Investment options in the new TSP mutual fund window

While finding a public list of the exact mutual funds available within the new TSP window is difficult, here’s what we know about the investment options in the new TSP mutual fund window.

There are 5000 mutual funds available in the TSP’s new mutual funds window (MFW), provided by 300 fund families, including the largest and most well-known fund sponsors. All of the mutual funds in the MFW are compliant with all US laws and regulations that apply, and approved for investment by both the Securities and Exchange Commission (SEC) and the Office of Foreign Assets Control (OFAC).

A main criticism of the TSP’s core funds (G, F, S, C, and I), including the Lifecycle funds (which are just the core funds allocated by retirement date) has been limited investment options. The I-Fund, for example, is the only way to invest in international equities with the TSP (without utilizing the MFW) and it invests only in a handful of select countries, leaving out most emerging markets and developing countries with high growth potential. The Federal Retirement Thrift Investment Board (FRTIB) tried to fix this by attempting to change the I-Fund to track a global index that would’ve allowed the I-Fund to invest in almost any country’s companies besides the US. However, because this would’ve included China, a handful of Senators blocked the FRTIB from switching the index. There is also criticism from the DOL that the TSP doesn’t contain a way to invest in exclusively in ESG (environment, social, governance) stocks – and even suggested removing fossil fuel company investments from the TSP core funds.

By opening up the mutual fund window last month, the FRTIB is hoping the newly available array of investment choices is enough to quiet these concerns. The MFW is known to contain ESG investment options along with mutual funds with diverse managers, and international mutual funds that contain emerging markets and companies from China (despite concerns from Senator Rubio). Along with those, there are also mutual funds composed of bonds (domestic, international, government, and corporate) and numerous types of stocks (international, domestic, small-cap, large-cap, growth, and value).


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Selecting Funds in the TSP Window

Deciding to open access to the MFW is a decision all in itself because it entails a one-time fee and two separate annual fees, along with a minimum TSP balance of $40,000. All this means is that choosing to invest in the window can be a costly decision. Once inside the window, there are also per-trade fees and expenses incurred by the mutual funds themselves, whichever you may decide to invest in. TSP announced there is a tool designed to help select funds, which can be organized by category.

Category One: “Global Broad Category” – This separates the funds by whether they are comprised of stocks or bonds.

Category Two: “Morningstar Category” – This divides the mutual funds into groups based off of what type of stocks or bonds are in an individual fund. There are companies with small, medium, or large capitalizations. Generally speaking, smaller companies have more room for growth, but also come with more risk than larger ones. Both large and small stocks can also be described as either “value” or “growth.” Value stocks are  priced below their actual worth (or “book value”) whereas growth stocks are priced at or above the book value, but have the capacity to keep growing. Stocks and bonds can also be domestic (from US entity) or international. Bonds can also be categorized by whether they are issued by a government or company (corporate bonds.)

Mutual funds have diverse investment strategies, and these dictate which mixture of investment types are included in a given fund, whether it be sharply focused on a specific type or broadly investing across the spectrum.  For example, some mutual funds contain stocks and bonds of varying types, while others may invest only in large US value stocks.

Here’s a chart to help clarify:

Stocks               Stocks and Bonds Bonds
Small, Medium, or Large-Cap Domestic or International Government or Corporate
Value or Growth    

Category Three: “Net Expense Ratio” – This is the percentage of your investment in a given mutual fund that will go to the mutual fund company itself. Typically, it is less than 1%. For mutual funds that are offered in different classes (A vs. C shares), the MFW will only offer the class with the lowest expense ratio.

Category Four: “Morningstar Rating”***** – In addition to providing categorizations (see item 2 above) for mutual funds, the company Morningstar has a rating system ranging from one to five stars. All I’ll say here is that a 5-star rating doesn’t guarantee any investment performance going forward. It is based completely on past performance.

Other Categories: The mutual funds in the TSP MFW can be narrowed down by sustainable funds (ESG), investments involved with community development, and gender diversity (mutual funds managed by women).


Until Next Time,

Benefits Ben, STWS

**Written by Benjamin Derge, Financial Planner, ChFEBC℠ 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 Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.

***The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you're eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.***

****Investors should carefully consider the investment objectives, risks, charges and expenses of mutual funds before investing. The prospectus and summary prospectus contains this and other information about mutual funds. The prospectus and summary prospectus is available from your financial advisor and should be read carefully before investing. ****

*****For more information regarding the Morningstar rating system, please go to  ******

Investment options in the new TSP mutual fund window

Investment Options in the New TSP Mutual Fund Window