The federal government inadvertently could cause a massive selloff of the S&P 500 index later this year, according to Ric Edelman, a Fairfax, Va.-based financial planner.
Starting in October, the government plans to let participants in the Thrift Savings Plan, the 401(k) look-alike for federal government workers, diversify their retirement savings into domestic small-cap stocks and international equities. Currently, federal government workers only exposure to equities is through an S&P 500 index fund.
But since $62.9 billion of the Thrift Savings Plans $98.2 billion is invested in the S&P 500 fund, there could be a huge outflow if all of the plan participants simultaneously move their money into the new equity funds, Mr. Edelman said.
But that scenario is unlikely. Its likely that many federal workers will not shift, or they will shift only a portion of their accounts, he said.