• Pointing out problems with TSP’s I Fund

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  • Rodney S. Morris | Special to the Fort Leavenworth Lamp
    In 2015, the Fort Leavenworth Lamp published my article about the Thrift Savings Plan, “Thrift Savings Plan among best investments.” While the title of that article continues to be true, and many financial experts agree the single best investment plan available to Department of Defense employees is the government’s Thrift Savings Plan, exactly which of the investment options you choose is vital to your TSP portfolios overall success. As we enter the new year, now is a fantastic time to be sure you are allocated correctly for maximum growth.
    In my article, I referenced two highly esteemed money experts in the field, financial talk guru Ric Edelman and syndicate financial talk show host Dave Ramsey. Both recommend the I (International) Fund be part of your portfolio in addition to the C (Common Stock) and S (Small Capitalization) funds. Edelman specifically recommends a 40/40/20 split with 40 percent into the C Fund, 40 percent into the S Fund, and 20 percent into the I Fund. Ramsey suggests a 60/20/20 split into the same C, S and I funds.
    Three years ago, I asked Ramsey why he continues to recommend the TSP I Fund when its performance hasn’t matched up to the C and S funds for several years. He simply feels confident over time the I Fund will perform well enough to warrant being part of your investment portfolio.
    Since I asked the question however, world market performance hasn’t delivered. In fact, two of the three years the I Fund holders have experienced losses and for the last 10 years the I Fund hasn’t outperformed the F (Fixed Income) Fund. For the record and pointing out the obvious, the F Fund was not recommended by either one of these financial experts, and I am not recommending it either, I just wanted to hit the point home that the paltry 3.2 percent growth the I Fund has produced over the last decade does not warrant being part of your portfolio. At least not right now and perhaps not for the foreseeable future.
    Lyn Alden, an investment strategist, recently published information about the I fund on her investment blog and Federal News radio that touched on something no one else in the investment world is quite ready to say about the TSP I Fund. She said the problem with the I Fund could be its focus. Currently, it only focuses on five heavily developed countries with a concentrated effort in Japan. Three of the five countries, the United Kingdom, France and Switzerland have had a negative impact on the I Fund’s performance over the last two decades. The fund also excludes emerging markets entirely.
    Alden adds that as great of a country as Japan is, “the population is shrinking, which has a devastating effect on national growth. Japan has high debt and an aging population with the highest life expectancy in the world. The fact that literally a quarter of the I Fund is invested in Japan will very likely continue to weigh it down for years to come.”
    Page 2 of 2 - Most financial experts continue to highly recommend investing in the TSP because of its ultra-low costs, matching feature for Department of Defense civilian employees, Roth tax-free investment option, and large contribution limits ($18,000 annually for calendar year 2017 with $6,000 catch-up contribution for those age 50 and older). The TSP offers a surefire path to rapid wealth building. Contrary to what some financial experts are recommending, perhaps now is not the time to include the I Fund in your portfolio. At least for a while.
    For more information regarding the Thrift Savings Plan, go to www.tsp.gov.
    Editor’s note: When he’s not sharing financial advice, Rodney S. Morris is an assistant professor for the Advanced Operations Course, Department of Distance Education, Command and General Staff College.
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