I remember vividly the financial meltdown that the took place in 2008 and the catastrophic effect it had on the TSP C Fund, S Fund, I Fund and L Funds. Tens of thousands of federal employees who were planning on retiring in January, 2009 are still working today because the C Fund, S Fund and I Funds are not managed to maximize gains or minimize losses, so they were left to fend for themselves.
As a defensive measure, many of those federal employees transferred their TSP money into the G Fund for safety not realizing that they would never recover the money they lost in 2008. If you were one such federal employee and lost 38% in 2008 and put your money in a 2% G Fund in 2009, it would take you at least 15 years to just break even.
None of this would have ever happened if OPM got a little creative and introduced an “H Fund”. I am confident that all of you have heard of the term “Hedge Fund” and all of the negative connotations that come along with it. But truth be told, if OPM added an “H Fund” to the other funds, very few federal employees would have lost money in 2008. Basically, a Hedge Fund is counter-intuitive to what might appear to be an upward or downward trend in the financial markets, and can have the same restrictions placed on it that are now placed on your TSP C Fund, S Fund, and I Fund. A company like BlackRock Institutional Trust Company, N.A., who now “manages” your C Fund, S Fund, and I Fund, would do a superlative job of managing such a fund if they were in fact allowed to manage it to maximize gains and minimize loses, which they don’t do for you now in those funds.
You probably don’t realize it but if you look at our “Blog Investment Score Card”, I am basically establishing my own little Hedge Fund, just for kicks of course. I bought 10,000 shares of both “iPath S&P GSCI Crude Oil TR ETN” (Symbol OIL), and “IShares Silver Trust” (Symbol SLV) so far and plan on adding another 8 stocks over time. Looking at those two stocks you can get a drift of what a Hedge Fund might look like and how nice it would be if you had a counter-intuitive alternative at your behest if the markets started trending downward.
Now to be clear, I am in a unique situation, which is very unlike most of you out there, so I would encourage you not to consider this investment advice, because it is not!
There is a reason that you don’t see a lot of Buggy Whips around and the reason is because we have cars now. Just offering TSP Funds that flourish in an up market but don’t have the “Hedge Feature” to mitigate losses or flourish in a down market, is like hitting your Buick with a Buggy Whip to make it go faster.
I must have said this at least 100 time in my articles here: “Investing is about Risk Vs Reward. If you have your TSP Funds in the “C Fund”, “S Fund”, “I Fund”, or “L Fund”, you are at risk of experiencing another 2008 melt down, with very little, if any upside gain potential. Are you really going to risk losing half of your money to gain potentially another 10%?” That’s not what smart investors do!