TSP Funds 101 It can be a little bewildering to wrap your mind around all of the varied TSP investment funds. Here, we’ll provide a quick overview to get you started. Plus, there are always proposals coming out of Capitol Hill that could positively or negatively affect your TSP. We encourage you to periodically stop by our blog. We post information and news about the TSP and any big changes that could impact your bottom line.
There’s no question, picking a particular TSP fund is a big decision. As with all investments, it is a balance of risk and reward. For the most part, though, the TSP funds are relatively safe and stable investments. However, the market can be both rational and whimsical — and that’s putting it mildly, as we all know. We must caution you: We are not investment advisors. We cannot, by law, pick a TSP plan for you. But we can lay out the choices and give you some of the information you need to help you make your decision. Ultimately, it is up to you. We can look at your TSP investment, drill down into the numbers, and project whether you are on the best track to a secure retirement. And we may suggest other financial products to get you there.
Funds at a glance There are six major funds TSP participants can invest in: The “C” Fund The C Fund sets out to match the performance of the Standard and Poor’s 500 (S&P 500) Index. Its earnings consist mostly of dividend income and gains (potentially losses) in the price of stocks. The fund is exposed to market risk — the fluctuating macroeconomic conditions of the stock market as well as individual stocks — and inflation risk. The “F” Fund The F Fund sets out to match the performance of the Barclays Capital U.S. Aggregate Bond Index. This index is composed of U.S. Government, mortgage-backed, corporate, and foreign government sectors of the U.S. bond market. Earnings arise from interest income on securities and gains (potentially losses) in the value of securities. Risk is associated with the fluctuations of the bond market and other factors — if interest rates increase, bond prices decrease.
The “G” Fund The G Fund sets out to ensure a rate of return higher than inflation. It exclusively comprises nonmarketable short-term U.S. Treasury security, specifically issued to the TSP. Earnings arise from interest income on this security. The fund is subject to inflation risk. The “S” Fund The S Fund sets out to match the performance of the Dow Jones U.S. Completion Total Stock Market Index. It invests in a stock index fund that tracks the Dow Jones U.S. Completion Total Stock Market Index. Earnings arise from dividend income and gains (potentially losses) in stock prices. The fund is subject to inflation risk and market risk, tied to the fluctuations of the Dow Jones U.S. Completion Total Stock Market Index The “I” Fund The I Fund sets out to match the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index. The fund invests in a stock index that mirrors the Morgan Stanley Capital International EAFE Index. Earnings arise from gains (potentially losses) in stock prices, dividend income and currency valuations. The fund is subject to market risk because the Morgan Stanley Capital International EAFE Index is somewhat dependent on macroeconomic conditions. Because it is tied to currencies, the fund may rise or fall if the value of the U.S. dollar increases or decreases.
The “L” Fund The L Fund, or “Lifecycle” Fund, takes a different approach compared to the other funds. It invests in a mix of the C, F, G, S, and I funds. Its investment strategy takes into account the number of years you have until retirement and how willing you are to tolerate risk in order to potentially attain higher rates of return. Risk arises from how the various funds perform. And your account is not secured against loss. Please contact one of our benefits experts for a free consultation. Helpful Links:
- TSP: Investment Funds Matrix
- TSP: Lifecycle Funds
- TSP: Fund Comparison Matrix
- TSP: Fund Management
- TSP: Share Price History
- TSP: Retired Funds
● IRS: Explanation of TSP rules and regulations ● Congressional Research Service: Fed Ben | TSP 101
- TSP: Factsheet – Leaving Federal Employment (You should always consult with a MFB Consultant)
- TSP: Contribution Rate Chart
| Investments | Risk(s) | Volatility | |
|---|---|---|---|
| G Fund | Government securities (specially issued to the TSP) | Inflation risk | Low |
| F Fund | Government, corporate, and mortgage-backed bonds | Market risk Credit risk Prepayment risk Inflation risk | Low to Moderate |
| C Fund | Stocks of large and medium-sized U.S. companies | Market risk Inflation risk | Moderate |
| S Fund | Stocks of small to medium-sized U.S. companies (not included in the C Fund) | Market risk Inflation risk | Moderate to High — historically more volatile than C Fund |
| I Fund | International stocks of 21 developed countries | Market risk Inflation risk Currency risk | Moderate to High — historically more volatile than C Fund |
| L Funds | Invested in the G, F, C, S, and I Funds | Exposed to all types of risk associated with other funds – but total risk reduced through diversification | Asset allocation shifts as time horizon approaches to reduce volatility |
