TSP’s I fund: From mutt to greyhound

Suddenly — almost out of nowhere — the international stock indexed I fund is the hottest property in the Thrift Savings Plans investment lineup. Long avoided by most investors, the I fund was the best performer in 2017. A share you bought for $10.29 in March, 2009 is currently worth almost $31. And the price is going up. The I fund outperformed all others in the TSP returning 25.40 percent last year.

So is the suddenly robust international market the wave of the future or the bitcoin of investment options?

Given its swift, surprising rise,  are you patting yourself on the back for having some I fund shares in your retirement nest egg portfolio, or are you mentally kicking yourself for missing the I fund boat?

So what happened? And is it too late to get in?

There are two routes to becoming a Thrift Savings Plan millionaire.

  • You can make, or inherit, a huge pile of money, get elected or appointed to a government job and move that money into the TSP. It is a super-well designed, well-run program with lots of investment options. And it has some of the lowest fees in the business meaning you will keep more of whatever you invest and earn.
  • You can invest in the TSP from day one of your employment. Take advantage of the rare perk feds have, a 5 percent matching contribution from the government if they invest at least 5 percent. Pick the C fund (large cap) or the S fund (small cap). Or, as it turned out, invest in the I fund when it is down and out. Either way, stick with the stock funds through good times and bad times. Especially bad times (like the 2008-2009) Great Recession. Those stocks dropped big time meaning — for people who kept buying them biweekly — they were on sale for more than two years. Folks who bailed out into the G fund missed out on that chance to buy low.

Your lifetime investment strategy depends in large part on your long-term goals and your short-term risk tolerance. When stock funds plunge, do you sell and move to a “safer” option —like the G fund — until they recover. How long until you return to the market? Or do you hold what you’ve got and continue to buy when the stock market is heading south?

Would you invest in a fund that, over the last 10 years, had an average return of 4.07 percent?Including three years when it made only 2.10 percent and 1.02 percent and one year when it was down 1.27 percent? That’s a tricky question, but not a trick question. Because the fund in question — the high-risk/ high-reward I fund did just that. Despite years of poor performance, the I fund came out the winner when it returned an average of 25.42 percent. Imagine if you had bought I fund shares over the past 10 years? Where would your portfolio be today?

Nearly Useless Factoid

By Michael O’Connell

Sylvester the Cat’s son is named Sylvester J. Pussycat Jr., or “Junior” for short.

Source: Wikipedia