TSP Stock Funds Up (Again); Feds Have Lowest Cost Ratio Available Anywhere

The federal TSP program is one of the best investment deals available to any investor anywhere. And return rates for January are up across the board in stock funds.

The stock market ususally “predicts” what the economy will be in the near future rather than reflecting what the economy has done in the recent past.

By almost any measure, the economy is continuing to grow and expand. Companies are spending more for new technology, consumer confidence is high and companies are hiring more employees.

So what does all this have to do with you and your retirement?

For most federal employees, it has a lot to do with your future financial security. If you are investing in the government thrift savings plan, at least some of your investment should be in stocks. And, as we have seen in recent months, the stock market has been very good to investors in 2003. (Check out some of the articles on the left hand side of this page for more information on recent rates of return.)

And the high rates of return are continuing. While there is little doubt there will be ups and downs in the coming months, TSP investors can look back on their rate of return for the past year and feel a little better about their financial future.

Recent returns on the S fund (small companies); the I fund (international stocks) and the C fund (reflecting the Standard and Poor’s 500 stock index) are all up again. As of today, recent rates of return on these funds since late in December are:

S fund: 4.89%

I fund: 4.56%

C fund: 3.93%

We will have the final figures for the monthly TSP returns for January next week. But, in the meantime, these interim figures may make you sleep better and enjoy your weekend.

And here is some more good news for federal employees.

We get a lot of e-mail from readers complaining about salaries, benefits and working conditions. Many people have a lot of complaints.

But the government’s TSP program is a better deal than your neighbor is getting (unless he is a Member of Congress or a federal employee) and will give you an even bigger edge in your retirement planning than you may have thought.

The expenses for the TSP fund are lower than similar funds available to the private sector. Here is what Peter Fitzgerald (R-IL) said about the TSP in a hearing this week:

“[T]he expense ratio of the average government TSP fund last year was only 11 basis points, or eleven cents per $100 invested, and that in previous years it has been as low as 7 or 8 basis points.

In contrast, … the average expense ratio for private sector index funds is 63 basis points, or 63 cents per $100 invested. Many private sector index funds have total expense ratios substantially lower than that, but none comes close to the TSP.

The difference between expenses of 11 cents per $100 invested and 63 cents per $100 invested may not sound like much, but keep in mind what all the experts emphasize — that small differences in fees add up to large differences in returns as the principal invested is compounded over long periods such as ten, twenty or thirty years.”

If that doesn’t make you feel good, here is another quote from the Senator that may make you feel good about being a federal employee. “Sad to say, retirement investing appears to be yet another instance in which federal employees get a great deal, but everyone else gets the shaft. A Senator or Congressman or a member of the SEC staff who participates in the TSP will have more money at retirement than a member of the general public who invests the same amount for the same number of years in a comparable private sector index fund.”

How you plan for your retirement years is up to you. But any federal employee who doesn’t participate in the Thrift Savings Plan is throwing away one of the best investment opportunities available to any investor.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47