Do You Actually Understand Thrift Saving Plan (TSP) Investments? By: Aaron Steele

aaron steele
September 23, 2021

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How well do you understand the TSP fund options? Here’s a quick rundown.

As the world’s largest employer-sponsored savings plan, the Thrift Savings Plan (TSP) plays a role in the retirement plans of every FERS federal employee.

Every year, many people become millionaires simply by making good use of their TSP account.

However, without at least a basic understanding of the TSP funds, it’s extremely difficult to be successful in the TSP over the long term.

This article will quickly bring you up to speed on the essentials of the TSP fund options.

The Fundamentals

The TSP offers only five core fund options. Here they are, along with a brief description of what they invest in:

- G Fund: Investments in U.S. Treasury Bonds.
- F Fund: Investments in several types of U.S.-based bonds.
- C Fund: Investments in 500 of some of the biggest U.S. companies (Follows the S&P 500).
- S Fund: Investments in most other major U.S. companies (aside from the S&P 500).
- I Fund: Investments in the major companies in Europe, Australasia, and the Far East.

Note: There’re also L Funds in the TSP, but these are simply a mix of the core five funds.

The Conservative TSP Funds

The G and F Funds are the most conservative of the five funds because they are less volatile than the others. However, as a trade-off for being more stable, they lack the potential to grow as much as the other funds.

Although the G Fund guarantees that any money invested in it won’t lose value, it has only averaged about a 2% annual return over the last ten years.

The F Fund’s value can fall, but it remains very stable compared to the other funds. Over the last ten years, it has averaged a 3.6% annual return.

The Issue with the G and F Funds

As they near retirement, many people will invest the majority of their TSP assets in a combination of the G and F Funds. While investing a part of your money in conservative funds might be a wise decision, many individuals overdo it.

The G and F Funds are unlikely to lose value, but they’re also unlikely to grow much. This lack of significant growth, as well as inflation, can have a substantial impact on your money over time.

For example, if the prices of goods and services rise every year (inflation) and your investments don’t increase quickly enough to compensate, you may deplete your TSP far faster than you had planned.

This does not suggest that the G and F Funds are bad investments. They are excellent funds that do exactly what they’re supposed to do. However, you’ll want to ensure that you also have investments to help you maintain your usual lifestyle during retirement.

The Aggressive TSP Funds

The C, S, and I Funds are the aggressive TSP funds.

They are dubbed “aggressive” because they have a far higher probability of sustaining significant growth over time. However, as a result, they can be significantly more volatile than the G and F Funds.

For instance, the C Fund lost more than 35% in 2008 but recovered it all and more in the next several years.

It is advised you not put any money into these funds that you’ll require in the coming years. These funds will perform better in the long run but are less predictable in the short term.

The L Funds

The most crucial thing to remember about the L Funds is that they’re not independent funds. They’re essentially various combinations of the main five funds that we have discussed.

What distinguishes them is that each L Fund is designed to gradually grow more conservative over time. In principle, one might invest in a single L Fund and never have to modify their investment allocation for the remainder of their career.

Final Thoughts

We hope you have a better knowledge of the various TSP funds and what they’re meant to accomplish. Now, you’ll be much more prepared to understand when you read about investing strategies.[/vc_column_text][/vc_column][/vc_row]

Aaron Steele

After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely with
helping them pursue the most comfortable financial life possible.

Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.

Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.

Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.

Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.

With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.

Aaron can help you and your family to create, preserve and protect your legacy.

That’s making a difference.

Disclosure: Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.