C Fund purchases

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Q: Have you noticed that the C Fund is consistently up on the dates that the bi-weekly purchases are made for employee accounts? The attached table shows the closing price of the S&P 500 for each date in 2011, with TSP purchase dates in yellow. As you can see, a large number of the purchase dates occured on big up days and none of the purchase dates occured on big down days. The result of this is that participants receive less shares than they would if the purchases were distributed over each trading day of the period. To prove this point, the table shows that so far this year there have been 180 trading days through September 19, and 18 purchase dates. The average closing price of the 162 dates on which purchases WERE NOT made was $1,277 and the average closing price of the 18 dates when purchases WERE made was $1292, a difference of 15 full S&P points.
Based on this analysis, it looks like either a very long run of bad luck, or else maybe TSP C Fund participants are not getting good value by having their purchases concentrated on one day every two weeks. I personally believe it is the latter and that TSP participants are paying far more than they should for their shares under the current arrangement.

A: I think that your analysis is flawed in that 1) it analyzes a data set that is too small and 2) doesn’t actually use the C Fund’s price data. I expect that the more data you use, the smaller the difference in average price will be. Beyond that, you’re simply observing a result of dollar cost averaging. There are likely periods of time when the periodic purchases have, or will, work in your favor.

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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.

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