Thrift Savings Plan Investment Options

TSP or the Thrift Saving Plan is a highly defined-contribution retirement plan that has several investment options that offer its investors with a widely diverse market. TSP members, mostly retired uniformed or federal employees have the opportunity of investing in a wide spectrum ranging from individual and lifestyle funds. Thrift Savings Plan Investment OptionsSadly, most TSP members do not have a clear understanding of these investment options, and are simply uninformed and unfazed because of a lack of information offered to them. This means TSP members are intrinsically incapable of deciding in a systematic and rational manner which fund is the most appropriate for them. As of 2018, the Thrift Savings Plan has over 5.5 million users of which 3.3 million users who actively deduct from their payrolls. Administered by the Federal Retirement Thrift Investment Board, it stands to be the largest defined contribution plan.

Available Investment Options in Thrift Savings Plan

A few noteworthy thrift savings plan investment options include but are not limited to, stock funds, lifecycle funds, and bonds.

Bonds – The TSP

When considering TSP bonds, there are two very legitimate options; the F Fund and the G Fund.

The F Fund is an index fund, used to invest in high-value US government and corporate bonds – making it well-diversified and bulky with a glossary of over 7,800 varieties of bonds from multiple agencies and corporations. However, F Funds involve a multitude of risks including but not limited to: market risks, where interests rise and returns fall,

On the contrary, G Funds invest in specific non-market treasury security, issued by the government. G Funds will ensure that you don’t lose any money, by allowing investors to earn similar interest rates to long-term US Treasury bonds. This makes G Funds ideal for oriented investors who would prefer putting money in a savings account or alternatively buying bank certificates of deposits.

From a historical standpoint, it can be observed that the long term returns of the F Fund are higher than that of the G Fund.

When evaluation bonds, investors will face one highly significant risk that stands out amongst the rest – the risk of rampant inflation, which should remind investors to always take into account the rate of inflation. The rule of thumb is – if your return of investment is lower than the rate of inflation, the value of the investment in question will be declining over time.

The above-stated information helps us come to a major conclusion, bonds have proven to be a very “slow and steady” investment option compared to the traditional alternative, stocks. While Bonds will not always give the highest return, they will rarely lose much value whenever crisis strikes – making it much safer and rational than Stocks in this sense.

Stock Funds – The TSP

TSP offers three kinds of stock funds, namely the C Fund, the S Fund, and the I Fund; all three of which are primarily index funds. The S Fund and C Fund are both stock funds based in the United States whereas the I Fund is an international fund.

The C Fund is used to invest in the S&P 500 Index – which is basically 50 of the largest domestic capitalization stocks. On the contrary, The S Fund has an investment potential in 3,300 medium to small sized companies and typically enjoy higher rates of return than the C Fund. Many stock investors will typically allocate their stock holdings to the S Fund rather than the C Fund due to this specific reason.

Beyond these domestic funds, The I Fund is an international fund that provides you the unique opportunity of diversifying your stock holdings into foreign stocks. This particular fund invests in approximately 950 large-capitalization stocks in 21 countries worldwide. However, the I Fund comes with its fair share of risks including currency risk, inflation risk and so on so forth. Yet, the opportunity to experience gains from equity ownership of Non-US companies and the subsequent diversification is definitely worth the risk.

Smart investors will choose to invest in multiple fields, diversifying their TSP across the S Fund, I Fund, and the C Fund – considering how they operate individually and not in tandem. Holding these funds will ultimately ensure a lower probability of an irreversible total loss when your stocks take a dip during downturns.

Lifecycle Funds – The TSP

Lifecycle funds are extremely useful because of how they allow you to mix different bonds and stock funds, resulting in a more diversified portfolio. However, before investing in a lifestyle fund one should have a comprehensive understanding of how they work.

Lifestyle Funds or L. Funds have target asset allocations, which means that they’re composed of 5 core funds (G, F, C, S, I) and thus maintains an optimal balance of investment risks and rewards. L. Funds automatically adjust themselves quarterly to reduce risk for TSP participants who don’t want to make their own investment allocation choices and decisions.

Lifestyle Funds are extremely well-thought-out, when you’re younger – your assets, are invested more heavily in mutual funds with equitable ownerships which is a greater opportunity for a long term investment albeit riskier than other asset classes. However, the closer you move to retirement – Lifestyle Fund’s investment becomes more conservative as a larger share of assets go into fixed-income mutual funds safer than equity funds. This is commonly known as a ‘glide path’ and helps you the trouble of rebalancing your retirement portfolio.

Upon issue, L Funds invest in stock funds but diversify into bond funds every quarter until they’re matured. 74% of these L. Funds are invested in bond funds whereas the remaining 26% is spread out into the C, S, I Funds.

The Takeaway

When choosing your thrift savings plan investment options mix, it’s crucial that you consider risks and returns involved after doing your own research. Furthermore, you must keep in mind that diversified options result in reduced overall risk and should be highly considered.

Even after the initial investment, it is vital that you stay in the loop and routinely check your investments and options to maximize return.

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