Life and Money With Helaine by Helaine Olen

Few Investment Managers Can Beat Index Funds

Hi, Helaine: I'm 59 years old and plan to retire from a federal government job at the end of the year. I've spoken with a couple of different financial advisers, and it seemed like they were interested in acquiring my Thrift Savings Plan, which is like a 401(k) with the federal government.

I've always invested 100% in the S&P 500 Index fund. One financial adviser encouraged me to switch over 40% of my funds to the government bond fund and divide the remainder between the S&P fund I am currently using and the 2030 lifecycle fund. They then suggested rolling over the money to an Individual Retirement Account when I leave my position, and they would charge a 1.5% annual fee to manage my money, which they would put in various investments -- I'm not sure what.

I'm thinking, why don't I just leave it in the thrift savings plan and take 3 to 4% annually to supplement my pension if I need it? The TSP charges less in fees. I've pretty much managed the money by myself over the last 35 years, and it seems to have done well. I've got about half a million in the TSP account now. What's your advice? -- Fed Up With Indecision

Dear Fed Up: There are a whole pile of financial advisers for whom soon-to-retire federal workers are a business model. One of them clearly has you in their sights. Don't fall for it! The federal TSP is a gold standard of defined-contribution retirement plans, with an extremely low cost basis on a small selection of excellent investment choices. There is no reason you should roll a penny of your money into a traditional IRA.

Wait -- I take that back. Do you want the financial adviser to make a tidy living on your money? Then by all means, go ahead. Otherwise, stay put. The chances are high this financial adviser is not going to do better than you can do with the funds within the TSP -- especially when charging a rather high 1.5% of assets under management for the privilege. And the adviser gets that 1.5% come rain, come shine, no matter how well or not well your investments do.

As I am forever fond of pointing out to people, fewer than 1% of us -- including professional money managers -- appear to have the ability to do better than the indexes year in and year out. Moreover, and please don't take this the wrong way, but if the adviser reaching out to you is really that extraordinary, do you think they would be hustling for you and your half-million bucks? I highly doubt it, given that there are billionaires to go chase after.

I will say this adviser's suggestion for how to invest in the TSP sounds reasonable enough, but I can't say for sure since I don't know your overall circumstances.

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