Return to Article: A Year in the Life-Cycle Funds
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As a manager, Ray should be concerned primarily about keeping costs low. Thank you for that.
Still, the TSP participants' primary concern is about maximizing their resources -- an entirely understandable sentiment. While I normally never recommend "chasing" a stock fund's performance because of the time lag in reaction versus action, I now wish I had had the foresight to have done that. Ultimately, whenever dealing with stocks or stock funds, the entire object is to buy low and sell high.
I will not address the dollar cost averaging theory because if you truly look at it, that only matters when you purchase and when you sell. Where you hold the stocks is what is involved in sunk fund(s) maneuvering. The optimum action for the individual participant would have been to transfer all his or her stock funds to the G Fund (and even that bothers me) on May 10 and then back to the stock funds on June 13, while maintaining or exceeding current rate of purchase in said stock funds. But then, the old adage reminds us that "hindsight is golden."
Well, enough for theory. What I really have a problem with is the fund cost figures. If the cost of the transfers equaled or exceeded $4 million for only 215,000 participants, that averages $18 per person. I'm wondering, how much was that per transaction and is that a good or bad rate? Perhaps instead of limits per year, as Rick suggested, we should subtract the transaction fee from the transaction itself? That would make participants weigh their actions more closely. Additionally, if that were so, wouldn't the L funds have to support themselves? I would be more open to even the REIT fund then.
Tip off.
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The article says there were $4 million in trading costs by traders chasing the I Fund. Does this cost me anything as a buy and holder? If so, it is time to establish limits on the number of trades allowed per year, a certain amount of time between trades, fees for trading, etc. The TSP is for retirement and my funds should not be degraded by having to pay for trades by clowns who think they are smarter than Warren Buffett! The addition of these limits will also protect the traders from themselves.
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