The TSPs expense ratio was only 3 basis points (.03%) in 2006. Why does the TSP need to limit trading when expenses are already low?
Transaction costs are investment expenses that reduce investment income before deductions for administrative expenses and are not included in the administrative expense ratio. (See the Thrift Savings Plan Statement of Changes in Net Assets Available for Plan Benefits portion of the Plan’s financial statement.) Transaction costs of $13.8 million reduced the I Fund return by 8 basis points (or .08%) in 2006; net administrative expenses only reduced participants’ returns by 3 basis points (.03%) in 2006. Frequent trading also increases the cash the investment manager must hold to meet redemptions, which leads to a greater chance of differences in performance from the indexes tracked by the funds. It is the goal of the TSP to keep this “tracking error” as low as possible since the funds are designed to mimic their respective indexes.
Related Questions
- The TSPs expense ratio was only 1.5 basis points (.015%) in 2007. Why does the TSP need to limit trading when expenses are already low?
- The TSPs expense ratio was only 3 basis points (.03%) in 2006. Why does the TSP need to limit trading when expenses are already low?
- What are the primary reasons behind the 50 basis points (bps) cut in the cash reserve ratio (CRR)?
