FedSmith.com Users Strongly Oppose Adding Mutual Funds to TSP

By on September 2, 2015 in Retirement with 36 Comments

Image of mutual funds header section in newspaper

The majority of FedSmith.com users said in a recent survey that they are opposed to the addition of a mutual fund window (MFW) to the Thrift Savings Plan.

Out of the almost 1,000 responses we received to the survey, 73% of respondents said they opposed adding mutual funds to the TSP, and 78% said they would not invest in mutual funds if they were an available option.

Opposed to MFW

Of those who said they would not invest in mutual funds, their reasons broke down as follows:

I do not want to pay the extra fees 80%
I am happy with the current selection of funds 66%
I do not understand mutual fund investments/not comfortable making the selections 9%

Other stated reasons included:

  • Too many hidden fees
  • Already own mutual funds outside of the TSP
  • Mutual funds can be purchased outside of the TSP for those who want them
  • Existing TSP funds are more secure
  • Lack of faith in mutual fund managers

Of those who said they would not invest in mutual funds, 80% said they would not be more willing to do so even if they had the advice and guidance from a financial advisor.

Planning to invest in MFW

For respondents who said they would invest in mutual funds inside of the TSP, their stated reasons for doing so broke down as follows:

Seeking more diversification in my investments 89%
I am unhappy with the selection of core funds 12%

Other stated reasons included:

  • It is likely to be cheaper/have fewer fees than other mutual fund companies
  • Belief that there will be more withdrawal options
  • Increased flexibility
  • Potential for higher returns

Among those who said they plan to invest in the mutual funds inside of the TSP, 84% said they would do so despite the extra costs involved.

What types of funds did respondents planning to invest in mutual funds most want to see? Here are the results:

Growth and income (balanced) 61%
Emerging markets 61%
Aggressive growth 57%
International 54%
Growth/large cap 42%
Commodities (i.e. oil, precious metals) 42%
Bonds 26%

Other stated investment options for the MFW included:

  • Real Estate Investment Trusts (REITs)
  • Inverse Exchange Traded Funds (ETFs)
  • Sector specific funds (i.e. Biotechnology, health care)

Why respondents participate in the TSP

Statistically speaking, all respondents (99%) currently participate in the TSP. Among their stated reasons for doing so include the following:

I want to save for retirement 92%
Low cost/fees 89%
I am comfortable making investment choices/investing in the stock market 49%
Selection of funds 43%
I was told that I needed to 2%

Other stated reasons included:

  • Hedge against taxes/tax deferral
  • TSP is a high quality retirement plan
  • Government match
  • Safety and reliability

The majority of those who currently participate in the TSP do not use a financial advisor when making their investment decisions. 90% of respondents said they do not use a financial planner to assist with setting up their TSP investments.

Even fewer respondents use a subscription based service to guide their investment decisions. 95% of current TSP participants said they do not use a subscription based service that advises when to buy or sell the various TSP funds.

The vast majority of respondents (85%) were current federal employees. Most of them (40%) anticipated retiring in less than 5 years. Others stated their plans to retire as follows:

  • 5-10 years: 23%
  • 11-20 years: 14%
  • 21-30 years: 7%
  • 30+ years: 2%

Another 13% were already retired.

Other findings

One interesting result from the survey that stands out is with respect to the desired types of mutual funds when looked at by anticipated time to retirement.

Among those who said they anticipate retiring in less than 5 years, the most desired type of mutual fund was emerging markets (68%). Emerging markets are generally one of the highest risk types of stock mutual funds, so despite being near retirement, these employees apparently are willing to take a more aggressive stance with their retirement investments despite having a shorter time frame to invest the money (and therefore put themselves at greater risk for losses in the short term).

This result is particularly interesting when juxtaposed with what TSP participants who have a much longer period of time to invest said they would like to see with regards to possible types of mutual fund investments.

Those who anticipate retiring from federal service in 21-30 years took a more conservative stance in their responses. The most popular response choices (71%) were growth/large cap and growth and income (balanced) funds. Aggressive growth was 64%, and emerging markets came in at a distant 43%. These younger employees are apparently more conservative in their stated investment approaches if these results are any indication.


We received many comments from respondents. A sampling of them are included below:

  • If you have the model retirement plan today compared to ALL the rest, why do you change it to be like the other less than adequate retirement plans because 1% of the TSP participants want to play Las Vegas with their retirement money?
  • I like the addition of mutual funds to TSP, but I would not want to see more then 8 options. I think it is important to keep TSP service fees low.
  • Those participants that are advocating the need for mutual fund(s) w/in the TSP umbrella should bear the brunt of the costs associated w/ implementing such a plan.
  • Political pressures on Congressmen and Senators is the only reason this recommendation has been made. Just protect current TSP Investors.
  • I would like to move funds from non TSP funds into TSP MFW or existing TSP but can’t because I’m retired. My only choice would be to move existing TSP funds in the MFW.
  • Not all participants should be saddled with implementation costs, particularly as a low participation rate is anticipated. Perhaps a mini course, to educate the sqeeky wheels, about the downsides of mutual funds, would be a game changer to negate this proposal.
  • People can always buy non-TSP mutual funds. I do not want the TSP to make any mutual fund enhancements for $6-10 million. Who are the vocal minority? TSP should listen the the silent majority.
  • I got into the TSP to save for retirement, and was/am impressed by its ease of use and low fees. If I want something more complicated, I have outside sources for advice and places to put my investments. I credit TSP for getting me on the savings path. Please do not make it harder to understand, more expensive, and harder to use. You will drive away those who do not understand savings and investing, but need to start doing it. That is many of us!
  • I see current funds and L funds as mutual fund like.
  • I might not look at other funds if TSP offered more diversified funds such as an agressive growth fund which invested in agressive growth areas or sector specific funds such as medical, pharmacutical, transportation, and etc. Also if they offered regional specific international funds such as Pacific, European, Canadian, etc funds. My biggest reason for wanting the window is that I just do not like the low rate of return on the most aggressive funds.
  • The base funds available and costs are great. I would like some more aggressive options available especially if I were a younger employee with a long time range to retirement.
  • I definitely would NOT want to pay any additional TSP costs if mutual funds were added. Since I’m sure the various mutual funds are salivating at the possibility of mowing through such a large Federal population, I think one of their requirements for entry into this market is that their fees match those being charged currently by TSP.

Reaction to the recent market drop

Federal employees are often conservative with their TSP investments, and many indicate they are not familiar with investing in stocks. The stock market obviously goes up and down, but for long term investors, it has been a good way increase assets and build wealth over time for retirement.

How did FedSmith.com users react to the recent decline in stock prices? In another survey, we asked readers how they reacted to the recent stock market decline, and here is how they responded.

93% of respondents said they own stock funds in their TSP accounts, however, 85% did not transfer money out of stock funds in August despite the market volatility. Also, 75% of respondents said they did not plan to move money out of stock funds in the near future. 13% said they were undecided. Considering the market ended up staging a rebound immediately after the couple of days of sharp declines, the decision not to move money out of stock funds was probably wise.

Our thanks to all of you who took the time to share your feedback in these surveys. We wish all of our users well with their retirement planning!

© 2016 Ian Smith. All rights reserved. This article may not be reproduced without express written consent from Ian Smith.


About the Author

Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce. Ian also has a background in web development and does the technical work for the FedSmith.com web site and its sibling sites.