Investing in an index fund assures you of getting the return of that asset class. Image: Sai Chan/Shutterstock.com
By: FEDweek StaffIndex funds, such as those available through the Thrift Savings Plan, attempt to duplicate the returns of a given index, such as the S&P 500. Such funds offer these advantages:
* Asset class exposure. Investing in an index fund assures you of getting the return of that asset class. With an S&P 500 index fund, for example, you can be confident of good performance in a year when large-cap stocks do well.
* Low costs. Index funds do not require as much research so they generally have low fees. The higher a fund’s expense ratio, the better it has to perform, just to break even with a low-cost fund.
* Low turnover. Especially in large-cap indexes, where few changes occur, managers seldom have to sell a stock and buy another. High turnover hurts performance because this activity incurs trading costs, which are passed through to investors.
* Low taxes. High-turnover funds may realize taxable gains, which also are passed through. On the other hand, low-turnover index funds tend to be tax-efficient.
While such funds—in the case of the TSP, all except the government securities fund—move up and down with the markets in general, their efficiency enables them to beat the returns of many actively managed investment funds–and even many other funds tracking the same indexes, after taking management fees into account.
This indexing also provides the same type of benefits in the lifecycle funds. The government securities fund is separate and does not fluctuate day to day with the markets but rather pays a fixed return for a month.
Several Federal Agencies Disavow Union Contracts, with More Likely to Follow
‘Only High Performers’ Should Receive Awards, Agencies Told
What to Know About the New Federal Application Process
COVID Vaccination Data to Be Deleted from Federal Personnel Records
Numbers, Impact of Federal Job Cuts Draw Increasing Scrutiny
OPM Limits Length of Paid Leave in Reorgs—Starting Next Year
See also
The Gift of Annual Leave for Federal Employees
Alternative Federal Retirement Options; With Chart
Primer: Early out, buyout, reduction in force (RIF)
Retention Standing, ‘Bump and Retreat’ and More: Report Outlines RIF Process
