When it comes to the investments in federal employees’ Thrift Savings Plan, sometimes a little risk isn’t a bad thing. But if you risk too much, you could end up with some big losses.
That’s where the term “hedging” comes into play.
As Federal Times column Mike Miles wrote in a recent blog post, “hedging helps you find ways to reduce the investment risk you face to an acceptable level.”
Tom Trabucco, the director of external affairs at the Federal Retirement Thrift Investment Board, said one of the strengths of the TSP and the key to managing risk is the diversity of its investment options
“The most important thing is that we have five distinct investments here — there’s no overlap amongst them,” he told In Depth with Francis Rose. “So, you can look at each one of them and decide how much of that asset you would like to have in your TSP account [and] at what percentage, or asset allocation, as the pros say.”
There are varying levels of risk associated with each fund, Trabucco said, ranging from the “no-risk, super-safe” G Fund, which invests in Treasury securities to the C, S and I stock funds.
While there is still risk in the TSP, the relatively safe investment environment comes because of the broad nature of the investments.
“These are broad index funds, which means in each fund there is diversification,” Trabucco said. They are not narrowly drawn sector funds, if you will, where the fund manager has put together all of the stocks of a particular sector of the economy.”
The staidness of the TSP also reflects the behavior of its investors.
People tend to have a long-term plan and stick with it, Trabucco said, which the investment board encourages.
“This is a long-term investment,” he said. “This is retirement money; this is not short trades in and out of the market. So, we encourage people to have the long view.”