TSP FEES, Who Pays

TSP Fees: Who Pays What? by Mike Causey 08/23/07

Are sit-tight-grin- and-bear- it TSP investors subsidizing coworkers who frequently move money in and out of their C, S and I funds?Transfer traffic has increased since March when the market tanked, then rebounded to record highs, then headed south again.Should the costs associated with frequent IFTs (inter-fund transfers) be part of any increase in administrative fees to all investors?

Or should there be higher fees for investors who exceed a limited number of IFTs per year?That is one of the issues being studied by the Federal Retirement Thrift Investment Board which is also developing a long-range plan to handle problems the TSP might face due to a large number of IFTs, terrorist attacks or weather events.Disaster-proofing TSP operations will be the subject of a review TSP officials expect to make public within the next few weeks. The issue of whether and how much to charge so-called heavy-users is also under study.On Black Monday, a then-record $1.7 billion (that's billion with a 'B') left the stock funds. Most of the transfers were out of the international fund (I-fund) which, along with the small-cap S-fund had been producing the best returns.The federal TSP has the lowest administrative fees in the mutual fund business. Congress intended it to be that way, partly to help feds invest for retirement and partly because members of Congress and their staffs participate in the TSP too.For long-term investors low-fees mean more money -- in some cases tens of thousands of extra dollars -- in their accounts.John C. Bogle, founder of Vanguard and godfather of the index-funds, has said that high and growing-higher administrative fees charged by many mutual funds cost investors millions of dollars each year.

Are You Making Or Losing Money?The answer depends on your timeline, according to financial planner Paul Yurachek. He was a guest yesterday on the morning Federal Drive program I co-host daily with Jane Norris.Yurachek said long-term investors have"made" money -- seeing their accounts grow -- over the last 5 or 6 years. But if you look at your balance today compared to last year you have "lost."Yurachek, who has many federal clients, says fleeing from bad returns and chasing rising values is almost always a mistake."You have to be right twice," he said, picking the perfect moment to sell and then the perfect moment to return to a stock or fund."If you miss the 10 best days of the year," he said, "your return will be much lower than if you sat tight."A few years from now he says events, like Black Monday, will be "almost irrelevant."

He said long-term investors -- which is what TSP participants are supposed to be -- should setup a good portfolio, rebalance it from time to time and ignore the yo-yo effect of the markets.Yurachek also noted that lots of federal investors -- the thousands who have chosen the L (Lifecycle) funds -- are ignoring the markets.Even as some feds are unloading depressed C, S and I fund holdings, Yurachek said the L-funds (which rebalance daily) are busy buying them at what fund managers believe are bargain prices.Bull vs. Bear MarketsHere's what one reader/listener had to say about our recent column about whose-making- money in this bear market: "....the only difference between a bull and a bear market is people's perceptions. If you think times are bad, they will be and visa-a-versa. We will probably never have the option to trade hourly in our TSP account (how much work would get done if we could?) and as federal employees we will never be rich (monetarily anyway). However, we do have food to eat, a roof over our heads, and time to spend with our families. We might as well sit back and enjoy the ride. Over a year the up days are about the same as the number of down days in the stock market with an overall upward trend. After all, don't most people enjoy a good roller coaster ride at the amusement park?" Doug at the IRS__._,_.___

I am not licensed or authorized to provide investment advice. Any statements made herein merely reflect the personal opinions of myself. Please make your own investment decisions based upon your personal circumstances.