Josephine Norton
The Thrift Savings Plan (TSP) is a tax-deferred retirement savings plan offered to federal employees and members of the US military. It is similar to a 401(k) plan, with five core mutual funds to invest in, four of which are diversified index funds. Each index fund specialises in a different asset class or market segment, such as US equities, international equities, and corporate bonds. The fifth core fund, the G Fund, invests in very low-risk, low-yield government bonds and guarantees principal protection to investors. When deciding how to invest in a TSP, it is important to consider your risk tolerance and time horizon. Here is an overview of the six TSP funds and their associated risks and returns.
| Characteristics | Values |
|---|---|
| Type of Plan | Direct-contribution retirement plan |
| Available To | U.S. government and military employees |
| Similarity | 401(k) plans |
| Number of Core Funds | 5 |
| Core Funds | G Fund, F Fund, C Fund, S Fund, I Fund |
| G Fund Description | Invests in short-term U.S. Treasury securities |
| F Fund Description | Invests in a wide range of debt instruments |
| C Fund Description | Invests in stocks of 500 large to medium-sized U.S. companies |
| S Fund Description | Invests in small and medium-sized U.S. companies not included in the S&P 500 |
| I Fund Description | Invests in stocks of large and medium-sized companies outside the U.S. |
| L Fund Description | Composite fund that invests in a combination of the five core funds |
| Best Investment Strategy | Start contributing early and regularly |
What You'll Learn
The G Fund
For individuals who want to avoid the risk of losing money and are comfortable with low investment returns, the G Fund is a suitable option within the TSP. However, it's important to consider the potential impact of inflation on the G Fund's returns and the opportunity cost of investing in this low-yield fund.
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The F Fund
When deciding how to allocate their contributions, TSP participants should consider their financial goals, risk tolerance, and time horizon. The F Fund may be suitable for those seeking a relatively conservative investment option that offers the potential for higher returns than the G Fund, while still providing a level of protection against interest rate fluctuations.
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The C Fund
As a passive investment fund, the C Fund remains fully invested during all market cycles and economic conditions. This means that it can be a good hedge against inflation, although there is no guarantee that it will always outperform inflation. As with any stock market investment, there is a risk that the value of the fund could decrease, and investors need to be comfortable with this level of risk. However, historically, stocks have outperformed other types of investments, and the C Fund can be a good choice for investors interested in the growth of their investment capital.
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The S Fund
The Thrift Savings Plan (TSP) is a tax-deferred retirement savings plan offered to federal employees and members of the U.S. military. The TSP is similar to a 401(k) plan offered by private-sector employers, with five core mutual funds to invest in, four of which are diversified index funds.
The Small Capitalization Stock Index Fund, or the S Fund, is one of the two funds with the greatest risk in the TSP. The S Fund holds the same securities as the Dow Jones U.S. Completion Total Stock Market Index, which is composed of over 4,000 small- and medium-sized companies that are not included in the S&P 500 Index.
Historically, the S Fund has outperformed the C Fund with proportionately greater volatility over time. In January 2023, the S Fund was the biggest winner of the Thrift Savings Plan funds, with a return of 10.82%. However, it had the lowest returns over the past 12 months, with -9.13%.
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The I Fund
The BlackRock iShares equivalent ETF is the iShares MSCI EAFE ETF (EFA).
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Frequently asked questions
TSP stands for Thrift Savings Plan. It is a tax-deferred retirement savings plan offered to federal employees and members of the U.S. military. It is similar to a 401(k) plan offered by private-sector employers.
There are five core TSP funds:
- The G Fund: This fund is considered the lowest-risk option and invests in short-term US Treasury securities.
- The F Fund: This fund invests in bonds, which are also generally considered low-risk.
- The C Fund: This is an S&P 500 Index fund that primarily invests in stocks.
- The S Fund: This fund invests in small- and mid-cap stocks and is considered moderately risky.
- The I Fund: This fund invests in international stocks, which are typically higher risk than domestic stocks.
There is also the L Fund, which is made up of ten different funds, including funds for those with targeted retirement dates.
It is recommended that your TSP allocation has some exposure to all five of the core funds, as they each have different risks and historical growth rates, and diversification is important.
You can choose your own investments or elect to have an advisor do it for you. You can invest in one fund or a combination of a few.
As of 2024, you can contribute up to $23,000 per year from your salary, and an additional $7,500 per year in "catch-up" contributions if you're 50 or older.
The earlier you start, the better. The longer you contribute, the more potential you have for larger earnings. This is known as "compound earnings" and "dollar-cost averaging".
