Better than the Thrift Saving Plan?
Today, I saw an advertisement on the side of a bus shelter that said “Move your old TSP or 401k account to [Major investment firm]“. I’m not sure what an “old” TSP account is, but the advertised move is almost guaranteed to move your money into someone else’s pocket. Why is this?
Two main reasons:
1. The TSP funds charges management fees that are a fraction of those charged by virtually all commercial firms. For example the C fund, which is designed to track the S&P 500 stock index, charges about 0.015%. That’s worth repeating: 0.015%. In comparison, the average commercial equity fund charges 1.4%, or 100 times as much.
2. The funds provided by the TSP are index funds, which mean they are tied to large baskets of stocks (500 stocks in the case of the C fund) that closely follow the performance of entire markets. It’s been shown that these types of funds are superior to nearly any other type of fund. For example, the C fund typically beats about 90% of other domestic stock funds over the long periods of time. Why? It turns out all of the high priced managers of the commercial funds typically do worse than picking stocks randomly and they charge a lot to do it. There are only a few people, like the billionaire Warren Buffet, who can beat random picks, and even then they only beat the random selections by a few percentage points. This just means that you have to be pretty darn smart or experienced to beat the collective wisdom and knowledge of the entire market.
