Current research bears out Nolte’s point. During the past decade only 16.9 percent of actively managed mutual funds have fared better than the S&P 500, according to S&P Dow Jones Indices. Those managers who do beat the index rarely continue to do so. Given that professional investors have such a difficult time beating the S&P 500, ordinary people probably won’t be able to beat the index, either.
Participants will also get a chance to better diversify their portfolios, because the TSP will now offer funds that invest in real estate stocks and other sectors, including emerging markets. Investors who are concerned about companies’ environmental, social and governance policies will also get a selection of socially conscious mutual funds.
Other financial planners are disappointed. “While the average investor may want a greater number of investment choices, studies have demonstrated that simplicity and low expenses win in the long run,” says Randy Burns, a CFP in Naperville, Illinois. “The Thrift Savings Plan has long been a champion of these two characteristics.” Some of the new choices, Burns says, may not have the virtues of simplicity and low expenses.
Evan Beach, a CFP for Wealth Manager with Campbell Wealth Management in Alexandria, Virginia, also has his doubts about the blessings of more choices in the TSP. “I think it will ultimately be bad for all except the most savvy investors,” he says. “For the rest, I fear this will lead to speculative investing.”
Rob Greenman, a CFP in Portland, Oregon, agrees. “Will they be attracted to shiny objects like actively managed funds with strong past performance? Will they chase returns from certain sectors? It will be fascinating to look back a few years after this change to see how this investor-behavior exercise unfolds.”
John Waggoner covers all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously, he was a reporter for andUSA Todayand has written books on investing and the 2008 financial crisis. Wagoner’sUSA Todayinvesting column ran in dozens of newspapers for 25 years.