Real Estate, Retirement and Risk

Real estate is a hot topic today for investors. Don’t look for these funds to be available to TSP investors anytime soon though.

The Thrift Savings Plan (TSP) is one of the most popular benefits available to federal employees. The Board that oversees the funds does not move quickly or precipitously as it has an obligation to protect the billions of dollars now invested in the program.

Having said that, changes are made to the program from time to time. The addition of the S and I funds in 2001 gave TSP investors a broader range of investment options and the recent addition of the Lifecycle  funds should encourage more federal employees to take advantage of the long range potential of stocks and bonds to enhance their retirement savings.

The Board is also planning on eliminating the current call center out of the New Orleans center as a way to reduce costs and to use the cost savings to enhance the investment returns of TSP investors.

But what about Real Estate Investment Trusts? Is that a risky option that should not be included in the options for TSP investors or is it a sound addition that should be part of any TSP investors investment portfolio? readers recently indicated they would like to see a Real Estate Investment Trust (REIT) option added to the list of TSP options. 65% of those responding thought it was a good idea and 59% said they would put money into such a fund if it were available through the TSP.

What some TSP investors may not realize is that they are probably already investing in these funds but in an indirect way. According to the Federal Retirement Thrift Investment Board, REIT securities now make up 8% of the S fund. This is an increase from 4% four years ago. It may be coincidental, but the S fund has been one of the best performing funds available to TSP investors during the past two years.

No question, adding REIT funds would be a different step and a more controversial one that adding the small company fund (S fund) or international stocks. At the moment, real estate is a hot market but there is no shortage of articles in financial publications indicating concern about real estate being overpriced. And, if real estate funds are added, how about options, commodity futures or gold stocks? Large numbers of financial consultants would love to have access to the multi-billion dollar investment potential of the TSP and, no doubt, some Congressional representatives will be responsive to their constitutents and push some of these investment options in the direction of the TSP oversight board.

So the addition of real estate funds will not be an option for TSP investors anytime soon. But, according to the Retirement Thrift Investment Board, they are hiring a consultant next month to review investment options. In the past, this review and decision making process took several years. While it may not take as long this time around before any new additions are made to your TSP options, don’t look for the addition of REIT’s to your TSP investment portfolio anytime soon.

But, if you think real estate is a good option for your retirement savings, check out the S fund. You will still get some of the advantages of these funds without as much risk as a relatively small percentage of the S fund is in the REIT securities investments.

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