The majority of the index funds (almost all) that are available through the TSP always make an attempt to duplicate a given index’s returns. An example of this is the S&P 500. There are some advantages associated with these funds; some are listed below.
Benefits of TSP benchmarking:
- Low costs: The biggest advantage in this regard could be that the index funds don’t cost much majorly because they don’t require the team to do much research. The higher the expense ratio of a fund goes, the better its performance is to provide a break-even with a fund that costs less.
- A low turnover: All the large cap indexes where there are very few alterations made, managers rarely sell stocks and buy other because they don’t feel the need. High turnover affects the performance badly because it encompasses all the trading costs.
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- Low tax: If you have a high turnover providing fund, then you might be able to get good taxable gains. But, the better part is that the funds with low turnover generally end up being very tax efficient.
- Asset class exposure: If you invest in an index fund, you are surely going to get the return of the specific asset class. Take the S&P 500 index for example; if the large cap stocks perform good, then you are of course going to get a good return.
This indexing is not only limited to specific funds but it also provides some good benefits in the lifecycle funds.
The G fund is a different one and it isn’t one that fluctuates everyday with respect to the market but provides a fixed return monthly that’s also often loved by employees.
