How Does Your TSP Stack Up?

Many top financial writers and successful investors (not like your brother-in-law with his computer program) believe that the Thrift Savings Plan is the best 401(k) type program in the nation. Period! The best.

A lot of feds agree, although some think it could be better. A lot better.

Envious outsiders cite the TSP’s low-administrative fees, the 5 percent match available to FERS employees and the presence of the never-has-a-bad-day G-fund. They include people like John Bogle. If you are wondering what he knows, consider he co-invented the concept of index funds and is the long-time head of Vanguard. He says many mutual funds are ripping off clients by charging them too much to handle their accounts. Vanguard has the lowest fees in the business, but they are still higher than the TSP’s charges.

Despite all the praise, many federal investors want more choices. They want more specialized funds such as a precious metals fund, an IT-only fund and a REIT (real estate investment trust) fund. Although since the real estate market meltdown, the clamor for an R-fund ain’t what it used to be.

Backers of the current TSP setup say that investors already have options to invest in the total stock market, and in much of the international market. Plus a bond fund. They say that adding more funds that would require closer management would raise fees – among other things.

So what is the difference between similar funds the TSP offers and those offered by others? We took a look at the “target” funds, zeroing in on the L-2040 fund. It is for people who expect to start spending down their TSP accounts between 2035 and 2045. Both the TSP and Vanguard offer a 2040 fund. Both are adjusted frequently (quarterly with the TSP) to maintain the correct balance according to fund managers.

Here’s what they look like as of July 2008:

• The TSP 2040 fund is allocated as follows: 40.80 percent of the assets are in the C-fund (S&P 500); 23.80 percent are in the international stock-index I fund; 17.40 percent are in the small-cap index S-fund; 9.70 percent in the bond-index F fund; and only 8.30 percent in the super-safe (but also super dull) treasury securities G-fund.
• Vanguard 2040 fund is allocated as follows: 72 percent is in Vanguard’s Total Stock Market Index Fund; 10.6 percent in the Vanguard European Stock Index Fund; 10 percent in the Vanguard Total Bond Market Index Fund; 5 percent in the Vanguard Pacific Stock Index Fund; and 2.4 percent in the Vanguard Emerging Markets Stock Index Fund.

Remember, although Vanguard’s fees are, generally speaking, the lowest in the mutual fund business, they are still higher than those charged by the TSP. Bogle and other experts say lower fees, over a career of investing, can add tens of thousands of dollars to your account balance.

So, are you happy with the TSP? What changes would you like to see, and what would you be prepared to pay to cover them?

And if you’d like to listen to an hour long interview we had with Bogle in April 2007 on Your Turn with Mike Causey, click here and look on the right hand column for “Most Requested Show”.

Excess Baggage

Here’s more in our infrequent series featuring the wisdom of a reader we’ve dubbed Stan the Man, the pride of the Department of Veterans Affairs. Today he takes out after the airlines. His comment:

The airlines have really gotten bad about luggage, even charging soldiers returning from Iraq for extra baggage. One airline stopped a vulture getting on with 2 dead raccoons and said that passengers are only allowed one piece of carrion.

Nearly Useless Factoid

From Cracked.com’s 5 Most Badass Presidents of All-Time, “Andrew Jackson was the first president on whom an assassination attempt was made. A man named Richard Lawrence approached Jackson with two pistols both of which, for some reason, misfired. With the possibility of an assassination taken off the table, Jackson proceeded to beat Lawrence near death with his cane until Jackson’s aides pulled him off the assassin.” Suddenly, it’s like having Chuck Norris on the twenty dollar bill.

To reach me: mcausey@federalnewsradio.com

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