Understanding the TSP fund options

Understanding the TSP Fund Options

*We have put the official TSP.gov explanations of the funds in the resources section.

The beauty of the TSP is its simplicity. There are 5 core funds that can be mixed and matched, allowing for broad diversification.

The 3 stock funds provide exposure to the entire U.S. equity market as well as Europe, Asia, and the Far East. There is also an aggregate bond fund and a special type of money market fund.

In addition to the 5 core funds, the Life Cycle (L) funds are composed of the 5 core funds in differing percentages. The L funds provide exposure to all the core funds with a single transaction.

Along with simplicity comes opportunity cost. TSP investors cannot “generate returns” by investing in precious metals, commodities, options, or individual stocks.

If your account is allocated between the 3 stock funds, your account will grow as the price of the underlying indexes move higher. If the underlying indexes move lower, the value of your account will decrease.

Below is a brief description of each TSP fund option. Full descriptions of each fund can be found at the TSP website.

The C Fund:

By law, the C Fund must be invested in a portfolio designed to replicate the performance of an index of stocks representing the U.S. stock markets. The Federal Retirement Thrift Investment Board has chosen as its benchmark the Standard & Poor’s 500 Stock Index (S&P 500), which tracks the performance of major U.S. companies and industries.

The S&P 500 is an index of 500 large U.S. companies that are traded in the U.S. stock market. The index was designed by Standard & Poor’s Corporation (S&P) to provide a representative measure of the U.S. stock market’s performance.

The companies in the index represent 126 industries classified into the 11 major sector groups. The stocks in the S&P 500 represent approximately 85% of the market value of the U.S. stock market. - TSP.gov

The S Fund:

By law, the S Fund must be invested in a portfolio designed to replicate the performance of an index of U.S. common stocks, excluding those that are held in the C Fund. The Federal Retirement Thrift Investment Board has chosen as its benchmark the Dow Jones U.S. Completion Total Stock Market Index, which tracks the performance of the actively traded non-S&P 500 stocks in the U.S. stock markets.

The Dow Jones U.S. Completion Total Stock Market Index is an index of all actively traded U.S. common stocks that are not included in the S&P 500. The index is designed to be the broadest measure of the non-S&P 500 domestic stock markets. - TSP.gov

The I Fund:

By law, the I Fund must be invested in a portfolio designed to track the performance of an index of common stocks representing international stock markets outside of the United States.

The Federal Retirement Thrift Investment Board has chosen as its benchmark the MSCI EAFE (Europe, Austral Asia, Far East) Index, which tracks the overall performance of the major companies and industries in the European, Australian, and Asian stock markets. - TSP.gov

** Beginning in 2024, the EAFE Index will be replaced by the MSCI ACWI IMI ex USA ex China ex Hong Kong Index. For more information, see Plan News. **

The F Fund:

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 portfolio that tracks the Bloomberg U.S. Aggregate Bond Index, a broadly diversified index of the U.S. investment-grade bond market.

The Bloomberg U.S. Aggregate Bond Index consists of high-quality fixed-income securities with maturities of more than one year. The index is comprised of Treasury and Agency bonds, asset-backed securities, and corporate and non-corporate bonds. - TSP.gov

The G Fund:

By law, the G Fund must be invested in nonmarketable U.S. Treasury securities specially issued to the TSP. The G Fund investments are kept by electronic entries, which do not involve any transaction costs to the TSP. The G Fund rate is set once a month by the U.S. Treasury based on a statutorily prescribed formula, and all G Fund investments earn that interest rate for the month.

Although the securities in the G Fund earn a long-term interest rate, the Board’s investment in the G Fund is redeemable on any business day with no risk to principal.

The value of G Fund securities does not fluctuate; only the interest rate changes. Thus, when the monthly G Fund interest rate goes up, G Fund earnings accrue faster; when the G Fund interest rate declines, G Fund earnings accrue more slowly. - TSP.gov

The L Funds:

Each of the ten L Funds are a diversified mix of the five individual funds (G, F, C, S, and I).

They were designed by investment professionals to let you invest your entire portfolio in a single L Fund and get the best expected return for the amount of expected risk that is appropriate for you.
The year in the name of the L Fund is its target date, and the exact mix of individual funds in each L Fund is called the target allocation.

The farther away the target date, the more aggressive the target allocation. So, for example, L 2065 is designed for people who plan to retire and begin withdrawing money within a few years of 2065.
These younger participants can take more risk, seeking greater return, because they have time to recover from any market downturns before they need their money.

L 2065’s target allocation includes more of the aggressive C, S, and I Funds and very little of the conservative G and F Funds. - TSP.gov

TSP Mutual Fund Window:

The mutual fund window is an option designed for TSP participants who are interested in greater investment flexibility.

If you meet certain eligibility requirements and pay the necessary fees, you can choose to invest a portion of your TSP savings in your choice of available mutual funds.

With this option, you can transfer money from your TSP account, through the mutual fund window, and open a separate investment account provided by our mutual fund window vendor.

Once your account is established, you can buy, sell, and exchange mutual funds that you select from those available. - TSP Mutual Fund Window Information Sheet

Now that you understand all of your investment options in the TSP, our next lesson will show you how you can track the individual TSP funds movement.

Click the "Return to course" button below and then select your next lesson...see ya there!