Publisher's Perspective

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John Bogle, the founder of the Vanguard investment company who died recently, summed up his investment philosophy in this way: “Don’t look for the needle in the haystack. Just buy the haystack.”

Bogle became the “father of index funds” after concluding that most stock investors are better off most of the time—not necessarily every investor all of the time, mind—by investing in a broad range of stocks and holding them over time rather than attempting to pick and choose individual stocks and moving in and out of them.


He proved that even professional mutual fund managers typically under-perform the returns of broad indexes. What hope does that leave the individual of doing better? he asked. Plus, he pointed out, active investing incurs a lot of fees which in effect reduce the rate of return. Better to buy and hold a market basket of stocks, he concluded.

If any of that sounds familiar, it’s because the government adopted that philosophy when creating the Thrift Savings Plan, and still uses it to this day.

Over the 30-plus years of its existence, the TSP has offered only index-based funds while charging its investors management fees that are only the tiniest fraction of those charged by most actively managed mutual funds.

It started with just three, one based on a mix of short-term government issues, one a mix of government and corporate bonds, the other on the S&P 500 index of large-company stocks—the G, F and C funds, respectively. Later it added the small company stock S fund and the international company stock I fund, also broad indexes. Still later came the lifecycle L funds, mixes of those underlying funds in differing ratios depending on the projected withdrawal date. Again, all index-based.

Over that period the TSP has experienced several strong bull markets, several gut-wrenching bear markets and just about everything in between. It also has experienced repeated calls to expand its scope, to allow investors a wider range of choice on the order of what many private sector companies offer their employers.

Over time, there have been proposals to create separate funds for various sectors such as precious metals or real estate, as well as to offer “socially responsible” funds that do or don’t invest in companies that are or aren’t involved in this or that.

Finally in 2009 the pressure to allow more specialized investing resulted in enactment of a law that among other things allowed the TSP to create an investment “window” through which account holders could direct some of their money. This was just permission, though, and not a mandate.


The TSP sat on the idea for several years by using that old reliable Washington strategy to avoid taking action, studying the issue. It asked about it in investor surveys. It had staff investigate the possibilities in detail. Lots and lots of detail. Finally, it committed to making a window available, although only as part of an overall upgrade to its customer service.

But now years have passed even since then and the TSP has always found something more pressing to do. For several years it was a change in military retirement law to apply FERS-like policies to those newly joining the military services, with the option for those already in service to join it. Now it’s the need to prepare to carry out new withdrawal options that were enacted in late 2017. That’s to be finished in September of this year. What would you bet that somehow the TSP’s attention then will be drawn to some other more pressing priority?

Meantime, what the TSP calls a “vocal minority” of investors continue to urge that the TSP finally open the investment window. If only the TSP had given us a way to invest in Company X, or market segment Y, they argue, we’d be much better off.

The history of TSP active investing doesn’t support that. It shows very clearly that investors tend to react to stock market downturns by selling the stock-based funds and moving money into the G and F funds, especially the former—a “flight to safety.”

Then when the stock market turns up again, there is no immediate return to those funds. If the money comes back at all, it’s much later, after much of the gains before the next downturn already have been achieved. That’s selling low and buying high, the opposite of what you want to do.

That outside TSP investment window may yet open someday, and for the meantime, you want to invest in individual stocks or market sectors you can always do that outside the TSP, through a brokerage account or a mutual fund company.

Possibly you’ll pick right, and buy and sell at the right time, and make a lot more money that you would make by riding along in the TSP’s index funds.


John Bogle built a company that now manages some $5 trillion in investor assets, and a vast personal fortune, on the premise that you probably won’t.