the month.
A record 268,213 interfund transfers -- in which employees moved money
from one fund to another in the TSP -- were recorded in March, she said.
Ray described the I Fund trading flurry at this week's meeting of the
Federal Retirement Thrift Investment Board, which oversees the TSP. Her
report prompted board Chairman Andrew M. Saul to express concern that
TSP computer systems could be significantly stressed if a catastrophic
or dramatic swing in world stock markets led federal employees to sell
parts of their portfolios.
TSP officials said they are drawing up plans on how to handle a
stressful event and ensure that the agency's computers can carry out
trades. The TSP has switched from a monthly to a daily valuation system
since the last major disruption to the stock markets -- the Sept. 11,
2001, terrorist attacks.
Saul also urged TSP officials to focus on the growth of the TSP --
assets increased by about $10 billion in the most recent quarter -- and
ensure that its computer systems and offerings keep pace with the
program's expanding size.
At the end of March, the TSP had more than $213 billion in assets and
more than 3.73 million participants.
Retirement Plan Lucked Out the Day After Markets Fell
By Stephen Barr
Thursday, April 19, 2007
It was a lucky day at the Thrift Savings Plan.
On March 5, the overseas markets were falling, and worried federal
employees filed orders to sell shares they held in the international
stock index fund, known as the I Fund, at the TSP.
In the biggest transaction ever for the I Fund, the employees liquidated
stock valued at $865 million.
The Asian and European markets were closed when the TSP sent the sell
orders to the fund manager in San Francisco at 2 p.m. Eastern time, the
standard practice. But overnight, the U.S. stock market looked brighter,
and the overseas markets opened strongly.
The I Fund shares sold on March 6 were up a percentage point, not down
as expected, and reaped $8 million in trading credits. By the time the
books were settled, the $8 million earned that day erased almost all of
the fund's year-to-date trading costs.
"We got very fortunate," said Tracey A. Ray, the TSP's chief investment
officer.
Normally when selling stocks, the TSP absorbs commissions, price
differences and other transaction costs. All holders of I Fund accounts
pay for the trading costs, even if they did not sell or buy. To give a
sense of the stakes involved in such transactions, Ray noted that the I
Fund had trading costs of $13 million in 2006.
The $8 million credit last month "could have easily gone the other way"
and could have been "money out the window," she said.
The TSP does not restrict government employees' rights to sell and buy
stocks and bonds offered in their retirement program, but officials
clearly wish they could educate more employees that overreacting to
market changes can be risky and that investors come out ahead when they buy and hold for the long term.
Although the I Fund hit a low March 5, it is up 11.3 percent since then
-- and as a result, employees getting back into the I Fund in recent
weeks ended up paying higher prices that could have been avoided if they
had decided to stand pat.
The churning in the I Fund was substantial. Ray said TSP participants
pulled $1.5 billion out of the fund in the first three days of March,
then transferred $1.2 billion into the fund over the rest of the month.
A record 268,213 interfund transfers -- in which employees moved money
from one fund to another in the TSP -- were recorded in March, she said.
Ray described the I Fund trading flurry at this week's meeting of the
Federal Retirement Thrift Investment Board, which oversees the TSP. Her
report prompted board Chairman Andrew M. Saul to express concern that
TSP computer systems could be significantly stressed if a catastrophic
or dramatic swing in world stock markets led federal employees to sell
parts of their portfolios.
TSP officials said they are drawing up plans on how to handle a
stressful event and ensure that the agency's computers can carry out
trades. The TSP has switched from a monthly to a daily valuation system
since the last major disruption to the stock markets -- the Sept. 11,
2001, terrorist attacks.
Saul also urged TSP officials to focus on the growth of the TSP --
assets increased by about $10 billion in the most recent quarter -- and
ensure that its computer systems and offerings keep pace with the
program's expanding size.
At the end of March, the TSP had more than $213 billion in assets and
more than 3.73 million participants.
.
