The F Fund: Investing In Government Securities

The F Fund, or Fixed Income Index Investment Fund, is a US bond index fund. It is a broadly diversified fund that tracks the performance of the Bloomberg US Aggregate Bond Index, a broad index representing the US bond market. The F Fund is an investment option in the Thrift Savings Plan (TSP) and has been in operation since 1988. It is designed for conservative investors and aims to provide them with the opportunity to earn higher long-term returns compared to short-term securities.

The F Fund's investment objective

The F Fund holds a diversified portfolio of high-grade (investment-grade) bonds, investing about 30% in corporate bonds and 70% in U.S. government bonds of all maturities. 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.

By law, the F Fund must be invested in fixed-income securities. The Federal Retirement Thrift Investment Board has chosen to invest the F Fund in an index fund that tracks the Bloomberg U.S. Aggregate Bond Index. This index consists of high-quality fixed-income securities with maturities of more than one year.

The F Fund has a history of strong performance, with an average annual return of 5.2% since its inception in 1988. It has also outperformed other funds in the Thrift Savings Plan (TSP) over the last year, with an 11.50% return compared to the G Fund's 2.46%.

The F Fund's performance

The F Fund is a U.S. bond index fund that uses a "passive management" (indexing) investment approach. The fund aims to match the performance of the Bloomberg U.S. Aggregate Bond Index, a broad index representing the U.S. bond market. The F Fund provides broad exposure to U.S. investment-grade bonds, investing about 30% in corporate bonds and 70% in U.S. government bonds of all maturities.

As of December 31, 2023, the F Fund had assets of $33.1 billion, with a total expense ratio of 0.490/ $1,000 account balance (4.9 basis points). The fund's inception date was January 29, 1988, and as of its latest update on October 16, 2024, it had a compound annual growth rate of 5.2%, an annualized standard deviation of 4.2%, and a Sharpe Ratio of 0.24.

Comparing its performance to other funds in the Thrift Savings Plan (TSP), the F Fund has outperformed the G Fund over the long term. As of November 2019, the F Fund had returned 6.04% since its inception, compared to the G Fund's return of 5.03%. Over the last 10 years, the F Fund had an average annual return of 3.57%, while the G Fund returned 2.28%.

However, it's important to note that the F Fund does come with more volatility and potential downside risk. While the G Fund is guaranteed not to lose principal, the F Fund does not provide such a guarantee and can lose money. For example, during the high inflation and rising interest rate environment of 2022, the F Fund experienced a significant drawdown of -18.0%.

In summary, the F Fund offers the potential for higher returns compared to the G Fund but with increased volatility and the risk of occasional losses. It provides investors with exposure to U.S. investment-grade bonds and aims to match the performance of the Bloomberg U.S. Aggregate Bond Index.

The F Fund's risks

The F Fund is a US bond index fund that tracks the performance of the Bloomberg US Aggregate Bond Index. It is a passive investment fund that provides broad exposure to US investment-grade bonds. The F Fund invests about 30% in corporate bonds and 70% in US government bonds of all maturities.

While the F Fund has delivered higher returns than the G Fund, it does come with some risks. Here are the key risks associated with investing in the F Fund:

Market Risk

The F Fund is subject to market risk, as returns fluctuate with the bond market. When interest rates rise, bond prices tend to fall, leading to potential losses for investors.

Credit Default Risk

There is a possibility that the issuers of the bonds in the F Fund's portfolio may default on their payments. This credit risk could result in investors losing some or all of their investment.

Inflation Risk

The F Fund is exposed to inflation risk, where the nominal returns may not keep up with the erosion of purchasing power due to inflation. This risk is particularly relevant in high-inflation environments.

Prepayment Risk

When interest rates fall, there is a chance that the bonds in the index will be paid back early, leading to reinvestment at lower rates. This prepayment risk can impact the overall returns of the F Fund.

Price Volatility

The F Fund can experience greater price volatility compared to more conservative funds like the G Fund. This means that the value of the investment can fluctuate more significantly over time.

Interest Rate Risk

With interest rates at historic lows, there is a risk of an increase in rates, which could negatively impact the price of the bonds in the F Fund's portfolio.

Income Risk

Falling interest rates can lead to a decline in the income generated by the F Fund. This income risk should be carefully considered, especially in a declining interest rate environment.

The F Fund's role in a retirement portfolio

The F Fund, or Fixed Income Index Investment Fund, is a US bond index fund that is a part of the Thrift Savings Plan (TSP). It is designed to match the performance of the Bloomberg U.S. Aggregate Bond Index, a broad index representing the US bond market. The F Fund provides broad exposure to US investment-grade bonds, investing about 30% in corporate bonds and 70% in US government bonds of all maturities.

The F Fund is a good option for those seeking a conservative investment within the TSP. While it does not guarantee against the loss of principal, it offers the potential for higher returns compared to short-term securities such as the TSP G Fund. Over the last 12 months, the F Fund has returned 11.50%, compared to the G Fund's 2.46%. Additionally, the F Fund has historically returned 6.04% since its inception in 1988, outperforming the G Fund's return of 5.03%.

The F Fund is a suitable option for those seeking to reduce the volatility of their retirement portfolio. By including bond funds like the F Fund in addition to stock funds, investors can benefit from negative or low correlation between bonds and stocks, resulting in a less volatile portfolio. The F Fund's performance is also less volatile than that of the C, S, and I stock funds, making it a good choice for diversification.

However, it is important to consider the risks associated with the F Fund. As a bond fund, it is subject to market risk, credit default risk, inflation risk, and prepayment risk. These risks can impact the returns of the F Fund, and investors should carefully evaluate them before investing.

In summary, the F Fund plays an important role in a retirement portfolio by providing exposure to US investment-grade bonds and offering the potential for higher returns compared to conservative options like the G Fund. It helps reduce portfolio volatility and provides diversification benefits. However, investors should carefully consider the associated risks before investing in the F Fund.

The F Fund's popularity

The F Fund, or Fixed Income Index Investment Fund, is a US bond index fund that tracks the performance of the Bloomberg US Aggregate Bond Index. It is a broadly diversified fund that provides exposure to US investment-grade bonds, investing about 30% in corporate bonds and 70% in US government bonds of all maturities.

The F Fund is a part of the Thrift Savings Plan (TSP), a retirement plan for federal employees. While it is the least popular fund in the TSP, it has been one of the best-performing funds in recent years. Over the last 12 months, the F Fund has returned 11.50%, compared to the G Fund's 2.46%.

Additionally, the F Fund provides investors with the opportunity to earn higher long-term returns compared to short-term securities. For example, an investment of $250,000 in the F Fund 20 years ago would have resulted in an ending balance of $807,865, compared to $662,125 in the G Fund.

However, it's important to note that the F Fund does come with some potential downsides, including volatility and the possibility of losing money. Investors need to carefully consider their risk tolerance and investment goals when deciding whether to invest in the F Fund or other options within the TSP.

Frequently asked questions