MEASURING SUCCESS
A lot is being said about the amount of expenses that the TSP Board is trying to watch. But before we talk about how much is too much, we must begin with a discussion of "What is success? ".
In these days of Performance Management being touted by this administration, one can only dream that a government body's indicators of success could be this clear. Nowhere else in the government can success be so clearly quantified, examined, and measured, as can the actual dollar figures of the price of a TSP fund share.
For the TSP, "success" must be that each individual TSP fund tracks the index that it is supposed to mimic. A return and share price should be as close as practicable to the stated index it follows. IF the TSP Board is able to hire Barclays, provide them with buy and sell orders in a timely fashion, and get each and every TSP Shareholder the return promised by the Fund Index they are supposed to track, then TSP can be said to be "successful".
For example, the C fund tracks the S&P500. Every day, there are buy and sell orders related to the C fund. And every day there are stocks which have to be bought or sold, in order to try and get the performance of the C fund to mimic the performance of the S&P 500 index.
These days, the Barclays company is who actually executes the stock transactions related to the TSP. We trade, the TSP staff roll up the total number of shares to buy and sell, and then provide, every day, a dollar amount to Barclays to go out into the world markets, and execute.
For the TSP, and Barclays, to be successful, at the end of the day, they need to match the performance of the related stock index. Back when TSP first started, there was a different contact holder.
The Wells Fargo company was the agent for the early years of TSP, and sometimes they missed their targets. When the first stock fund was introduced, in January of 1988, the first year or so the C Fund missed their performance target. That year the S&P 500 was up in the period of January through September by quite a bit. While the S&P 500 was up over 13.09% that nine-month period, the C fund was up only 8.49%. That was how the TSP began, but we've been getting better ever since. From a 1988 TSP Newsletter:
To see all the returns in the early days of the TSP, follow this link:
http://tspshareholder.org/docs/highlights_1988.pdf
This is important to understand when we look today at what the current TSP Board thinks about expenses. It has been said that expenses are running millions of dollars, and the TSP Board wants you to think this is costing you, and is too expensive. Please judge this in the proper context. Today, costs are MUCH better than in the early days. And it's been improving for years. In 1988, costs WERE high compared to the amount of money in the funds. But costs are lower now than when the TSP first began.
By 1996, Wilshare was the agent, not Wells Fargo. And they did a good job of trying to match the S&P 500 index. And they came pretty close. In 1996, the S&P500 was up 23.1% for the year, and the C fund managed to get 22.8% return. And people were, for the most part, happy. This was considered good. And costs were lower than in 1988. ANd there was great joy in investment land.
Link: All returns in 1997- follow this link: http://tspshareholder.org/docs/highlights_1997.pdf
So where are we today?
Today, more than 240 BILLION dollars is invested by millions of federal employees. The cost per shareholder is tiny, compared to any other mutual fund out there. Annual costs to manage the TSP have fallen from about 10 basis points in 2003 (1 dollar for every 1000 dollars invested) to about 2 basis points in 2007. ( 20 cents for every 1000 invested).
Costs ARE under control:
Private funds typically run 65 or 70 basis points a year in costs. The TSP runs 2 basis points. Private funds try very hard to meet the performance of the indexes they represent. The TSP has been more than successful. Every month. In every way. With unlimited TSP trades for it's shareholder, TSP has managed to MEET and BEAT the performance goals that it ought to.
We have the data for the first nine months of this year.
In 2007, the S&P 500, from January 2007 till September 2007, gained 9.13% The C fund gained 9.16% at the same time. They BEAT the GOAL by 0.03%.
With unlimited trades.
In 2007, the Wilshire 4500 index, from January 2007 till September 2007, gained 8.97%. The S fund gained 9.12% in that same time. They BEAT the GOAL by 0.15%.
With unlimited trades.
And in 2007, the EFAE International Index, from January 2007 till September 2007, gained an impressive 13.15%.
The I fund, during that same period, gained 13.37%, beating the goal by an impressive 0.22%.
With unlimited trades now in place.
Sometimes, it's best to declare a victory when you are ahead.
The TSP Board has done a fantastic job of administering the funds, and keeping costs down. Of course, the ultimate cost control would be not to let anyone touch their own money once it's deposited. If they did that, there would be no trading costs at all. But then again, people would not have the freedom to prepare themselves for the future.
We say: Costs are already extremely low, and the TSP Board has done their job already. As long as the funds are equal to or better than the indexes that they represent, there is no need to impose new restrictions on shareholders.
TSP has already become the most successful retirement savings/investing program in the history of the free world. The costs are the lowest anywhere. The freedom for individual employees today has been an outstanding success. The returns meet or beat the indexes they represent. So why are you trying to change things?
TSP BOARD: MISSION IS ALREADY ACCOMPLISHED.
It's time to declare the TSP is a success, and leave well enough alone.
No trading limits are necessary. Period. It only costs shareholders 2 basis points per year, and we enjoy unlimited trades. The TSP works just fine. No limits are necessary.
That's our 2 cents worth.
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TSP Board claims the number of TSP Thrift Trades is increasing costs. But data shows only slow growth
When the TSP Thrift Board voted last month to impose restrictions on trading, they were told that it was the increase in trading activity that was driving up costs. As stated above, we thnk costs are just fine. It costs only about $4 per year in 2006, per TSP Shareholder, for current trading costs.
As good investigators always do, we decided to go get the data ourselves and try to examine exactly where the truth is found.
The Board claims that costs have gone up, and are trying to say it's because more people are trading. We refute that claim here and now. That's NOT what has caused costs to rise.
We searched the Federal Retirement Investment Board meeting minutes from 2005 until present. And, in the October 19th, 2007 Board meeting minutes, we reviewed the actual data on the number of TSP Shareholders where were making interfund transfers.
We pulled up the October 5th memorandum from Greg Long to the Board members. On page 9 of that nice package of graphics and charts, is this stunning fact. The fact is the number of those TSP Shareholders making interfund transfers is not growing at the rate that they claim costs are growing. It's not how many people trading that is driving up costs.
On page 9, in the right hand column, is the number of IFT trades conducted by Shareholders, month by month, since 12/31/2004.
Do you know how many trades were made in January of 2006?
There were 205,166 trades executed.
Do you know how may trades were made in January of 2007?
There were 175,918 trades executed.
Year over year, the January number of trades WENT DOWN, not up. Over the longer term, the number of people educating themselves, and making moves within the TSP system IS growing, but only very slowly.
On average, the overall numbers of trades is growing, but only slightly, on the order of less than 10% per year.
Here is a look at what the ACTUAL NUMBER of interfund transfers executed each month from January 2006 to September 2007. On average, it went from about 170, 000 IFT's per month in late 2005 and early 2006, to just over 190,000 per month in the latest six month period.
When big changes occur in the market, as was the case in March this year, and again in July, people move money. It's just a normal market reaction.
The spikes are volatile months, nothing more.
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If you do a quarter by quarter looksie, the number of TSP Interfund (IFT) trades appear to be about equal, with a very slight growth. The spikes occur when the markets burp, nothing more.
On the busiest day in August this year, about 14,500 people out of 3.8 million shareholders placed a trade order on one day. The avearge day is around 8,000 trades in one day.
But, as the TSP Board was told, trade market impacts costs went up between 2005 and 2007.
What was the Thrift Board told?
Here is the differences in costs for those years.
The briefings given to the board cited:
2005 trading costs were 8 million.
2006 trading costs were 16 million.
2007 trading costs were 25 milion.
For a very slowly growing number of IFT trades.
True, it went from about 175,000 a month, to about 190,000 a month. It's those 10,000 new people who have educated themselves and actually made a decision to make an IFT that drove the number of trades up about 10%.
THE NUMBER OF IFT TRADES EXECUTED HAS RISEN JUST 10% IN TWO YEARS.
So what DID change between 2006 and 2007 to drive the cost of exchanging shares from 16 million dollars, to 25 million dollars?
Simple:
Number of L fund holders:
January 2006: 245,922
January 2007: 452,990
September 2007: 543,213
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And to go along with it, remember this. The L funds are "rebalanced" every day. Trades in the underlying assets of the L funds are bought and sold every day, in order to maintain the L fund's design percentages.
In fact, the L funds have been quite successful in attracting holders. They do a good job, and we agree that they are valuable tools for those who choose to put their money in the L fund. Since there introduction in 2004, the L funds have performed well, in a fairly strong up market. And all of them have been reblanced every day. The amount of money within the L funds has grow even faster thatn the number of L fund shareholders, as people have moved thier money into L's and awy from other funds. And remember, an additional total of $600 million or so of employee savings flows into ALL the TSP funds each and every month.
So is it just a coincidence that costs have gone up from $8 million in 2005, to$25 million in 2007, while at the same time, the number of IFT trades have only grown by 10%, but the dollars contained in the L funds have grown by nealry 250%?
You tell me. Who is responsible for the $25 million in costs?
It's not the 3,000 people who the Board says make trades more frequently than 3 times a month. That number of traders has remained pretty flat since the new trading sysem began.
We believe it's the 543,213 people who are having their accounts reblanced every day in the L funds.
Look at the actual data. Don't just take their word for it.
The "L funds now contain $22.8 BILLION DOLLARS, at the end of September, or an average of about $41,900 for each TSP L Fund account.
Each account - each one of those L fund holders --gets his/her shares moved automatically, each and every day. If, for example, the difference between the C fund and the I fund change is 2%, then that 2% is changed for every one of those 543,213 people.
On a $41,900 account, that is $838 dollars shifted (traded) automatically. As one underlying fund value goes up, and another one goes down, then, well, there is balancing to do every day, to match it up to the expected shares. Across 543,213 L fund shareholders, that adds up to $455,212,494 in adjustments.
That's just a 2% adjustment. In one day. Just for the L funders.
As we say, the TSP expenses are the least of any large fund IN THE WORLD. But it's not the 3,000 people who have moved money more than twice in a month who account for this tiny expense. Read the data for yourself. You decide, how much is about right?
We think costs are just fine.
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MORE PEOPLE ARE SIGNING UP AND SAYING NO!
1,700 SO FAR
We've gathered more than 1700 signatures on the petition to stop the TSP Thrift Board from limiting Interfund Trades. It's growing at a rate of more than 200 a day, as people all over the country, Federal Employees and Military Service members learn about the Draconian plan by the Thrift Board aimed at removing TSP Shareholders freedom to manage their own money as they see fit.
You have told your friends and co-workers about it. Now ask them to sign the petition. We're fighting back, and we need your help to stop this unfair curtailment of our right to manage our own money.
Ask them to visit http://TSPSHAREHOLDER.ORG and sign the petition. We are asking that the Federal Retirement Thrift Investment Board to reverse their decision, and look at other alternatives besides restrictions on freedom to invest as people see fit for themselves.
There are other ways to archive the goal of keeping costs under control. Some have discussed applying a small Interfund Transfer transaction fee. A simple $10 fee per transaction would raise about $2 million dollars a month, or $24 million a year. Those who move frequently would pay more than those who never move at all. It's one way to keep costs down, and it's fair.
There are other options as well, and we ask you to consider more than just the flat limit of 2 trades per month.
Freedom is worth fighting for. We aim to fight back.
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What people are saying:
Those signing the petition are uniting behind a common message: Leave our TSP alone. Don't restrict our freedom. It's OUR money.
They are finding us from Coast to Coast, from every state in the Union, and from overseas as well. Federal Employees from different agencies, and Military Service Members from all services, uniting to speak loudly in one voice. They are saying: NO! to TSP Limits!
Here are some extracts of today's Petition comments. We don't have room to print them all, so here is a sample of what people wrote in today:
THIS IS YOUR VOICE SPEAKING!
TSP SHAREHOLDERS SPEAK!
Dec 14, 2007,Jose Guadian , Colorado
This is the biggest retirement investment and income tool for many Federal Employees. Instead of limiting our choices, we should be looking at allowing more diversification and options. It's a shame when my mate's private business 401K makes more money in the few years she's been contributing, compared to my longer years in the TSP, as a result of their plans diversity and options. We should be looking to provide the best retirement to our Government employees.
Dec 14, 2007,DONALD JONES , North Carolina
IF YOU DON'T WANT THE CONTRACT, GIVE IT BACK. YOU WERE THE ONES WHO OFFERED THE ABILITY FOR US TO MANAGE OUR OWN ACCOUNTS. SOMETIMES WE NEED TO TRADE ONCE EVERY 2 MONTHS, SOMETIMES WE NEED SEVERAL TRADES IN ONE MONTH. IN CASE YOU FORGOT, IT'S MY MONEY.
Dec 14, 2007,Anonymous , Utah
Please don't take our choices of trading the TSP away. We all need to have control and be able to manage our TSP money the best possible way to fund our retirement. If limits are imposed in the account everybody will suffer greatly at the end since market conditions sometimes warrants the movement of funds more that twice a month. Charge a nominal minimum fee if necessary to cover cost of transfers. Please reconsider your decision!!!!
Dec 14, 2007,Richard Heidelberg, Colorado
The concept of day trading at TSP.GOV is nonsense. Day traders trade immediately without delay. The idea that this will be a cost savings for TSP is also nonsense.
Dec 14, 2007,Anonymous, Washington
Limiting our trades will limit our ability to protect our investment and to limit large losses in our TSP accounts, not to mention limiting our ability to increase the amount in our accounts (compared to the buy and hold system). If we go back to limited trades, it will send us back to the stone age when we could only helplessly watch when the market decided to suddenly go south. Also, I don't like the idea of trying to make changes without letting the TSP members vote or have a say on the issues.
Dec 14, 2007,Bruce Miller, Ohio
As a union member of one the largest unions in the country...I WONT let this happen! I have discussed this with my union president to draft a petition drive to write my congressman. A group of people at TSP WON'T control my ability to control my retirement funds when I retire! This proposal WON'T go over my dead body and I will personally see to it! I NOT a 'day trader' but am one who passionately follows the market and understands it too. Working class investor/Bruce Miller
Dec 14, 2007,Rick Jank, Florida
I have made investment decisions into the TSP in reliance on the fact that the service told me I would be able to make trades without limitations. It is palpably unfair, and one would think contractually wrong, for this to be taken away.
Dec 14, 2007,Richard Fillman, Texas
Regarding the transaction limit, I believe there are more reasonable alternatives that will better serve all of the competing needs & interests. Please reconsider this decision & involve TSP shareholders in arriving at a solution acceptable to all. Thank you.
Dec 14, 2007,Alan Colburn, Washington
It's outrageous to prevent people from deciding where to allocate their money. Not only should there be NO limits on trades, the TSP should allow a much broader set of investment alternative, line ETF's in Brazil, Malaysia, Singapore and China. Adjusted for the decline in the value of the US dollar, the S&P and Wilshire 4500 are down 35% over the last 6 year. Over the same period the ISHARES Brazil ETF (EWZ) is up over 1000%. This is a confiscation of wealth. If Wall Street can do it, TSP participants should be able to do it as well. Who do you people work for anyway?
Dec 14, 2007,Kevin Pfister, Wyoming
TSP cannot be managed as if 100% of its participants are financially ignorant. This is our money, our retirement. Do not limit our ability to secure our retirement by severely limiting our ability to make trades. Also, change whatever bylaws govern you to mandate that you need participants' approval before making any substantive changes to the plan. We are shareholders just like any other, and should be accorded the basic rights of having some control over TSP features! Sincerely, /s/Kevin Pfister
Dec 14, 2007,Joseph Gallagher, Utah
I am late in my Federal Career and I need to be as nimble with my account as I can be. This will be a significant impact on me personally.
Dec 14, 2007,Joel Locke, Pennsylvania
I am appalled at your decision to limit trading in my TSP account. You balance the L funds daily. I've been able to get better results using mutual funds in my IRA. I can't put all my money there but will start fully funding my Roth which will limit what goes to TSP if I am limited on my moves.
Dec 14, 2007,ELAINE LEBOEUF, New Hampshire
I want to be able to make my own determination when to move my money.
Dec 14, 2007,Carol Stager, Pennsylvania
This limit would severely restrict our ability to manage our retirement funds. I strongly oppose this.
Dec 14, 2007,Tyler Artichoker, Colorado
Trading limitations are in direct contradiction to the intent of the TSP supposedly allowing employees to have more control of their own retirement. The unilateral action of the board should be challenged.
Dec 14, 2007,William Martin, Georgia
Limiting TSP transactions for the sake of saving a few bucks is unfair to participants. Just shows that we are moving further and further from democracy.
Dec 14, 2007,GARY GARMAN, Germany
The idea of limiting transactions is regressive. Individual investors should not be treated any differently than the Lifecycle Funds. I am adamantly opposed to any reduction in the number of transfer allowed. Fees for transfers over a certain number is okay as long as the Lifecycle Funds are held to the same standard. I remember how bad it was early on when we only had one transaction and we had to have it in by the 15th to be effective EOM. Not good. I lost a lot of money because of that policy.
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| SHARE THIS NEWSLETTER WITH YOUR CO-WORKERS. Ask them to sign up, and speak out. Together, we can make a change. Together, we can make a difference. Together, we will change the world.
Pick up the phone on Monday, and tell the Employee Thrift Advisory Council (The group that is supposed to represent employee interests) that you want them to tell the Thrift Board to look at OTHER OPTIONS, and reverse the decision to limit IFT trades.
For the list of names, phone numbers, and email addresses of the ETAC Council, click Here.
TO SIGN THE PETITION ON-LINE- CLICK Here! | |
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COMING SOON:
In the next issue of TSPSHAREHOLDER.ORG:
The TSP Thrift Board was told that most major 401(k) companies limit trades for their shareholders. We look at that claim in depth.
We bring you FACTS, not fiction. We'll bring you hyperlinks to show you the truth. And the truth will set you free.
Vanguard doesn't limit 401(k) trades in EFT index funds. We'll show you the web page that says so. .
And we'll show you more of YOUR VOICE- comments made by Federal Employees, and Military Service members from around the world.
Tune in next time for more of the continuing story....of the way we can change the world.....on TSPSHAREHOLDER.ORG |
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TSPSHAREHOLDER.ORG 
