Thrift Savings Plan Discussion

[Drake Tungsten]

I've been reading up on the U.S. government's Thrift Savings Plan (401k-like retirement savings plan) recently and it seems like a very good plan on the whole. I particularly like the low overhead (~ 6 basis points) and the automatically rebalanced lifecycle funds. However, the lifecycle funds (and the TSP overall) are limited to developed world equities, U.S. bonds and non-inflation protected U.S. government securities.

The lack of an option to invest in TIPS worries me the most, particularly with the massive increase in U.S. government debt. It's also unfortunate that you can't diversify into real-estate, foreign bonds and emerging markets within the TSP, forcing you to maintain separate, non-tax deferred investments for these asset class categories.

There has been discussion about adding these asset class categories to the TSP, but there seems to be a fair amount of resistance to such a change from the TSP board. Personally, I would like to see TIPS included in the government bond mix and funds added for real-estate, foreign bonds and emerging markets, assuming that this can be done without drastically increasing overhead.

What do you guys think? Should additional fund options be introduced to the TSP? Do you see it happening anytime soon? Are those of you currently contributing to the TSP diversifying outside the program? Is it a pain in the ass or not that big of a deal? What do you want to see changed about the TSP?

[SlowwHand]

401K was a decent option, but many companies have stopped matching, which makes it less attractive. Unless the company matches, why do it?

[KrazyHorse]

The lifecycle funds are too conservative early on. There is no reason you should hold anything other than equities with more than 20 years to retirement. The lifecycle 2040 fund shows you holding 30% bonds in 2020.

There is also no reason that you should hold ANY government bonds in a tax-advantaged account. Government securities are themselves tax advantaged for US residents, and this drives down their yield considerably. The 6 basis point admin fee is nice, but you might be leaving significantly more than that on the table with an overly cautious (and dumb, in the case of gov't securities) approach.

[Drake Tungsten]

Why did I un-ignore that?

Anyway, please don't respond if you don't know what you're talking about, Sloww.

[zakubandit]

I had a TSP when I was in the Army, had to close it when I got out though. It was a decent program, had I invested more and not had gotten out it would have been really great. I devoted very little of my paycheck to it and I received a good return when I closed it, had to give up too much of it to taxes.

It would be nice if it got more promotion, people just don't know about it. In a soldier perspective, I told my new guys about it all the time so they would know a good way to save. Also, taxes. It gets taxed pretty good.

[Drake Tungsten]

The lifecycle funds are too conservative early on.

I agree. It also goes too heavy on bonds towards the end. I think you can avoid the lifecycle funds and adjust your portfolio yourself, however, so this might not be a problem.

There is no reason you should hold anything other than equities with more than 20 years to retirement.

Don't agree with you on this. Bonds have outperformed equities over certain periods. Best to have some bond exposure in your portfolio in case this happens again.

There is also no reason that you should hold ANY government bonds in a tax-advantaged account. Government securities are themselves tax advantaged for US residents, and this drives down their yield considerably.

I didn't think of this.

[SlowwHand]

I know what I'm talking about, and screw you. If your little asswipe buddies want to click a list of links to give you advice on something you should be asking somewhere else, fine. Blow me.

[Drake Tungsten]

something you should be asking somewhere else, fine.

There are several federal employees who post on this message board, dip****.

Blow me.

Go **** yourself, moron.

[KrazyHorse]

Bonds have outperformed equities over certain periods.

Bonds have virtually never outperformed equities in the US over a window of 20 years in the 20th/21st century.

[KrazyHorse]

I didn't think of this.

One of the many reasons you take LIBOR as r, not the Treasury rate.

[Drake Tungsten]

Bonds have never outperformed equities in the US over a window of 20 years.

No, but I sure as **** would've liked to have had a healthy amount of TIPS in my portfolio back in the 70s. The argument is less strong for conventional bonds, I'll give you that.

[KrazyHorse]

Rolled-over short term bonds would have done just as well as TIPS during the 70s.

[Drake Tungsten]

Rolled-over short term bonds would have done just as well as TIPS during the 70s.

I think rolled-over short term U.S. government bonds are what the TSP's G-fund is made up of.

Going back to this...

Government securities are themselves tax advantaged for US residents

Are you sure this is a valid criticism? I don't think the TSP invests in munis and U.S. Treasuries aren't tax-advantaged, are they?

edit: Looks like Treasuries are tax-exempt on a state and local level.

[KrazyHorse]

US Treasuries are state and local tax-exempt but not federal tax-exempt IIRC

[KrazyHorse]

munis are state&local tax exempt if you reside in the state of origin, and are federal tax exempt in all cases.