Very few people complain about the Thrift Savings Plan.  But when they do, it’s usually something about how “limited” the fund choices are.  First of all, it’s supposed to be simple; that’s the whole point, to prevent paralysis by analysis.  If you want a wide variety of choices, you can go elsewhere, and no one at the TSP will think badly of you or be offended.  

That being said, the more I read recommendations from various financial sources, the more impressed I become with the TSP (regular readers to this blog and listeners to Your Turn with Mike Causey on Federal News Radio AM 1050 already know I’m a big fan to start with). 

More confirmation comes today from Kiplinger’s Mutual Funds 2008, by way of a blog post by JLP at AllFinancialMatters.com.  He quotes Kiplinger’s long-term, all-stock portfolio using Vanguard funds (long-term meaning you won’t start taking out money for 10 years or more):

35%--Large-Cap Domestic Stocks:  Vanguard 500 Index (VFINX)

25%--Small-Cap Domestic Stocks:  Vanguard Small-Cap (NAESX)

25%--Large-Cap International Stocks:  Vanguard Total International Stock Fund (VGTSX)

10%--Real Estate Investment Trust:  Vanguard REIT (VGSIX)

5%--International Emerging Markets:  Vanguard Emerging Market Stock Fund (VEIEX)

JLP points out that if you were going to try to build this portfolio with Vanguard funds, you’d need $3,000 in EACH fund to buy in, so to set up these allocations, you’d need to have about $60K ready to do it.

What struck me right away, though, was how easy it would be to set up a similar structure inside your Thrift Savings Plan account.  Here’s how.

The Vanguard 500 Index tracks the S&P 500; that’s exactly the purpose of the C Fund.  Vanguard’s Small-Cap index tracks the MSCI US Small Cap 1750 index; the TSP’s S Fund follows the Wilshire 4500, another measure of US companies with smaller capitalizations.  So you can substitute the S for Kiplinger’s recommendation for the NAESX.

The Vanguard Total International Stock Fund and the Emerging Market Stock Fund both track international markets.  Here the TSP makes it easy: the I Fund follows the entire international market, so it’s a great match for both of the Vanguard funds in your portfolio.

The only straggler is the REIT fund.  There is nothing in the TSP that is similar to a REIT.  So you may want to consider allocating some money to the super-safe G Fund with this part of your account.  The G Fund invests in Treasury securities, so in a sense, you’re investing in your own work.

So here’s what you have, if you would like to approximate the Kiplinger’s Mutual Funds 2008 long-term investor’s portfolio in your Thrift Savings Plan account:

35%--Large-Cap Domestic Stocks:  C Fund

25%--Small-Cap Domestic Stocks:  S Fund

25%--Large-Cap International Stocks:  I Fund

10%--Treasury securities: G Fund

5%--International Emerging Markets:  I Fund (total of 30%)

What do you think?