A Closer Look at Different Thrift Savings Plan Funds

Oct 6, 2017

risksA previous post looked at the I fund of the Thrift Savings Plan. This post will look at a few more of the funds available under the TSP.

G Fund—Government Securities Investment Fund

The objective of this fund is to produce a rate of return that is higher than inflation while avoiding exposure to credit default risk and market price fluctuations. This fund invests exclusively in non-marketable short-term U.S. Treasury security that is TSP special issue. Earnings consist entirely of interest income on security.

Risks

The G fund is subject to inflation risks, or the possibility your investment won’t grow enough to offset the reduction in the purchasing power resulting from inflation.

Rewards

The U.S. government guarantees payment of G fund principal and interest, meaning the government will always make the required payment. In other words, this investment is not subject to credit default risk.

F Fund—Fixed Income Index Investment Fund

The objective of the F fund is to match the performance of the Bloomberg Barclays U.S. Aggregate Bond Index, which is a broad index representing the U.S. Bond Market. This broad index includes U.S. government, mortgage-backed, corporate and foreign government sectors of the U.S. Bond Market.

The earnings consist of interest income on securities and gains and losses in the value of securities. The fund is a passively managed fund that remains invested according to its investment strategy regardless of conditions in the bond market or economy.

Risks

Because F fund returns move up and down with the returns in the bond market, the F fund is subject to market risk. Market risk is when interest rates rise, bond prices fall, and vice versa.

Investing in the F fund exposes you to credit default risk—the possibility that principal and interest payments on bonds that comprise the index won’t be paid.

This fund is also subject to inflation risk and prepayment risk—the probability if interest rates fall, bonds that are represented in the index will be paid back early thus forcing lenders to reinvest in lower interest rates.

Rewards

The overall risk in this fund is relatively low in comparison to other fixed-income investments because the F fund includes only investment-grade securities.

Investing in this fund rewards you with the opportunity to earn higher rates of return over the long term than from investments in short-term securities.

C Fund—Common Stock Index Investment Fund

The C fund objective is to match the performance of the Standard and Poor’s 500 (S&P 500) index. This is a broad market index made up of stocks of 500 medium to large sized U.S. companies. C fund assets are managed to fully replicate the S&P 500 index. Earnings consist primarily of dividend income and gains and losses in the price of stocks. It’s a passively managed fund that remains invested according to its indexed investment strategy regardless of stock market movements or general economic conditions.

Risks

This fund is subject to market risk because of the prices of stocks in the S&P 500 Index rise and fall.

The C fund is also exposed to inflation risk.

Rewards

This fund offers the opportunity to experience gains from equity ownership of large and medium-sized U.S. company stocks.

S Fund—Small Cap Stock Index Investment Fund

The investment objective here is to match the performance of the Dow Jones U.S. Completion Total Stock Market Index, which is a broad market index made up of stocks of U.S. companies not included in the S&P 500 Index. The S fund invests in a stock index fund that tracks the Dow Jones U.S. Completion Total Stock Market Index. Earnings consist of dividend income and gains or losses in the price of stocks. It also uses the indexing approach to investing and is passively managed and remains invested according to its investment strategy regardless of conditions in the bond market or economy.

Risks

There is a market risk because the Dow Jones returns will move up and down in response to the overall economic conditions.

There is also an inflation risk here.

Rewards

The fund will provide experience gains from equity ownership of small to medium-sized U.S. companies. It also provides excellent means of further diversifying your domestic equity holdings.

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