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November Shirt Blast

  • Published
  • By Senior Master Sgt. Alex Gross
  • 169th Fighter Wing

Hello Swamp Foxes and welcome to November Drill! Last drill we hit on the Thrift Savings Plan basics. Hopefully it was useful. Just like last Blast, a disclaimer:

*Disclaimer: I AM NOT ADVOCATING FOR ANY PROGRAM. This article should not be the only source regarding this topic. If you have questions, consult a credible professional and consider all options. Always be leery of self-proclaimed “experts," everything on the internet is not true, and verify your sources.

Now that the disclaimer is out of the way, let’s take a quick look back. In the previous article we discuss what the TSP was and compared the Traditional versus Roth options. This time we’re going to hit on the fund types you have to select from.

When you start contributing money into your TSP, it automatically goes into the G-fund which the safest fund, relatively speaking, they have available. However, you can elect which fund your money goes into by logging into TSP and setting up you fund allocation. When you contribute to a particular fund, you are actually buying shares. Those shares then hold value which goes up and down depending on the particular markets they are bought into. Just like anything else with value you can buy, sell or trade your shares. You buy shares when you contribute, you sell them when you withdraw, and you trade them when you move existing shares between funds. Most people just buy and hold, opting to leave their money alone and let it do its thing. While others like to move stuff around. Investing is like politics and religion, we all have our own thoughts on the best way ahead; you have to figure out what’s right for you. A more aggressive fund may provide the opportunity for higher gains, but with it comes a higher risk of loss while a more conservative fund is less risky, but also has a lower pay-off. The balance for each person is slightly different. With that, let’s get into the funds!

G-Fund- This is the fund that your contributions automatically drop into unless you choose a different one. It is primarily Government securities and is considered low risk with low volatility. Essentially as safe as you can get. The goal is to maintain buying power through a growth rate equal or higher than inflation.

F-Fund- This is a bond fund that purchases Government, corporate, and mortgage bonds. Safer than stock markets, but not as safe as Government securities. The goal is to achieve relatively safe growth with minimal market exposure. The managers work to match the performance of Bloomberg Barclays U.S. Aggregate Bond index.

C-Fund- This fund purchases large to mid-size company stocks. The risk is higher than both bond markets, but still considered moderate as it focuses on established companies. The goal is to match the S&P 500 index.

S-Fund- This fund purchases small to medium size company stocks also known as Small Cap. The risk is considered moderate to high as it is typically more volatile than the C Fund. Smaller companies start out cheaper, but can yield larger returns as they grow and become more main stream. They also tend to go out of business more often. This and the I-fund are the highest risk/potential, highest reward/loss funds. The goal is to match the Dow Jones U.S. Completion TSM Index.

I-Fund- This fund purchases International Stocks from 20+ developed countries. Like the S-Fund it is moderate to high risk and one of the more volatile funds available. Without an international fund, companies like Sony, Panasonic, etc, would not be available to TSP participants. Not only do you deal with market risk, you also deal with currency risk. You, personally, will always deal with dollars, but the stocks held in the fund will be subject to exchange rates that will be completely transparent to you. The goal is to match the MSCI EAFE Index.

Life Cycle Funds- There are 5 different life cycle funds: Income, 2020, 2030, 2040, 2050. Just about anyone who has invested or read portfolio theory will tell you to diversify. Life cycle funds do that without you having to manage the proportion of risk. The whole purpose of life cycle funds is to expose members to what is considered the appropriate amount of risk depending on your planned retirement date. Income being for folks already retired, 2020 being for folks that plan to retire in 2020 and so on. They do this by mixing and matching funds for you so you don’t have to. The further from retirement you are the more time you have to recover if your shares turn downward. With that logic applied, the L2050 is much more aggressive by being primarily invested primarily in C, S, and I funds with a little in the G and F funds. The opposite is true for the L-Income fund. This fund which is primarily invested in G&F funds with a limited amount in the C,S, and I funds and is geared to current and soon to be reitrees. As the years tick closer to the year indicated on the funds, the more conservative the funds become. So next year each of the funds listed will invest less in the C,S, and I funds and more into the G&F funds. Eventually there will be an L2060, L2070, etc. You don’t have to invest in the fund that corresponds with your actual planned retirement. If you plan to retire in 2030, but have a lower tolerance for risk than the 2030 fund provides, you can invest in the income or 2020. The opposite also holds true; if you plan to retire in 2030, but have a higher tolerance for risk, you can invest in the 2040 or 2050 funds. All the funds mentioned above are available to you.

Wondering where I got all this awesome intel? Check out references below. That's it for this week. I hope this has been helpful; please feel free to discuss this topic with your peers, supervisors, and subordinates, you never know who it could help. Thanks for your time and all you do!


Everything you want to know about TSP:

Fund Comparison Matrix