Thrift Savings Plan Participants May Have New Access to SMI Strategies

The U.S. government recently introduced several new benefits for government employees who participate in the Thrift Savings Plan (TSP), including access to many new investment options. By opening up a so-called “mutual fund window,” eligible employees may now choose from more than 5,000 mutual funds. Previously, there were just 15 funds available to TSP participants, including 10 lifecycle (target-date) funds.

Until now, if you had wanted to utilize an SMI strategy to manage a TSP portfolio, you were mostly limited to Just-the-Basics, using the C Fund as an S&P 500 index fund, the S Fund as an extended market index fund, the I Fund as a total international stock index fund, and the F Fund as a total bond market index fund. (See How Federal Workers Can Make the Most of the Thrift Savings Plan.) Now, however, there may be some new ways to utilize SMI within a TSP account.

New options for using SMI

The TSP’s new mutual fund window comes with two significant caveats: limits as to how much money can be transferred to the window and fairly steep fees. Participants wanting to utilize the window must transfer at least $10,000 and the total amount cannot exceed 25 percent of their TSP balance. As for fees, there is a $55 annual administrative fee, a $95 annual maintenance fee, and a $28.75 per-trade fee.

That last fee especially could put a damper on someone’s enthusiasm for using the SMI newsletter to follow Dynamic Asset Allocation, Fund Upgrading, or 50/40/10. Plus, despite having access to so many new funds, TSP participants may still not always find suitable alternatives to SMI’s official recommendations. This is particularly true in regards to Dynamic Asset Allocation, which relies on ETFs that can be hard to substitute for using traditional mutual funds (ETFs aren’t available through the TSP plan).

However, those SMI strategies may now be available to TSP participants through the SMI Funds: SMIDX (Dynamic Asset Allocation), SMIFX (Fund Upgrading), and SMILX (50/40/10). All of these are managed by SMI Advisory Services, a separate but affiliated company. The SMI Multi-Strategy Fund (SMILX), in particular, would seem to be of interest to those wanting to get SMI strategy exposure in a "one-stop" type fashion, as buying SMILX and then supplementing it with the TSP bond option (F Fund) is a pretty easy way to mimic an SMI portfolio within the TSP plan. That’s not been possible before. (We’d appreciate it if a TSP participant reading this article could verify the availability of the SMI Funds via the new mutual fund window.)

Better ways to manage volatility

The current market environment offers a clear example of why these options could be of benefit to SMI members who are TSP participants. Previously, the only way to manage downside risk within a TSP portfolio was to tilt the portfolio toward the F (bond) or G (money market) Funds. By contrast, DAA, Fund Upgrading, and the multi-strategy, 50/40/10 approach are designed to respond to changing market conditions more proactively, using rules-based processes to move money out of harm’s way and/or into asset classes that are growing during broad market declines. For SMI members who are enrolled in the TSP, these new plan options should be a welcome improvement.