NOTABLE QUOTES:
"I think people ought to have a -- given an opportunity to have more control over their own retirement funds, the chance to tap into the power of compound interest; the ability, if they so choose, to watch their money grow in an account, a savings account of bonds and stocks."
G.W. Bush , Conversation on Social Security, Parkersburg, West Virginia, April 5, 2005.
"A secure retirement is no longer a guarantee for the middle class. It's harder to save and harder to retire. Pensions are getting crunched. The promise of social security may grow harder to keep for future generations. That's why my agenda for retirement security will protect Social Security, lift up savings for working people, and reform bankruptcy laws to protect working people."
"We have to encourage savings so it's easier to retire. But today, personal saving is at an all-time low. Americans are dealing with higher costs for everything from tuition to childcare to the price at the pump."
That's why I've proposed automatic workplace pensions. There will be no red tape or complicated forms - employers will provide a direct deposit of a small percentage of each paycheck into your account. You can add to it, or you can opt out at any time. And employers will have an easy opportunity to match employee savings. If you switch jobs, your savings will roll over into your new employer's system."
"You will control your account. The federal government will match these savings to help you reach a secure retirement. For families that make under $75,000, we'll match 50 percent of the first $1,000 you save."
Senator Barrack Obama, Retirement Security Agenda at Roundtable in Cincinnati, February 25, 2008
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HOW DOES TSP COMPARE?
TSP INTERFUND TRANSFER COSTS ARE LOWER THAN MUTUAL FUNDS
The TSP Board says the reason they have to restrict interfund transfers is because they have a mandate by Congress for "Low Costs". Recently, the head of the TSP made a rash statement saying he thought there was just too much interfund transferring going on, and blamed the 3,000 active investors for it.
True, over the last year or so more people have actively bought and sold shares, partially as a result of some wild swings in the market. And partly because more people have been educating themselves on how markets work, how investment decisions also include the decision of when to buy and sell. And they are educating themselves in a number of places across the internet--- places like http://tsptalk.com. You see, a little education goes a LONG way when it comes to keeping an eye on your investments, and building for the future.
"TSP Chief Greg Long made a statement that 'I'm not going to have a 100% Turnover in the TSP I Fund', as if that was something out of the ordinary."
While it is true that in the past, fewer Federal Employees actively managed their own accounts, this is all changing as people become educated, and learn how to manage their own money. In the past, Federal Employees fell far behind their private industry counterparts when it came to planning for their future. But those who invest their own 401(k)'s actively move them as the markets change, and that is a positive thing. To hear Greg Long talk, his way of investing, buy-and-hold, is the only way to make money. And anything more than that is too expensive.
But Greg is not looking at the real picture.
Lots of investors in the market- in fact a majority of savers for retirement, actively are responsible for their own investments. And yes, that incurs some costs for trading. In the private investor world, the word for that is Brokerage Costs.
Greg Long told the Thrift Board that he thinks transfer brokerage costs are somehow out of line on the "I" fund, and that's why they are pushing trading limits.
To hear Tracy Ray and Greg Long, TSP's expenses are too high, and that what they are trying to make every think.
But is there "Too much moving around", and costs "too high?"
We took a look, and you'll be interested to see the answer.
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TSP's TURNOVER IS WELL BELOW THE MARKET COMPARABLE AVERAGE
Greg Long made a statement that "I'm not going to have a 100% Turnover in the TSP I Fund", as if that was something out of the ordinary
TSP's I fund having 25 billion traded over the course of the year puts it BELOW the average turnover for most Mutual Funds. That may come as a shock to Greg Long and Tracey Ray. Tracey's previous experience is with the State of Maryland pension fund, where she was responsible for a fund that ONLY bought stocks, not sold them. To her, the very idea of selling stocks is a shock, but it's actually very common in places where individuals, not the nanny state, are responsible for their own future needs.
According to Don Cassidy, Senior Research Analyst at Lippert, portfolio costs of Mutual funds vary from fund to fund. Back when the word "Day Trading" was in the news, Cassidy decided to take a look at how mutual funds operate, and what costs were involved across many different funds and many different investments.
At the time, the funds all reported a factor called "Total Expense", but that did not include the cost of brokerage fees for those who moved money in and out of the market. His goal was to look at ALL fund expenses, including brokerage fees, and see how much it really cost to run a mutual fund. |
In a 2004 report, Cassidy looked at more than 300 Mutual funds and compiled the data. His complete report is now available on-line at this web address:
http://pdf.forbes.com/media/pdfs/2005/0105funds.pdf
We took his charts, and then we looked to compare his findings in 2004, with the expenses that our TSP Investments are running today. We took data from the December 2007 TSP Board Minutes to try and compare apples to apples, and get a real time look at the costs. So how exactly do our wonderful TSP Funds- the C fund, the S fund, and the I fund, compare to publicly available Mutual funds? How do we compare in "Portfolio Turnover" , that terrible word that Greg Long is so afraid of, and what are our TOTAL EXPENSES PLUS BROKERAGE FEES, when you compare them to the rest of the market.
We wanted to show apples to apples. And what we found validates this: TSP IS the low cost choice. TSP ALREADY is meeting and beating all costs out there.
First, here is his table that shows what the average turnover is in both NON-US holding funds (International Funds), and then in U.S. holding funds.
Remember, Greg Long said a 100% turnover is too much. But it turns out that a 100% turnover puts the TSP's I Fund right about in the middle of the pack when it comes to actual amount of turnover. It rates in the 40th percentile.
But the basis points, at just 6.5 basis points, makes it LESS EXPENSIVE than more than 90% of all aveage commissions. It's trading costs are less than more than 90% of mutual funds out there, and is comparable to funds that have less than a 10% turnover per year. Pretty good, if you ask me.
Pretty interesting stuff, actually.
Note that Cassidy wanted to find out how "turnover" and expenses compared.
Here is a scattergram graphic of TSP VS. Mutual Fund turnover for some 500 Mutual funds, as reported by Lippert. The left hand side is the scale for "Costs". The bottom scale is the percentage of turnover. As you can see, all TSP funds compare favorable to Industry when you compare Turnover and Costs.
As you can see, our data for the TSP for 2007 (through November) compares VERY Favorably to the rest of the industry.
In fact, our "S" fund had NEGATIVE expenses, due to Barclays using Exchange Traded Funds ETF's rather than buying and selling actual stock shares over the final two months of the period.
The "C" fund was almost so low on expenses that you can barely see it, and even the "I" fund, which Greg Long and Tracey Ray are so concerned about, are well below the Industry average when you factor in all trading expenses.
It's not just trading expenses that one should look at. It's "TOTAL EXPENSE RATIO", which DOES NOT INCLUDE the costs of broker trading. When you look at BOTH, the combined numbers show the TRUE COSTS associated with TSP.
And NOBODY CAN TOUCH the low costs, even with the fees associated with ALL THE INTERFUND TRANSFERS that Greg Long, Tracey Ray, and the Thrift Board claim are too expensive. It's simply NOT TRUE.
Here is the scatergram chart. On the left side, you'll see "Trading Expenses", the ones Tracey Ray and Greg Long say are too much. On the bottom are TOTAL EXPENSE RATIO, the costs that don't including trading costs.
The bottom lines is this. For BOTH trading costs, and total costs, NO ONE OUT THERE CAN EVEN COME CLOSE TO THE LOW COSTS OF THE TSP NOW,
EVEN WITH THE 3,000 Frequent Traders controlling their own money.
Period.
Take a look at this chart. This is where TSP Funds rate compared to Mutual Funds.
TSP costs are low. Even with the interfund transfers going on today, the costs are low.
There IS NO COST REASON to limit the ability of people to control their own assets.
Limiting TSP Interfund trades will cost Shareholders thousands of dollars. And it's a bad idea, and not necessary.
Period.
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THE STATS:
TRADING COSTS - INTERFUND TRANSFERS- PER TSP SHAREHOLDER-
HAVE NEVER BEEN LOWER.
Trading costs in the F, C, and S Funds were negative in November.
F Fund:
Amount Traded in November: $401, 522, 125
November Costs: -$32,997
Year to Date Costs: $1,050,599
YTD Basis Points: 1.3
C Fund:
Amount Traded in November: $ 1, 018, 796, 985
November Costs: -$278,186
Year to Date Costs: $ 507,589
YTD Basis Points: 0.5
S Fund:
Amount Traded in November: $1,892,757,769
November Costs: - $ 150,698
Year to Date Costs: - 4, 301, 097
YTD Basis Points: - 3.3
I Fund
Amount traded in November: $1, 944, 309, 620
November Costs: $2, 196, 263
Year to Date Costs: $15, 753, 468
YTD Basis Points: 6.2
Note: The I fund costs are higher due to setting the price prior to market execution. The 2006 comparable I Fund YTD basis points were 10.2 basis points. The higher volume of trading in the I Fund in 2007, combined with Barclays swtich to using ETFs rather than stock shares were both directly responsible for the lower Basis Point costs associated with the 2007 figures.
Number of TSP Share Holders in December 2006: 3,680,000
Number of TSP Share Holders in December 2007: 3, 825,000
TOTAL TRADING COSTS FOR 2006 (through November)
$12,963,106, or $3.52 per person.
TOTAL TRADING COSTS FOR 2007 (Through November):
$13,010,559, or $ 3.40 cents per person.
IN 2007, IT COSTS JUST $3.40 CENTS PER TSP SHARE HOLDER TO ALLOW UNLIMITED INTERFUND TRANSFERS FOR THE ENTIRE YEAR.
WE BELIEVE THERE IS NO REASON
TO LIMIT TRADES.
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MORE THAN 3,475 PEOPLE HAVE SIGNED THE PETITION
Our petition against imposing TSP Interfund Transfer limits continues to grow. More than 3,475 Federal Employees, U.S. Military military members, and retirees have already signed the petition to reverse the decision of the Thrift Board to limit Interfund Transfers.
From Florida, to Alaska, to California, around the worlds, and everywhere in between, those who hold shares in the TSP are voicing objections to the proposed limits.
THEY ARE SIMPLY NOT NEEDED, AND ARE THE WRONG THING TO DO!
Here is a sample of what people are saying:
Feb 29, 2008,Kevin W. Thatcher , New Mexico
Why should I be penalized and limited to the amount of retirement that I could possible acquire during my federal career. All you have to do is look at the market now and see how volatile it is. This change will affect my potential and optional life style in retirement.
Feb 29, 2008,Shane Sweeney , Oklahoma
Though it is a way to increase short term profitability, expense cutting is a poor strategy if you aren't being honest about what you are giving up in the process. I would hope that the Board will keep their eyes on the ball and concentrate on setting an appropriate balance between benefit and expense by avoiding the blind pursuit of efficiency. A more efficient, less expensive route is only pursuable if it remains effective. Please respect my volition to do as I see fit with my funds. If the lifecycle funds are worth the expense of daily trading to adjust them, then please don't take away my opportunity to adjust my investment strategy as well. A system can only become so cost effective through expense cutting. Please find another golden cow to worship.
Feb 28, 2008,Jay Hilligrass , Arkansas
Last year I had more than 25%return on investment. This year since receiving the TSP Letter restricting movement of funds, I have lost 12.5% ($60,000.00)
Feb 27, 2008,Michael Kaffenberger , Nevada
I am a former fed employee (18 yrs). I have another 14 years to go before I can start withdrawing from my TSP. If limits are put upon the number of trades I am allowed, I will certainly be pulling my money out altogether and putting it into an institution that lets me trade at will.
Feb 27, 2008,David Garrison , Texas
After years of waiting to be competitive in the markets, TSP finally entered into the modern age. NYSE completes billions of transactions a day and our board can't handle a few hundred thousand? What's up with that? Maybe they need to get a government job. Stop helping us. We can do it ourselves and will gladly pay for quality service.
Feb 27, 2008,Darrell Hoffman , Pennsylvania
The TSP was initiated to allow investors to individually manage their own retirement monies as they see fit. TSP investors are already at a disadvantage having to wait two-days for interfund tranfers. Often times absorbing the brunt of an instantanious market. Does this sound fair, does this sound like effective management of my retirement? I should think not. The role of the TSP should be the manager of my funds, my broker in a sense. Trying to assist me to have the most effective financial strategy avialable. I would not think that Schwab or one of the other large investment firms would have me settle for "riding it out" in a bear market.
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| YOU can sign the petition, and YOU can ask your coworkers to sign the petition, at this web address: http://tspshareholder.org
Know of someone who is still in the dark? Help them learn the truth. Send them a message- that you would like them to learn more BEFORE their rights are taken away.
Educate them.
Ask them to learn more.
You can tell your Union or your organization that you want THEM to weigh in against setting artificially low limits on TSP Interfund Transfers.
Your freedom, and your retirement income, will depend on ALL of us stepping up to speak out. | |
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TSPSHAREHOLDER.ORG
