Pay and Benefits Watch: Give me an S! Give me an I!

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If the new record-keeping system for the Thrift Savings Plan is up and running on Oct. 1 as currently planned, then you'll have two new investment options to consider: the I Fund and the S Fund.

Federal employees currently have three investment options: the C Fund, the G Fund and the F Fund. The C Fund invests in common stocks and tracks the S&P 500, an index compiled by Standard & Poor's that monitors the performance of the market's 500 largest publicly traded companies. The G Fund invests in low-risk government securities and the F Fund invests in bonds.

Like the C Fund, the new S and I funds will invest in stocks.

The S Fund will track the Wilshire 4500 index, which covers the thousands of stocks not included in the S&P 500. The Wilshire 4500 tends to be more volatile than the S&P 500, suggesting a similar relationship between the S Fund and the C Fund.

"The Wilshire 4500 index returns tend to fluctuate more than S&P 500 index returns because the prices of the stocks of the smaller companies in the Wilshire 4500 tend to react more strongly (postively and negatively) to changes in the economy," the Federal Retirement Thrift Investment Board explained in its latest newsletter on the TSP.

The I Fund will track the Europe, Austral-Asia and Far East (EAFE) stock index. The EAFE includes stocks of companies in 20 countries and is affected by both stock price changes and foreign currency changes in relation to the U.S. dollar.

"EAFE index returns tend to fluctuate more than S&P 500 index or Wilshire 4500 index returns; therefore, I Fund investments are expected to be more volatile in the short run than C or S Fund investments," the TSP board said.

The new funds are part of the TSP modernization that will also allow federal employees to make changes to their TSP accounts on a daily basis, rather than once a month under the current system. The new system was supposed to be completed by May 1, but the TSP board delayed the rollout to conduct more tests before the system goes live.

Here is a comparison of the performance of the Wilshire 4500, the EAFE, the S&P 500 and the C Fund from 1990 to 1999.

Year Wilshire
4500
EAFE
Index
S&P
500
C Fund
1990 - 13.6% - 23.6% - 3.2% - 3.1%
1991 43.5% 12.2% 30.8% 30.5%
1992 11.9% - 12.2% 7.7% 7.6%
1993 14.6% 32.7% 10.1% 10.1%
1994 - 2.7% 7.8% 1.3% 1.3%
1995 33.5% 11.3% 37.4% 37.6%
1996 17.2% 6.1% 22.8% 23.0%
1997 25.7% 1.6% 33.2% 33.4%
1998 8.6% 20.1% 28.4% 28.6%
1999 35.5% 26.7% 21.0% 21.0%
1990
- 1999
compound
annual rate
of return
16.2% 7.0% 18.2% 18.2%

Source: Federal Retirement Thrift Investment Board

Another way to compare the funds is to consider what $100 invested on Jan. 1, 1990 would be worth as of Jan. 1, 2000. According to the TSP board, a $100 investment in the C Fund would now be worth $532; in the S Fund, $448; in the I Fund, $196. The same $100 invested in the F Fund would be worth $206 now; in the G Fund, $197.

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