Federal Employees News Digest

Who’s the smartest investor?

Here’s a quiz: When it comes to investing, which group of workers comes out on top?

  • Tuna fishermen
  • Big city cab drivers
  • School teachers
  • Federal (especially postal) workers
  • Surgeons
  • Concert musicians

Take as long as you want.  Ask a friend or seek the wisdom of the crowd.  Did you pick one or give up?

I ask because I left one thing out: I made it all up. Until a couple of years ago I might have picked cab drivers or surgeons, but now I’m not so sure.  The reason is that I’ve talked with so many federal workers, people with good jobs and good salaries but not big-bucks artists, who are self-made millionaires. They did it by investing an average of 29 years in the C and S (large and small stock) funds of their Thrift Savings Plan.  One postal employee was on track to hit the $2 million mark this month until the 11-year bull market tanked in February. But he’s still got a million and lots and lots of change, and he continues to buy stocks which are already up. Instead of buying high and selling low -- when the inevitable 20% correction finally hit -- he continued to buy at what, already, turned out to be on-sale prices.

You’d think people in the private sector, those of us with nonbureaucratic minds, would be financially smarter than a government worker. I’m not so sure.  Here’s why:

I few years back I asked most my coworkers which mutual funds they were investing in for retirement. We had an optional 401(k) plan with dozens of options, but like many private-sector programs, there was no company match, so a wise choice was important.  I asked around because we were rapidly coming out of the recession, and  I was anxious to know whether my co-workers were in stock or bond funds.  Especially younger workers for whom the investments were very, very important even though retirement was a long-time-in-the-future.

So were most investing in stocks or bonds?  Had they gotten conservative during the recession? Or had they continued to buy stock funds that (while still at sale prices) were booming?

Turns out nobody knew.  Only one person, one of the bosses, knew what her portfolio looked like.  She knew the mutual fund names and had a pretty good idea of her percentage allocation. Mostly she was in a Lifecycle-like fund. 

Everybody else: zero, zip, nada. They didn’t have a clue what they were invested in. In some cases, they didn’t even know if they were investing at all, saying they let their spouses handle their retirement nest eggs. Based on what many of them regularly said about their life partner’s judgment -- in nearly all things -- they might have done better giving their money to Bernie Madoff, confessed operator of the largest Ponzi scheme in world history.  

I mention this because the federal Thrift Savings Plan, the biggest in the world, recently decided not to invest in an international index fund that includes China. Like them or not, the Chinese have the second-largest economy in the world after you-know-who. Instead, the TSP decided to stick with the current composition of its international fund, the I-fund, for now. 

Compared to some 401(k)-like programs, the TSP is conservative – and cheap, meaning the management fees are low. The TSP has the C-fund (large stocks) and S-fund (small caps), which cover the total U.S. market. Then there’s the F-fund for bonds and  the G-fund for Treasury securities.  It also offers a choice of lifecycle funds (2030, 2040, 2050) which self-adjust over time.

I bet if you asked around your government office, most of your colleagues could not only tell you which funds they are invested in, but also how they are doing. When lawmakers set up the TSP, the rule was KIS (keep it simple) or, more politically incorrect, KISS (for keep-it-simple-stupid!).  Either way, Congress figured correctly that fewer choices were better for more people. More control, less confusion. Plus, they TSP managers to keep fees low (they are among the lowest in the business) so that feds could keep more of what they invested and earned. Over decades of investing, service fees can hit six figures on large accounts.

So when people say they wish they had more investment options, ask them why. They may want to play the market, or they may want to support a social or political cause. But it isn’t because they are likely to make more money than feds invested in TSP. If my colleagues with their many choices are any guide, not many will know what they are doing with the most important investment -- after a house -- of their lives.

Reader comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above