As the billions of dollars invested through the Thrift Savings Plan continues to grow, and as the size of investment accounts grow, many TSP investors look closely at their funds. Some look at them every day. Some investors have money taken out of their paychecks and "let it ride" according to the distribution schedule they have set up.
Some investors trade frequently as they, apparently, try to predict which funds are likely to go up or down in the near future. Other TSP investors rarely touch their accounts.
Making trades in the TSP costs money. When the market falls, and a few billion dollars are transferred out of stock funds and into the G fund or one of the lifecycle funds, all investors bear the expense of the trades. The net effect is the yield of the funds is reduced as the administrative costs are spread out among all investors.
That can be good as it reduces the cost of making trades for those who make them. Of course, investors who do not frequently buy and sell funds as the market ebbs and flows also absorb the cost so they are paying part of the costs incurred by frequent traders.
Unlike a brokerage firm that may encourage active trading among investors because of the commissions involved for the firm, the TSP is set up as a long term retirement investment program. The administrators at the TSP do not encourage day trading or even frequent trades. In fact, the relatively new lifecycle funds are set up to enable and encourage TSP investors to put their money in one fund, to keep on contributing to the appropriate lifecycle fund throughout their federal career, and start withdrawing the money when they retire.
Not surprisingly, some TSP investors think they can do better–and perhaps they can if they are willing to spend the time ane effort to study market direction and trends and if they get lucky. A big advantage of the FERS retirement system is that an individual can make investment decisions to try and improve their financial picture during retirement. Of course, they are also taking more risk and may actually harm their financial future but the choice is theirs to make.
In commenting on recent articles on this issue, some readers have expressed strong views and some have suggested alternatives. For example, one reader suggested allowing four trades a year at no charge while imposing a fee for any trades beyond that number. Others felt those trading should pay for the privilege. Of course, others felt that was not fair–at least not without allowing a wider range of options for TSP investors who may want to start investing (or speculating) in a wide variety of investment vehicles.
With the recent market volatility, and with more likely to come as the current bull market tries to advance while the bears try to take the lead in setting a new direction for the market, the TSP administrators are considering the issue.
