Thrift Savings Plan Discussion

[KrazyHorse]

the emerging market fund would just take over the outlook and administration of the TSP

This is absolutely ridiculous. It would "take over"?

Come on, now.

a) The choice of whether or not to put ANY money in emerging markets would be wholly up to the individual

b) Even if you're one of those ninnies who thinks that default choices are hugely important, you could easily mandate that by default NO money goes to the emerging markets fund

Not to mention that prior to this you were talking about political interference and "international implications"

[DanS]

then the emerging market fund would generate a roughly equal amount of fees to all the others combined

What's you're point, dear? Jack **** is jack ****. The gov't spends a ****load more than that a year. How does this spending differ from other contract work the gov't buys?

This is the gov't spending its employees' savings on their behalf. It's a more sensitive subject than your normal fee for service government contract.

[KrazyHorse]

The employees can choose to purchase the service or NOT.

[Drake Tungsten]

No, the consensus here is FOR them.

Big time.

Those indices are not very well developed. Even the more advanced markets are tough to get into in a balanced and cost-effective manner.

Vanguard's Emerging Markets ETF tracks the MSCI Emerging Markets Index (783 stocks in 25+ emerging market countries) and has an expense ratio of 27 basis points. I don't see why a fund similar to this wouldn't be appropriate for the TSP.

The employees can choose to purchase the service or NOT.

Exactly. There's no need for the government paternalism that Dan seems to be advocating.

[DanS]

Not quite. I am discussing whether the paternalism that currently exists in the TSP should be relaxed.

[Drake Tungsten]

If you want to keep the dumb investors safe, just automatically enroll everyone in the G-fund when they start work. If they choose to move their money out into the riskier funds, that's their decision.

[Drake Tungsten]

Also, let's not pretend that denying TSP investors access to REITs and emerging markets is actually keeping them safe. Doing so encourages them to build riskier portfolios because of the lack of non-correlated investments to balance out their heavy representation of developed world equities.

[DanS]

That might safely be said for emerging markets, but not for REITs. Most people are hugely overinvested in real estate already.

[KrazyHorse]

Not as much as you would think.

http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/07/we-are-born-with-a-short-position-in-housing.html

[DanS]

That's an interesting metaphor, but lacks basic utility. In any event, even taking that metaphor at face value, most people in the US are very long real estate relative to needs (and are leveraged to a fair degree in addition). Too many McMansions in the suburbs of this godforsaken town filled with TSP investors.

[Drake Tungsten]

The fact that most people own houses is no reason to deny a renter like myself the option of easily investing in REITs.

[KrazyHorse]

That's an interesting metaphor, but lacks basic utility

Please explain why you think this. Purchasing a house is at least partly like entering into a forward contract for the rent I plan to pay for the rest of my life

most people in the US are very long real estate relative to needs

VERY long?

I would dispute that. Typical house payments + taxes and maintenance are not THAT much higher than rent payments.

In fact, there's something to be said for renting and covering your short (plus getting a bit long) by buying REIT (or housing futures) because this way you get to hedge AND you get to maintain the flexibility of renting.

[DanS]

Edit: Let me think about the long positions more.

Please explain why you think this.

Sure. When I short a stock and the value of the underlying security goes down, I can close the position and immediately pocket the difference. I cannot immediately pocket the difference in the case of going from rent to purchase. Rather, the benefit of closing the position pays over time.

[KrazyHorse]

Sure. When I short a stock and the value of the underlying security goes down, I can close the position and immediately pocket the difference. I cannot immediately pocket the difference in the case of going from rent to purchase. Rather, the benefit of closing the position pays over time.

How is this relevant when the discussion is about how LONG people are in housing?

[Zkribbler]

It sounds a lot like the Universal Savings Accounts (USA-accounts) proposed by President Clinton but shot down by Congress because they feared it would divert too much money from consumer spending over into savings.

It's actually quite similar to the "private" Social Security accounts that Bush proposed and people like you claimed would put the retirement savings of workers at undue risk[/url] while lining the pockets of fatcats[/url] on Wall Street. Fortunately, I'll get to take advantage of the benefits of such a program while the majority of the country is still stuck with inferior 401ks and the mirage that is Social Security.

My objection to Bush's plan was not Bush's plan, per se, which as you say was a lot like Clinton's plan. My objection to Bush's plan was that he was trying to use it in lieu of Social Security instead of in addition to Social Security. If Americans had followed Bush's wishes and had begun diverting the Social Security contributions into stocks, etc., Social Security would -- at this very minute -- not be able to fuly meet its obligations.

Moreover, when the stock market plunged in late '08, it would have pulled down everyone's retirement. Social Security is a safety net. Bush's plan would have eliminated the safety net, and retiring Americans would have plunged to their financial doom. And who'd have then had to pay for the welfare checks? Why, we the tax payers.

BTW: Social Security is NOT a mirage. Even with NO adjustments and a worse case scenario, when the crest of the baby boom hits, Social Security will still be able to pay 80% of the benefits due. Once that crest passes, it can return to 100% benefit payments.