TSP I Fund

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
MichDad
Posts: 363
Joined: Sat Apr 20, 2013 3:50 pm

TSP I Fund

Post by MichDad » Thu Dec 05, 2013 6:19 pm

As many have pointed out, the federal government’s Thrift Savings Plan expense ratios are extreme low. They make even Vanguard’s Admiral fund expense ratios seem high by comparison. Like all TSP funds, the TSP I fund’s (international stocks) expense ratio is 0.027%. By comparison, Vanguard’s Total International Stock Index Admiral’s (VTIAX) expense ratio is 0.16% or about six times higher than the TSP I fund.

It has been my observation that international stock funds usually have higher expense ratios than US stock funds. It is for this reason that within my TSP account, I overweight my TSP I fund allocation. In my and my wife’s non-TSP accounts we overweight our US stock funds. We also purchase REIT and commodities funds and relatively high expense emerging market stock funds outside of my TSP account because the TSP does not offer those options.

Given the difference between the TSP I fund’s expense ratio and the expense ratios of other low cost fund companies, such as Vanguard and Fidelity, does anyone have an opinion on my decision to overweight my TSP I fund holdings?

Let me point out that this is not a purely theoretical point. I have a very substantial position in the TSP I fund so the expense savings amounts to real money, especially when considered over decades.

Thanks for your input.

User avatar
baw703916
Posts: 6676
Joined: Sun Apr 01, 2007 1:10 pm
Location: Seattle

Re: TSP I Fund

Post by baw703916 » Thu Dec 05, 2013 6:31 pm

I agree with your central point, and hold the I Fund also.

The I Fund doesn't include emerging markets, small caps, or Canada, though, so you would need to hold some EM Index and small FTSE as well to approximate Total International. Some people freak out at the thought of holding more than 3 funds. ;)
Most of my posts assume no behavioral errors.

rick51
Posts: 63
Joined: Mon Sep 14, 2009 7:33 pm
Location: Maryland

Re: TSP I Fund

Post by rick51 » Thu Dec 05, 2013 6:57 pm

If all your investments are tax deferred, then it sounds good to me, but if you have funds in taxable accounts you are giving up the tax credit that usually comes with ownership of international stocks/funds in taxable accounts. At some point, it seems yours savings on ER get overtaken by the loss of this credit.

User avatar
White Coat Investor
Posts: 13320
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: TSP I Fund

Post by White Coat Investor » Thu Dec 05, 2013 7:11 pm

MichDad wrote:As many have pointed out, the federal government’s Thrift Savings Plan expense ratios are extreme low. They make even Vanguard’s Admiral fund expense ratios seem high by comparison. Like all TSP funds, the TSP I fund’s (international stocks) expense ratio is 0.027%. By comparison, Vanguard’s Total International Stock Index Admiral’s (VTIAX) expense ratio is 0.16% or about six times higher than the TSP I fund.

It has been my observation that international stock funds usually have higher expense ratios than US stock funds. It is for this reason that within my TSP account, I overweight my TSP I fund allocation. In my and my wife’s non-TSP accounts we overweight our US stock funds. We also purchase REIT and commodities funds and relatively high expense emerging market stock funds outside of my TSP account because the TSP does not offer those options.

Given the difference between the TSP I fund’s expense ratio and the expense ratios of other low cost fund companies, such as Vanguard and Fidelity, does anyone have an opinion on my decision to overweight my TSP I fund holdings?

Let me point out that this is not a purely theoretical point. I have a very substantial position in the TSP I fund so the expense savings amounts to real money, especially when considered over decades.

Thanks for your input.
I think your reasoning is right on. My TSP holds the G fund, I fund (for the same reasons you mention) and S fund (for similar reasons to those you mention.) I hold my US large caps elsewhere.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

User avatar
White Coat Investor
Posts: 13320
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: TSP I Fund

Post by White Coat Investor » Thu Dec 05, 2013 7:12 pm

rick51 wrote:If all your investments are tax deferred, then it sounds good to me, but if you have funds in taxable accounts you are giving up the tax credit that usually comes with ownership of international stocks/funds in taxable accounts. At some point, it seems yours savings on ER get overtaken by the loss of this credit.
I doubt it. That credit is tiny. I would much rather invest in international stocks in a tax-protected account than a taxable account. If I HAD TO invest in a taxable account, I'd probably put international stocks there first, but don't overestimate the size of this credit you're talking about. It's tiny. I mean, it might get bigger than the ER difference (might), but no way is it bigger than the tax drag from holding the fund in taxable in the first place. This thread seemed to estimate it at 15-20 basis points:

http://www.bogleheads.org/forum/viewtopic.php?t=2600
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

retiredjg
Posts: 32911
Joined: Thu Jan 10, 2008 12:56 pm

Re: TSP I Fund

Post by retiredjg » Thu Dec 05, 2013 8:25 pm

You have to look at the overall ER for all your international holdings (I Fund, emerging markets, small caps and Canada if you have it). Otherwise you are comparing apples to oranges.

But mostly, I doubt it matters much in the long run. Vanguard is cheap enough. TSP is cheaper. But on that end of the scale, you are not talking about a big difference in money.
Last edited by retiredjg on Fri Dec 06, 2013 8:51 am, edited 1 time in total.

User avatar
hoppy08520
Posts: 1979
Joined: Sat Feb 18, 2012 11:36 am

Re: TSP I Fund

Post by hoppy08520 » Thu Dec 05, 2013 9:01 pm

MichDad wrote:As many have pointed out, the federal government’s Thrift Savings Plan expense ratios are extreme low. They make even Vanguard’s Admiral fund expense ratios seem high by comparison. Like all TSP funds, the TSP I fund’s (international stocks) expense ratio is 0.027%. By comparison, Vanguard’s Total International Stock Index Admiral’s (VTIAX) expense ratio is 0.16% or about six times higher than the TSP I fund.
Hello, just two points.

First, the I Fund is a MSCI EAFE index fund, but the Vanguard fund you're comparing it to is different -- it contains more expensive asset classes such as emerging markets, small-cap stocks, etc. A better comparison is Vanguard Developed Markets Index Fund Admiral (VDMAX), which tracks almost the same index (FTSE Developed ex North America Index). This Vanguard fund has a 0.1% ER, which is around 3.7 times (not 6 times) more expensive than the TSP.

Second, comparing the multiplier of TSP expense ratios to comparable Vanguard funds is not that meaningful. The expenses for both are both so small you need a microscope to see them, when you compare them to comparable funds in the average 401(k) plan. I think it's more illustrative to talk about the net difference of expense ratios in funds, not a multiplier. The fact that Vanguard's comparable international fund is 0.073% higher than the TSP (0.1% - 0.027%) is what's important, and it's not much, especially when you compare this to the average ER of international funds in most 401(k) plan, which are probably around 1% or more.

User avatar
Ketawa
Posts: 1921
Joined: Mon Aug 22, 2011 1:11 am
Location: DC

Re: TSP I Fund

Post by Ketawa » Thu Dec 05, 2013 10:28 pm

The TSP funds have made a habit of beating their indexes.

Code: Select all

Year         F Fund    U.S.      C Fund  S&P 500     S Fund  DJ U.S.     I Fund    EAFE
                    Agg. Bond             Index             Completion            Index
                      Index                                 TSM Index
2008           5.45%     5.24%   -36.99%   -37.00%   -38.32%   -39.03%   -42.43%   -43.38%
2009           5.99%     5.93%    26.68%    26.46%    34.85%    37.43%    30.04%    31.78%
2010           6.71%     6.54%    15.06%    15.06%    29.06%    28.62%     7.94%     7.75%
2011           7.89%     7.84%     2.11%     2.11%    -3.38%    -3.76%   -11.81%   -12.14%
2012           4.29%     4.22%    16.07%    16.00%    18.57%    17.89%    18.62%    17.32%
I count 16 times where the fund beat the index, 2 times with a tie, and 2 times where the fund trailed the index.

MichDad
Posts: 363
Joined: Sat Apr 20, 2013 3:50 pm

Re: TSP I Fund

Post by MichDad » Fri Dec 06, 2013 3:05 pm

hoppy08520 wrote:
MichDad wrote:As many have pointed out, the federal government’s Thrift Savings Plan expense ratios are extreme low. They make even Vanguard’s Admiral fund expense ratios seem high by comparison. Like all TSP funds, the TSP I fund’s (international stocks) expense ratio is 0.027%. By comparison, Vanguard’s Total International Stock Index Admiral’s (VTIAX) expense ratio is 0.16% or about six times higher than the TSP I fund.
Hello, just two points.

First, the I Fund is a MSCI EAFE index fund, but the Vanguard fund you're comparing it to is different -- it contains more expensive asset classes such as emerging markets, small-cap stocks, etc. A better comparison is Vanguard Developed Markets Index Fund Admiral (VDMAX), which tracks almost the same index (FTSE Developed ex North America Index). This Vanguard fund has a 0.1% ER, which is around 3.7 times (not 6 times) more expensive than the TSP.

Second, comparing the multiplier of TSP expense ratios to comparable Vanguard funds is not that meaningful. The expenses for both are both so small you need a microscope to see them, when you compare them to comparable funds in the average 401(k) plan. I think it's more illustrative to talk about the net difference of expense ratios in funds, not a multiplier. The fact that Vanguard's comparable international fund is 0.073% higher than the TSP (0.1% - 0.027%) is what's important, and it's not much, especially when you compare this to the average ER of international funds in most 401(k) plan, which are probably around 1% or more.
Both of your points are well reasoned and taken. Thank you for your input.

MichDad
Posts: 363
Joined: Sat Apr 20, 2013 3:50 pm

Re: TSP I Fund

Post by MichDad » Fri Dec 06, 2013 3:26 pm

rick51 wrote:If all your investments are tax deferred, then it sounds good to me, but if you have funds in taxable accounts you are giving up the tax credit that usually comes with ownership of international stocks/funds in taxable accounts. At some point, it seems yours savings on ER get overtaken by the loss of this credit.
About 95% of our investment assets are in tax favored accounts -- i.e., 401(k)s, Roth 401(k)s, and Roth IRAs. Most of the remaining investment assets are in Vanguard's Total Stock Market index fund (Admiral).

User avatar
hoppy08520
Posts: 1979
Joined: Sat Feb 18, 2012 11:36 am

Re: TSP I Fund

Post by hoppy08520 » Fri Dec 06, 2013 9:18 pm

I hope I'm not beating a dead horse, but to compose an international allocation that is similar to Vanguard Total International Stock Market Index Fund, with the TSP I Fund as a core component, you'd be looking at something close to this (per Approximating Total International Stock Market):

62% - I Fund at 0.027% ER
22% - Fidelity Spartan Emerging Markets Index Fund (FPMAX) at 0.22% ER
11% - Vanguard FTSE All-World ex-US Small-Cap Index Fund Investor Shares (VFSVX) at 0.45% ER (plus 0.25% purchase fee - waived for ETF version VSS)
7% - iShares MSCI Canada Index (ETF) (EWC) (0.50%)

The blended ER of this allocation is 0.145%, and that leaves out the purchase fee for VFSVX. By contrast, the ER of Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) is 0.16%.

I did this research a while back because I was considering it myself for my TSP account, and was thinking about rolling over more money into my TSP. But after really looking closely at the numbers, if I wanted a market-cap weighted international allocation, it was only fractionally cheaper to use the I Fund, and it was a lot more complicated. So, I use Vanguard TISM and not the I Fund. Now, if you have most of your assets in the TSP, then you just have to make do with that.

Simbilis
Posts: 53
Joined: Sat Nov 03, 2012 12:29 pm

Re: TSP I Fund

Post by Simbilis » Fri Dec 06, 2013 10:31 pm

I use the TSP's advantages much the same way you do, trying to minimize the overall expense ratio of all my holdings. My entire fixed income allocation is in the G fund, and a significant part of my international equities share is in the I fund. The balance of my international equities and all domestic equities come from outside the TSP - mostly Vanguard admiral shares, with ERs between .05% and .10%.

Result: Aggregate expense ratio is about 0.055%, and the TSP's transfer and rollover policy (you can roll outside 401k and IRA accounts into the TSP even after you separate from government service) may eventually allow that to drop even further.

Sim

User avatar
baw703916
Posts: 6676
Joined: Sun Apr 01, 2007 1:10 pm
Location: Seattle

Re: TSP I Fund

Post by baw703916 » Fri Dec 06, 2013 10:55 pm

hoppy08520 wrote:I hope I'm not beating a dead horse, but to compose an international allocation that is similar to Vanguard Total International Stock Market Index Fund, with the TSP I Fund as a core component, you'd be looking at something close to this (per Approximating Total International Stock Market):

62% - I Fund at 0.027% ER
22% - Fidelity Spartan Emerging Markets Index Fund (FPMAX) at 0.22% ER
11% - Vanguard FTSE All-World ex-US Small-Cap Index Fund Investor Shares (VFSVX) at 0.45% ER (plus 0.25% purchase fee - waived for ETF version VSS)
7% - iShares MSCI Canada Index (ETF) (EWC) (0.50%)

The blended ER of this allocation is 0.145%, and that leaves out the purchase fee for VFSVX. By contrast, the ER of Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) is 0.16%.

I did this research a while back because I was considering it myself for my TSP account, and was thinking about rolling over more money into my TSP. But after really looking closely at the numbers, if I wanted a market-cap weighted international allocation, it was only fractionally cheaper to use the I Fund, and it was a lot more complicated. So, I use Vanguard TISM and not the I Fund. Now, if you have most of your assets in the TSP, then you just have to make do with that.
I'm not sure it's going to make much difference to have 62% I Fund +7% Canada vs. 69% I Fund.

Also, it's probably better to use the small FTSE ETF (VSS--0.25% E/R) and the Vanguard Admiral/ETF shares for EM (0.18% E/R).

If you use 69% I Fund +22% VWO + 11% VSS, you get a weighted E/R of 8.5 bp.

Brad
Most of my posts assume no behavioral errors.

Post Reply