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G Force
Some TSP investors aren\'t taking any chances during this tough economic period and are turning to the G fund.
By Dorothy Ramienski
Internet Editor
FederalNewsRadio
As the markets continue their roller-coaster volatility, the Thrift Savings Plan folks are watching carefully.
On Monday’s Daily Debrief, hosts Christopher Dorobek and Amy Morris spoke with the TSP’s Director of External Relations, Tom Trabucco, who says the interfund (IFT) transfers have taken effect and have made a bit of a difference.
[The desired goal was] to restrict frequent interfund trading by a small number of participants. . . . We had about 4,000 participants who were making frequent interfund transfers, many because they felt they could take advantage of a time lag in the I fund and anticipate how the I fund was going to open the following morning.
Trabucco says the TSP was simply catching up with private sector mutual fund companies, which also don’t permit this type of behavior.
Times have been scary for some, especially those who are looking at retirement soon.
Trabucco says, while the fund transfers were restricted, the TSP made sure that those who wanted to get out of the market during the tumultuous times were able to do so.
We were very careful to make sure that we didn’t block anybody’s route to safety. For anybody who wanted to get to the ultimate safety of the G fund, which never has a bad day, they could still . . . at any time, they could move some of their money into the G fund in a month. However, if you wanted to move funds among the other four investment funds — or actually the nine if you include the I funds — you could only do that twice each month.
Trabucco says there are three main reasons the TSP implemented the IFT restrictions.
First, each day a price for each fund is determined based on closing stock prices for the day; however, the fund manager doesn’t execute every stock trade at that closing price. The difference is called market impact, and that’s something that you do not know ahead of time.
Second, to accommodate large trades which result in frequent IFT activities, managers must keep a larger liquidity pool, which means keeping funds out of the indexes that you’re supposed to track. Ergo, you don’t track those indexes as well.
Lastly, for the TSP, when the liquidity pool is depleted as the result of a number of large trades in a row, cash due to the TSP is not received for up to three days . . . costing participants foregone interest.
The bottom line, Trabucco says, is that none of those three costs are calculable in advance, but all participants had to pay for them. The TSP Board determined this was unfair and decided on IFT restrictions.
According to the latest numbers, during the month of September, the TSP saw 166,000 IFT’s requested.
Of that, not surprisingly, it resulted in a net movement of $3.4 billion into the G fund, which is what you would expect in times like this. Though we do urge people to have a long-term investment strategy and to stick with that strategy, many people find that they just don’t have the stomach for that — and that’s fine.
This is the second-highest total movement of money in the TSP in 2008. Trabucco says $4.4 billion was moved into the G fund by participants in January.
The G fund isn’t the only option that saw increases. Trabucco says the L funds gained investors, as well.
The L funds . . . keep you on that trajectory as you approach retirement where it reduces your exposure to risk as you get closer to the time you will be drawing it down. We follow a sub-group of the L fund investors — the people who have all of their money in the L funds, which is the way they really should be used. That number has gone up in the last three years. In December of 2005, we had 92,000 participants who were all in one of the L funds. As of now, we have 201,000 participants who are all in the L funds. Earlier this year it peaked at about 205,000 . . . so we’ve lost a little bit, but not much.
As always, you can check your TSP daily by going to FederalNewsRadio’s home page and looking for the TSP Ticker.
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