- Approaching the 2-year anniversary of the TSP mutual fund window, we review if feds should reconsider “opening” their investment window.
In June of 2022, the Thrift Savings Plan (TSP) opened a “mutual fund window” that expanded the investment options from the 5 main cores funds C, S, I, G, and F (and the lifecycle funds that are comprised of those 5 funds) to around 5000 mutual funds. There are a few caveats, though, making a majority of feds hesitant to invest some of their TSP money into mutual funds within the new window.
Learn all about the Thrift Saving Plan at our webinar for federal employees, retirees, and their families
This article reviews the top items that feds should keep in mind when deciding whether or not to participate.
Investment Choices and Diversification
The TSP window contains mutual funds of many varieties. Some examples would be a growth-focused fund investing in US large-cap stocks, an international fund that includes Chinese companies, and a fund that tracks in the Russell 2000. Among numerous other types, the mutual fund window allows investors to target parts of the market that the core funds do not. The C-Fund tracks the S&P 500, which includes US large-cap equities, but the differentiation between growth and value stocks can’t be made like with the mutual fund mentioned above.
This can be great if you’ve got a disciplined and informed investment strategy and know how to properly diversify your investments. However, if you are sporadically selling in and out of various funds chasing returns, this can be disastrous to one’s retirement savings. With more choices comes more room for risk, but also potential for growth.
Fees and Account Restrictions
Before a TSP investor can open their mutual fund window, they need at least $40,000 in their account already. The reason for this is that there is a $10,000 minimum that needs to be transferred into the window before any mutual funds can be selected. On top of that, the maximum a TSP accountholder can have in the mutual fund window is 25% of their total TSP balance.
If those hurdles have been cleared, those who invest in the TSP window still have to be aware of fees, both to trade in and out of a specific fund plus the respective expense ratio of each of the selected mutual funds. Regarding the expense ratios of the 5 main TSP funds, they are typically lower or on par when comparing to similar investment vehicles out there. As for the mutual funds that are accessible via the window, that may not be the case for every fund. There are actively managed mutual funds available in the window and those typically charge more.
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The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
