What Are We Investing In Exactly? (The TSP Funds)
Everyone tells you to put your money into the TSP. It’s super important. You’ll never regret it. You can’t afford NOT to! And on and on. All good things. But that’s just the first decision. The second one can be much harder—WHERE do I put my money in the TSP? All I see is a bunch of letters-G, F, C—what does any of that even mean?
Do I move it around?
To where?
When?
Sure, you can just use some TSP allocation service to make those decisions for you. You can use any one of numerous Facebook pages to tell you where to invest. And there’s no end to the number of people that will give you their advice about when to move it. But that still doesn’t help your knowledge. My belief is, and has always been, that you need to know what you’re invested in. In fact, I would go so far as to say once you understand your investment options, the choice often becomes much easier than you thought.
So what are our options?
Once you put money into your TSP each pay period, it needs to go somewhere. It doesn’t just sit in cash. If you have an investment account at Schwab or Fidelity or wherever, you can contribute money to it. And if you don’t buy anything, the money just sits there in cash. Not so with the TSP. You have 5 underlying funds and your money is definitely going to one or more of those 5 funds. And yes, they are letters: G, F, C, S, and I.
Let’s look at them and make you all TSP experts.
G Fund
Only TSP investment not available in the private sector
Only TSP investment guaranteed to not lose any money
Invests in special U.S. government bonds created specifically for TSP
Can be thought of as the TSP’s version of a High-Yield Savings Account (HYSA)
Does not track any Index since it’s not available in the private sector
1 out of 5 on TSP Risk Scale
1st TSP fund. Born on 4/1/87
Has averaged 4.65% annually since 1987
G Fund is the safest fund we have. It’s the only fund guaranteed not to lose money. Coincidentally, it’s also guaranteed to not make you a ton of money either. But that’s ok. That’s not its purpose. It is designed to preserve the money you’ve made, not grow your money as fast as possible. We’ve got better options if that’s your goal.
Talk to a bunch of retirees and one of the recurring regrets you hear is that they wished they weren’t in the G Fund when they were younger (20’s, 30’s, etc.) They came to the realization for themselves the G is far too conservative for a young person. Fortunately, it is no longer the default investment for new hires.
It has its place. Preserving money you’ve made so you don’t have as much risk when you are older. So don’t knock it.
The last couple of years it has returned 4.4% and 4.2% respectively.
F Fund
The other bond fund (we have 2: G and F)
Designed to return more money than the G (doesn’t always happen though!)
Can lose money
Invests in some government bonds and some private/corporate bonds
Tracks the Bloomberg U.S. Aggregate Bond Index, which is a very popular group that the private sector tracks to see how the bond market is doing. There are approximately 13,000 bonds in this Index
2 out of 5 on the TSP risk scale so still very conservative
Born on 1/29/1988
Has averaged 5.29% annually since 1988
The F Fund is the next safest fund that we have available to us. It has much more fluctuation in it than the G since it can go up or down. Best year was up 18% (1995). Worst year was down 12% (2022). Most years are much closer to zero, either plus or minus. You aren’t getting huge roller coaster rides here. It’s on the more conservative end of the investments, so typically people are moving into the F Fund as they age and want to become more conservative.
The last two years it has returned 1.33% and 5.58% respectively.
C Fund
Most conservative stock fund we have in TSP
Invests in the 500 largest and/or most established publicly traded US companies
Tracks the Standard & Poor’s 500 Index (hence the 500 companies)
Largest section of the TSP
3 out of 5 on the TSP risk scale
Born on 1/29/1988
Has averaged 11.19% since 1988
Largest investments in the C Fund: Apple, Nvidia, Microsoft, Amazon, Meta, and Tesla
The C Fund is more or less a synonym for the S&P 500, which itself has become a synonym for “the stock market”. Most times these days when someone says “The market is up” or the “The market isn’t doing well”, they are generally referring to these 500 companies, although there are almost 4,000 companies in the U.S. stock market. But these large companies have come to be sort of a representation of the market as a whole.
Investing in the C Fund means investing in these large, established companies. Many are names you’d immediately recognize: Nike, Berkshire Hathaway, Ford, Home Depot, Google, etc. Some of these companies might go out of business one day, but probably not this year. Apple has billions in cash, for example.
You’re going to get a roller coaster ride with any stock fund. There will be high ups and low downs. Over time, however, the C Fund has proven to be the TSP fund that has returned the most. Best year ever was 2013 (up 32%). Worst year ever was 2008 (down 37%). The last couple of years it has done tremendously well (25% and 26% respectively).
In my experience of speaking with 2-3 TSP millionaires a week, the majority of those with the highest balances, stayed in the C Fund for most, if not all of their careers. There is a direct correlation between high TSP balances and time in the C Fund.
S Fund
The other U.S. stock fund that we have
Invests in publicly traded US companies outside of the SP500
Tracks the (deep breath) Dow Jones U.S. Completion Total Stock Market Index
4 out of 5 on the TSP risk scale
Born on 5/1/2001
Has averaged 9.23% since 2001
Largest investments include: Marvell, Applovin, CRH, and Doordash (finally-one we recognize)
Investing in the S Fund means you’re investing the smaller, less established companies on the U.S. stock market. Not exactly the same name recognition as the C Fund. These are still very large companies, though. Just as a general rule, smaller than the SP500 sized companies.
For you finance bros, I understand it doesn’t work exactly like this upcoming explanation. No need to split hairs—we’re trying to help others understand, but for our purposes, you could think about it like this: The 500 biggest companies are the C Fund. Company #501 down to Company #3,700 or whatever there are now, would be the S Fund. Again, it doesn’t work exactly like that, but you’re not too far off if that’s how you want to think of them.
There is no overlap between the two. Nothing is in the C that is also in the S and vice versa.
If you invest in the C, you’re in the largest US companies. If you invest in the S, you’re in the other US companies. And if you invest in both, then you cover the entire US stock market.
You’re gonna get more of a roller coaster ride in the S than the C. It’s more volatile. Best year was up 43% (2003). Worst year was down 38% (2008). Last couple of years it has averaged 17% and 25% respectively.
I Fund
The international stock fund of the TSP
Invests in publicly traded companies outside of the U.S. (But not in China or Hong Kong)
Tracks the (deeper breath!) Morgan Stanley Capital International All Country World Index Investable Market Index ex USA ex China ex Hong Kong Index (seriously, that’s it)
5 out of 5 on the TSP risk scale-this is the riskiest fund according to TSP
Born on 5/1/2001
Averaged 5.65% annually since 2001
Largest Investments include: Taiwan Seminconductor, ASML, Novo Nordisk, SAP, Nestle, Toyota and AstraZeneca
The I Fund, like its name suggests, is international companies. So nothing US-based. This means that C, S, and I are all mutually exclusive. Nothing is in one that is also in the other. No overlap. If you want to invest in companies overseas, then the I Fund is for you. There is some sort of risk in every investment. This one also carries with it “currency risk”. This is a phenomenon where you might lose value not because the stock of the company has gone down but simply because the dollar has changed in relation to the foreign currency that the stock trades in. That’s a complexity of the I Fund that you don’t have with the others.
If one is strictly looking at the historical numbers up until now, the I Fund doesn’t look too appealing. It has returned the lowest amount of the 3 stock funds (C, S, and I), yet it is the riskiest. Seems like a less-than-optimal combination? What will the future hold? None of us know.
Best year ever? 2003: Up 38%. Worst year ever? 2008: Down 42%. I Fund holds the distinction of having the single worst year of all TSP funds. Imagine losing 42% of your money in one year?! If you had $1m in I Fund in Jan of 2008, you had $580k in December of 2008. Ouch.
Those are all the funds in the TSP. That’s it and that’s all.
Thanks for reading.
Uh, Chris….you forgot about the L Funds!
L Funds
Well, let’s talk about them. What is an L Fund? L stands for Lifecycle Fund. You’ll see these represented on TSP’s page as L 2040, L 2055, etc. The L Funds are not different investments apart from the 5 funds we already talked about. They are simply those same 5 funds organized in a certain way based on when you want to start using your funds.
You see, with G, F, C, S and I, you determine how much goes into each one and when you move your money from one to the other (if you ever do). The L Funds operate automatically. You don’t control when the L moves your investment money around. It’s pre-set based on the year of your choosing. Every quarter they move your funds. From riskier to more conservative. Literally every 3 months they do this, regardless of what the market is doing. They are not trying to guess what to do—the formula is already pre-established.
So for example, you might be 60% in C/S/I right now and 40% in G/F. 10 years from now, even without you doing anything to your account, you might be 40% C/S/I and then 60% in G/F because of their moves they’ve made in your account every quarter.
Every L Fund has all 5 funds in it
You are supposed to pick the L Fund year that corresponds with the year you will start your withdrawals
If you don’t know when you want to start your withdrawals, you are supposed to pick the L Fund based on your year of birth
You are supposed to put your ENTIRE TSP balance into ONE L FUND! Then they take it from there.
Every quarter the TSP automatically moves some money from C, S, I into G and F
Eventually when the calendar reaches the target date, all L Funds roll into the L Income Fund
Your retirement date has no correlation to the L Fund year you choose