Thrift Savings Plan Funds
TSP can be broken down into two types of funds, life cycle or L Funds and Individual Funds. TSP recently added mutual funds as well which will be covered after the individual funds. Simply put, funds are investment tools you can allocate your money towards. It’s important to note that you can set up percentages for your contributions to go across multiple fund types. As mentioned above, if you’re a new enrollee your contributions will automatically be set up to contribute into an L Fund appropriate for your retirement year. Let’s break down the funds to get an understanding of each and review TSP fund performance before we cover investment strategies.
You can find TSP share price history here.
TSP L Funds or Lifecycle Funds
As of 2022, there are ten L Funds available. L funds typically invest in a diversified breakdown of the individual funds offered by TSP. TSP automatically adjusts the percentages as you get closer to retirement. The goals is to be riskier (providing potentially better returns) when first starting out and moving to safer funds as you get closer to retirement. L Funds have associated target retirement dates like L 2050 which targets the retirement date of 2050. Once an L Fund reaches its target date it will automatically move to L Income. Per the TSP website, L Income is for those at retirement age who are currently withdrawing from TSP. It also receives their lowest risk rating and has produced a 4%~ return since inception.
Listed above is the comparison tool off of the TSP Website that highlights L Income, L 2040, and L 2050. This was generated on 13DEC2022, where the market had fallen 15.66% by that time year to date (YTD). You can see that the L 2050 fund had fallen the most while L Income performed better since it attempts to be “safer” to preserve your balance while at retirement age. Conversely, L 2050 has posted better returns (8.58% lifetime) over the conservative L Income fund in the last 3, 5, and 10 years. These are just examples and the funds past performance may not play out the same into the future.
Thrift Savings Plan Individual Funds
Individual funds fall into lettered funds, G Fund, F Fund, C Fund, S Fund, and I Fund. Each attaches itself to a different segment of the market, tries to match an index, or purchases certain asset classes. As such, each individual fund has it’s own goals that can help you as an investor when choosing fund allocation. Let’s take a look at each fund.
Thrift Savings Plan Funds
Individual funds fall into lettered funds, G Fund, F Fund, C Fund, S Fund, and I Fund. Each attaches itself to a different segment of the market, tries to match an index, or purchases certain asset classes. As such, each individual fund has it’s own goals that can help you as an investor when choosing fund allocation. Let’s take a look at each fund.
Thrift Savings Plan G Fund
G Fund also known as Government Securities Investment Fund, invests in Government securities issued by the United States treasury. It consists of 100% Short-term U.S. Treasury securities. This fund is all about capital preservation. This comes with the downside that your returns could be outpaced by inflation which would erode your purchasing power over time.
The G Fund’s investment objective is to ensure preservation of capital and generate returns above those of short-term U.S. Treasury securities.
TSP website
Below are few charts that show the rate of return and growth of $100 invested since the funds inception. Updated charts can be found here.
Thrift Savings Plan F Fund
The F Fund or Fixed Income Index Investment Fund tracks the Bloomberg U.S. Aggregate Bond Index, a broadly diversified index of the U.S. bond market. Bonds and Interest rates typically have an inverse relationship so in periods of falling interest rates, the F Fund will experience gains from the resulting rise in bond prices. This is seen when reviewing the short term returns for the fund since interest rates have been rising to combat inflation. Bonds are used by typical investors to offset volatility in their portfolios. A typical investment allocation that commonly gets referenced is 60/40 or 60% Stocks and 40% bonds.
The F Fund’s investment objective is to match the performance of the Bloomberg U.S. Aggregate Bond Index, a broad index representing the U.S. bond market.
TSP Website
Below are few charts that show the rate of return and growth of $100 invested since the funds inception. Updated Charts can be found here.
Thrift Savings Plan C Fund
The C Fund or Common Stock Index Investment Fund offers the opportunity to experience gains from equity ownership of large and mid-sized U.S. companies. The C Fund tracks the SP500 Index.
What is the SP500?
The SP500 index contains 500 leading U.S. companies so you won’t get international exposure with this fund. The SP500 is one of the major benchmarks used to measure overall stock market performance. It’s also been used by investors as a “fire and forget” investing strategy, where they solely invest in SP500 indexes.
This fund is 100% stocks so it comes with higher risk than the G or F Fund but has historically posted better returns in the long term. It’s important to note that the SP500 companies change over time as the market evolves which helps ensure that you stay continually invested in the leading companies, when a company falls off or is added to the SP500 you don’t have to do anything different. The fund will adjust accordingly. Below is an example of the C Fund’s Top 10 Holdings.
The C Fund’s investment objective is to match the performance of the Standard and Poor’s 500 (S&P 500) Index, a broad market index made up of stocks of 500 large to medium-sized U.S. companies.
TSP Website
Below are few charts that show the rate of return and growth of $100 invested since the funds inception. Updated Charts can be found here.
Thrift Savings Plan S Fund
The S Fund or Small cap stock Index investment fund tracks the top 85% of U.S. companies, not including stocks tracked by the SP500. That’s 3,741 companies as of December 2022. This diversification helps you potentially capture returns posted by small and mid-cap companies inside the stock market. Just like the C Fund, this fund offers no international exposure. You can use this fund to further diversify your portfolio across more companies not covered by the C Fund. As with the C Fund, this fund is 100% stocks so it comes with larger risk than the G and F Funds. Below is an example of the S Fund’s Top 10 Holdings:
The S Fund’s investment objective is to match the performance of the Dow Jones U.S. Completion Total Stock Market Index, a broad market index made up of stocks of small-to-medium U.S. companies not included in the S&P 500 Index.
TSP Website
Below are few charts that show the rate of return and growth of $100 invested since the funds inception. Updated Charts can be found here.
Thrift Savings Plan I Fund
The I Fund or International Stock Index Investment Fund is TSP’s international exposure offering. The fund tracks the overall performance of the major companies and industries in the European, Australian, and Asian stock markets using the MSCI EAFE Index. It consists of 100% Non-U.S. companies. This is an important sector to consider because the US stock market has not always outpaced the international sector. There are times where international stocks perform better than the U.S. market. Adding this as a percentage of your overall portfolio allows you to capture those opportunities.
The I Fund’s investment objective is to match the performance of the MSCI EAFE (Europe, Australasia, Far East) Index.
TSP Website
Below are few charts that show the rate of return and growth of $100 invested since the funds inception. Updated Charts can be found here.
In the next section we will look into the Thrift Savings Plan’s Mutual Fund Window.