New TSP Fund Idea Moves Ahead

The Thrift Savings Plan governing board is continuing to push ahead with the idea of adding a new fund or funds to the program that would create desired percentage mixes of the existing five investment funds, with automatic adjustments to maintain that ratio. The main reason for adding the new funds is that after studying TSP investor behavior officials have concluded that many participants invest too conservatively-35 percent have all their money in the low risk but low potential return government securities fund-while others take excessive risks-about 11 percent have all of their money in one or more of the stock funds. Only 6 percent of investors have money spread among all five funds. Further, TSP data show, investors tend not to rebalance their portfolios to take investment results into account-only about 16 percent of investors made an interfund transfer in the most recent year studied, 2002-and when they do, they tend to chase returns by shifting money to funds that have performed well recently. The result, according to an analysis prepared for the board, is that investors are getting too little return for the risk they are taking on; or, looked at another way, they are taking on too much risk for the returns they are getting.