Understanding the Different Types of TSP Funds
The Thrift Savings Plan (TSP) offers five core and one combination investment fund options. An overview of the fund options is below. However, it’s common that most participants do not understand the intricacies of the funds or know which fund is best for their comfortable risk level, and their investing and retirement goals.
Each fund is managed either by BlackRock Capital Advisors or State Street Capital Advisors and is available only to TSP participants.
Government Securities Investment Fund (G Fund)
The G Fund is the lowest investment risk and the only core fund that does not invest in an index. It guarantees the return of the investor’s principal, and all money contributed into the TSP starts in a G Fund by default.
Historically, the G Fund has provided the lowest rate of return of any of the core funds.
Fixed-Income Investment Index Fund (F Fund)
The G Fund is the least risky; the F Fund is one step up on the risk scale. Like the G Fund, the F Fund pays monthly interest (typically exceeds what is paid by the G Fund); however, it does not guarantee a return of the investor’s principal.
Common Stock Index Investment Fund (C Fund)
Of the three stock funds available via TSP, this is the most conservative. Compared to the G Fund and F Fund, the C Fund has experienced greater volatility in the past; however, it has had higher returns.
Smart-Capitalization Stock Index Fund (S Fund)
The S Fund has greater potential for growth than the C Fund. It is also considered one of the riskiest funds available in the TSP. Historically, even though it has had significant volatility, it has outperformed the C Fund.
International Stock Index Fund (I Fund)
The I Fund is regarded as the other riskier option in the TSP investment portfolio. It is the only fund that invests in companies outside the U.S (it invests in established companies across 22 developed countries). Historically, it has shown a higher average return than the C Fund.
Lifecycle Funds (L Funds)
The L Funds invest in a combination of the five core funds. They are the most diversified and were created for TSP participants to provide the best expected return for the level of risk that is fitting for you. Every three months, the target allocations of all the L Funds (except L Income) are automatically adjusted, gradually shifting them from higher risk and reward to lower risk and reward as they get closer to their target dates. These funds are professionally managed with fund optimization and your target date to begin withdrawing funds in mind; investing in them is a bit like setting your investment plan on “auto-pilot”.