The G Fund: A Safe Investment Haven For Your Money

The G Fund, or Government Securities Investment Fund, is a government-backed investment fund that offers a stable and secure option for investors. It is part of the Thrift Savings Plan (TSP), a retirement savings program offered by the US government. The G Fund is unique in that it guarantees the preservation of capital and protection from loss, making it a popular choice for those seeking a safe investment. While it may not offer the same high returns as other funds, it provides a stable interest rate that is adjusted monthly. This rate is calculated based on the average yield of US Treasury securities, ensuring that investors earn returns above those of short-term securities. With its low-risk nature and stable returns, the G Fund can be an attractive option for those seeking to preserve their capital and generate consistent returns over time.

The G Fund's investment objective

The G Fund is invested in short-term U.S. Treasury securities. These are non-marketable securities specially issued to the TSP. The G Fund interest rate is calculated monthly, based on the average yield of all U.S. Treasury securities with 4 or more years to maturity. The G Fund rate is calculated by the U.S. Treasury as the weighted average yield of approximately 191 U.S. Treasury securities on the last day of the previous month.

The payment of G Fund principal and interest is guaranteed by the U.S. government. This means that there is no credit risk and no possibility of loss of principal. The G Fund is not subject to market fluctuations, and its value remains stable.

The G Fund has been successful in meeting its investment objective throughout the life of the TSP. It offers a good deal for investors, providing the opportunity to earn rates of interest similar to those of long-term government securities without the risk of loss of principal.

G Fund interest rate calculation

The G Fund interest rate is calculated by the US Treasury as the weighted average yield of approximately 130-191 US Treasury securities on the last day of the previous month. The interest rate is calculated monthly and is based on the average yield of US Treasury securities with 4 or more years to maturity. The G Fund's interest rate is set once a month by the US Treasury based on a statutorily prescribed formula.

The G Fund's investment objective is to ensure the preservation of capital and generate returns above those of short-term US Treasury securities. The G Fund is designed to earn inflation-beating interest with no risk of losses. It is invested in short-term US Treasury securities, but this is somewhat misleading. It is short-term in the sense that it is a virtual security that adjusts its interest rate monthly. The interest rate is determined by long-term treasuries.

The goal of the fund is to maintain a higher return than inflation. The payment of principal and interest is guaranteed by the US government. The interest rate resets monthly. The G Fund Yield Advantage means that the G Fund rate calculation results in a long-term rate being earned on short-term securities. Because long-term interest rates are generally higher than short-term rates, G Fund securities usually earn a higher rate of return than short-term marketable Treasury securities.

G Fund's inherent advantage

The G Fund, part of the Thrift Savings Plan (TSP), is a government securities investment fund. It has the inherent advantage of being guaranteed by the US government, meaning it will always make the required payments and there is no credit risk. This is a unique feature of the fund, as it is only available to those who invest through TSP.

The G Fund buys short-term US Treasury bonds, which pay an interest rate based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. The interest rate is calculated monthly and resets each month, with no principal risk. The G Fund's rate calculation results in a long-term rate being earned on short-term securities, and because long-term interest rates are generally higher than short-term rates, G Fund securities usually earn a higher rate of return than short-term marketable Treasury securities. As of October 2024, the TSP G Fund interest rate is 3.875%.

The G Fund is a good option for those who are risk-averse, as it offers returns that are generally not available through other "risk-free" investments. The fund's investment objective is to ensure the preservation of capital and generate returns above those of short-term US Treasury securities. The fund is also a good option for those approaching retirement, as it can be used to hold one to three years' worth of living expenses.

The G Fund has grown while other funds have lost money in 2022, making it the biggest of the five core TSP funds. This growth is due to its inherent advantage of being guaranteed by the government, as well as market volatility causing investors to move their money from more aggressive stock funds to the G Fund's safety.

G Fund's performance

The G Fund, or Government Securities Investment Fund, is part of the Thrift Savings Plan (TSP), a US government retirement savings programme. The G Fund is invested in US Treasury securities specially issued to the TSP, and its payment of principal and interest is guaranteed by the US government. This means that there is no credit risk, and the fund will not lose money.

The G Fund rate is calculated by the US Treasury as the weighted average yield of approximately 191 US Treasury securities on the last day of the previous month. The rate is calculated monthly, based on the average yield of all US Treasury securities with 4 or more years to maturity. As of October 2024, the TSP G Fund interest rate is 3.875%, which is near all-time lows. The rate has fluctuated between 0.75% and 5.00% since 2012.

The G Fund has earned a compound annualized return of 4.2% since August 1990. Its year-to-date return is 3.47%, and its 1-year return is 4.55%. A $1,000 investment in 1990 would be worth $4,134 today.

The G Fund's investment objective is to ensure the preservation of capital and generate returns above those of short-term US Treasury securities. The fund is subject to inflation risk, meaning that investments may not grow enough to offset the reduction in purchasing power that results from inflation.

As of October 10, 2024, the Thrift Savings Plan G Fund Monthly Returns is at 0.33%, compared to 0.35% the previous month and year. This is lower than the long-term average of 0.37%.

G Fund vs F Fund

The G Fund and the F Fund are two of the five core funds in the Thrift Savings Plan (TSP), a 401(k)-style retirement savings program run by the US government.

The G Fund is invested in nonmarketable US Treasury securities specially issued to the TSP. The payment of G Fund principal and interest is guaranteed by the US government, meaning there is no credit risk. The fund's investment objective is to ensure the preservation of capital and generate returns above those of short-term US Treasury securities. As of October 2024, the G Fund interest rate is 3.875%.

On the other hand, the F Fund must be invested in fixed-income securities. The F Fund tracks the Bloomberg US Aggregate Bond Index, a broadly diversified index of the US bond market. The overall risk is relatively low compared to certain other fixed-income investments in the market because the F Fund includes only investment-grade securities. The F Fund's investment objective is to match the performance of the Bloomberg US Aggregate Bond Index.

The G Fund is ideal for investors who want to prioritise the stability and preservation of their money over the potential for greater long-term growth. The G Fund is not subject to market risk, meaning it cannot lose money. However, it is subject to inflation risk, and there is a possibility that investments will not grow enough to offset the reduction in purchasing power.

The F Fund, on the other hand, offers investors the opportunity to earn higher rates of return over the long term compared to short-term securities like the G Fund. However, the F Fund returns move up and down with the bond market (market risk), and investors are exposed to credit default risk and inflation risk. The F Fund will also experience greater price volatility.

When deciding between the G Fund and the F Fund, it is essential to consider your investment goals, risk tolerance, and time horizon. The G Fund is a more conservative option, providing stability and preservation of capital, while the F Fund offers the potential for higher returns over the long term but with greater risk and volatility.

Frequently asked questions