- The Washington Times - Monday, April 24, 2006

Federal and military investors have more money in their in-house 401(k), the Thrift Savings Plan, than some countries have in their treasuries.

By now virtually all long-term investors know that diversity is critical, but there is a difference between diversity and diaspora.

For example, picking the winner in the Kentucky Derby is relatively simple — much easier than the pros pretend. What you do is this: Bet $10, or $100, or $1,000, whatever you can afford, on every horse in the race. One of them is bound to win.

If it’s a long shot, a real long shot, you will make a profit. But if one of the favorites wins — and this tends to happen in horse races such as the Derby — you may have picked the winner but you will have lost money.

By the same token, federal/military TSP investors know the diversity mantra: Pick a selection of funds out of the options that will protect your investment flanks and that you can live with over the long haul, when the market is up and when it is down. For many people, this is easier said than done.

The House is well on the way to approving a bill that would add a real estate investment trust (REIT) fund to the TSP lineup of choices. Over the past few years, REIT mutual funds have done very, very well. REITS invest in industrial property, and also take in a lot of steady rent money.

The real estate industry would love to have a chunk of the steady flow of funds into the TSP. Many federal/postal/military investors would love to have an R Fund to join their other options: the C Fund, indexed to the S&P; 500; the G Fund, guaranteed Treasury securities; the F Fund, a bond index; the S Fund, a small and midsize company index; and the I Fund, an index of the huge overseas market.

Backers of an R Fund say investors need it for diversity and to boost their returns. Opponents say the stock index funds already invest in real estate, or that a stand-alone R Fund would increase their risk in one sector.

Still others oppose adding the R Fund just like they opposed creation of a gold or precious metals fund some years ago, or a dot-com fund right at the peak of the 1990s dot-com boom.

Bethesda-based financial planner Paul Yurachek says TSP investors already have plenty of diversity. Adding more funds could produce what he calls “paralysis by analysis.”

Whatever you think about your TSP options, stay tuned because the House Government Reform Committee is likely to approve an R Fund option as early as this week. Then it will be up to the full House and the Senate, where members and staffers are TSP investors too, to vote it up or down.

Retiree raise

Federal and military retirees and people who get Social Security benefits are on the way to a bigger 2007 cost-of-living adjustment (COLA) than the one slated for active-duty civil servants and military personnel. The retiree COLA and the federal/military boost are two different creatures and operate independently of each other.

Halfway through the cost-of-living adjustment countdown, the Consumer Price Index, which measures the rate of inflation, points to a minimum 1.4 percent COLA for retirees in January. That amount will be higher if living costs, as anticipated, continue to creep up because of higher oil prices.

Meantime, the January federal/military pay raise is fixed at 2.2 percent, under the White House budget plan, but Congress is likely to boost that amount, to perhaps 3.2 percent, as it has in each of the past 13 years.

For now, the horse race is whether the pay raise or the COLA will be the big winner.

Mike Causey, senior editor at Federal News Radio AM 1050, can be reached at 202/895-5132 or mcausey@federalnewsradio.com.

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