Real Estate, Retirement, And Risk: How Should Your TSP Be Structured?

Should the TSP be expanded to include real estate as an option?

 A number of readers invest in real estate–through their house if nothing else.

But if you think real estate is a good investment, would you like the option of putting your retirement money to work in real estate?

There is that possibility. In addition to the major fund options, TSP investors may get the option of investing in real estate through a "Real Estate Investment Trust" or REIT.

No doubt, some TSP investors will think this is a great idea. Others will want to consider the risk (is there a housing bubble?)  and some readers probably don’t know enough about it to have an opinion. In effect, a REIT fund allows investors to invest in real estate through a fund that trades like a stock fund. Investors would not have a deed to property (as in your house) but you would have shares in a fund that invests money in real estate.

There are numerous organizations that would like to see Uncle Sam open up investment opportunities for federal employees. These pleas for inclusion will often include arguments about unfairly restricting investment opportunities for participants, thereby denying them a chance to add large numbers of dollars into their retirement fund.

But there is a downside. Adding funds to the TSP (or any retirement plan) adds to the complexity. The TSP is simple, straight-forward and anyone who wants to diversify investments can easily do so. Or, if it is too complex or sounds too risky, put everything into the G fund and you may sleep better at night. You may also lose out on the chance of adding lots of dollars to your retirement kitty, but that is your choice.

The TSP, by virtue of being a government entity, is subject to political pressure. Lots of real estate interests would like to see the TSP add real estate investments–there are potentially billions of dollars at stake for interested parties. But why stop there? Should the TSP include a gold fund or a fund for precious metals? How about a fund for "socially responsible" investing which would potentially enable someone in government to start making decisions about which businesses are deemed worthy of having access to billions of dollars in new investment capital?

The Wall Street Journal reports that retirement funds that offer lots of choices usually end up restricting the number of people who invest for their retirement. That isn’t the intent, of course. But some potential investors look at a list of 10 or more investment options and decide not to decide. It is too complicated. It is too risky. It is a paralysis of analysis for some people.

But here is your chance to tell others what you think. Should the TSP expand its investment opportunities? Should REIT’s be added to your investment options?

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