A new TSP mutual fund window will be coming soon when the Thrift Savings Plan (TSP) gives federal employees and retirees the ability to invest in mutual funds beyond the core TSP funds that have existed for decades. However, a majority of our readers indicated in a recent survey that they aren’t crazy about the idea.
We asked FedSmith readers recently what they thought about having a mutual fund window in the TSP and how they planned to use it. The results are outlined below.
Are you in favor of adding a mutual fund window to the TSP?
- Yes: 46%
- No: 54%
Do you plan to invest in any of the thousands of new mutual funds that are coming to the TSP next year?
- Yes: 40%
- No: 60%
Do you plan to invest in ESG funds (environment, social, and governance) if available?
- Yes: 12%
- No: 88%
Are you willing to pay higher fees as a participant in the TSP to have the expanded access to the mutual funds?
- Yes: 22%
- No: 78%
Will adding a mutual fund window increase or reduce the risk to TSP investors?
- It is likely to increase investor risk: 71%
- It is likely to decrease investor risk: 3%
- The risk to investors is likely to remain the same: 26%
Do you think federal employees will ultimately get better returns for their long-term retirement savings by having the mutual fund window in the TSP?
- Yes: 36%
- No: 64%
We also asked what investment options would be of most interest, assuming they are ultimately available among a mutual fund window. These are highlights from those responses:
- ESG Funds: 8.4%
- REITs: 28%
- Sector funds (i.e. technology, healthcare): 38%
- Commodities (i.e. oil, gold): 22%
- Specific fund families (i.e. Vanguard, Fidelity): 52%
- International: 18%
- Emerging markets: 25%
- Bonds: 11%
- Growth/large cap: 35%
- Growth and income/balanced: 30%
- Aggressive growth (i.e. small cap): 38%
- Cryptocurrencies: 13%
- None: 2%
Other things mentioned by respondents were ETFs, dividend funds, value funds, index funds, and faith based organizations.
Conclusion
Plans for adding a mutual fund window to the TSP have been underway for sometime now, and it is expected that it will arrive in 2022.
We had just over 1,500 of our readers share their feedback in the survey. It is interesting that a majority of the respondents say they are opposed to this. The majority who said they oppose the idea is not huge (less than a 10% difference overall), and ultimately the real test will be to see how federal employees respond to the new investment options.
The details of the mutual fund window are largely unknown at this point. Comments we have seen indicate that people are wary of the imposition of extra fees on the TSP to pay for the mutual fund window, especially if they have to pay the extra fees even if they end up not investing in any of the new mutual funds.
Others are wary of the politics around it in general. For instance, there has been a strong push in Congress in the last few years to use the TSP to combat climate change. President Biden went so far as to issue an Executive Order which assumes that inclusion of fossil fuel companies in the TSP harms federal employees’ investment returns. Our readers who utilize the TSP have had an even stronger reaction to such proposals in the past though and made it clear they do not want these kinds of outside influences on the TSP.
It will be interesting to see how the mutual fund window is ultimately implemented and how widely utilized it is. We of course will continue to write about any updates on the implementation process of the TSP mutual fund window as they occur.
Our thanks to those of you who took the time to share your feedback in our survey!
