Author Topic: TSP G Fund vs. F Fund--Please bear with me while I display my ignorance  (Read 5771 times)

lizzie

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I work for the fed gov and have a TSP account. When I first started 10 years ago, I was very risk-averse and didn't know anything about investing so I just put everything in the G Fund.

A few years ago, after DH inherited a little money, we set up a taxable Vanguard account and got some free advice to go with it. The guy did a whole proposed asset allocation. He told us to move out of the G Fund and have most of my account in the F Fund, with some in the C, S, and I funds (all of this being balanced out by DH's retirement account being mostly in stock index funds).

So here I am four years later with the bulk of my TSP account in the F Fund. I stopped putting new contributions into that fund about a year ago because I thought it was too much. But now I'm wondering...was it a mistake to switch to the F Fund from the G Fund in the first place? Should I switch back?  Now that I understand things a little better, it seems to me like there's a lot of risk and not much upside to the F Fund at this point. I mean it's not like interest rates can go a lot lower, which is how it would gain in value. Right? So wouldn't it be way better to be in the G Fund?

CheapskateWife

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Re: TSP G Fund vs. F Fund--Please bear with me while I display my ignorance
« Reply #1 on: November 06, 2015, 11:41:54 AM »
Hi Lizzie,

I'm also a Federal Employee and I would love to advise but need to know about your age and other investments.  If your TSP and Vanguard is all you have, then I believe you are way too conservative in your TSP allocations.  Especially considering that you have passed the 10 yr mark and now have a pension (albeit a small one) locked in.  Consider that like a bond fund.  It is secure, inflation adjusted guaranteed income. 

So go hog wild with the TSP, take some risks and let that puppy grow.  Throw caution to the wind and invest in your L20XX fund and let it ride.  These funds are index funds (much like Vanguard's products) but at a crazy low management fee rate.  You have missed out on some terrific growth in the last 10 years but you don't have to continue. 

And you stopped contributions!?!?!?!?!?  Please, please, please tell me you didn't do this.  Get with HR right now and at the very least put in 5% to get your 5% matching funds. 

You could be putting 18,000 per year into your TSP and really nail this FIRE thing. 


lizzie

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Re: TSP G Fund vs. F Fund--Please bear with me while I display my ignorance
« Reply #2 on: November 06, 2015, 12:19:08 PM »
Hi Cheapskate Wife,

Thanks for your response!

Sorry my OP was unclear. I haven't stopped contributing to my TSP account, I just stopped putting the $ into the F Fund and started allocating 75/25 into the C and S Funds going forward. Also, we have a bunch of other investments in stock index funds---DH's retirement account (which is much larger than mine), the Vanguard taxable account (in which I stash almost all my takehome pay), backdoor Roths, and I also recently inherited an IRA that I haven't had the time or the heart to figure out yet (that's next on the list of financial housekeeping).

My back-of-the-envelope calculation is that we're about 85/15 stocks/bonds. I'm not so much asking about allocation.  My question is really, assuming that I am going to keep some money in the F or G Funds (or both), wouldn't it make the most sense to put it in the G Fund instead of the F Fund?

I'm hoping to retire in about 6-8 years (timeline uncertain because college costs for our daughters are looming).

CheapskateWife

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Re: TSP G Fund vs. F Fund--Please bear with me while I display my ignorance
« Reply #3 on: November 06, 2015, 12:29:11 PM »
Oh good!  I was worried about you there...so where you put your funds is really about risk tolerance.  From the TSP website:

The Government Securities Investment (G) Fund - The G Fund is invested in short-term U.S. Treasury securities. It gives you the opportunity to earn rates of interest similar to those of long-term Government securities with no risk of loss of principal. Payment of principal and interest is guaranteed by the U.S. Government. The interest rate paid by the G Fund securities is calculated monthly, based on the market yields of all U.S. Treasury securities with 4 or more years to maturity.

The Fixed Income Index Investment (F) Fund - The F Fund is invested in a bond index fund that tracks the Barclays Capital U.S. Aggregate Bond Index*. This is a broad index representing the U.S. Government, mortgage-backed, corporate, and foreign government sectors of the U.S. bond market. This fund offers you the opportunity to earn rates of return that exceed money market fund rates over the long term (particularly during periods of declining interest rates).

The Common Stock Index Investment (C) Fund - The C Fund is invested in a stock index fund that tracks the Standard & Poor's 500 (S&P 500) Index. This is a broad market index made up of the stocks of 500 large to medium-sized U.S. companies. It offers you the potential to earn the higher investment returns associated with equity investments.

The Small Capitalization Stock Index (S) Fund - The S Fund is invested in a stock index fund that tracks the Dow Jones U.S. Completion Total Stock Market (TSM) Index. This is a market index of small and medium-sized U.S. companies that are not included in the S&P 500 Index. It offers you the opportunity to earn potentially higher investment returns that are associated with "small cap" investments. The S Fund has greater volatility than the C Fund.

International Stock Index Investment (I) Fund - The I Fund is invested in a stock index fund that tracks the MCSI EAFE (Europe, Australasia, Far East) Index. This is a broad international market index, made up of primarily large companies in 22 developed countries. It gives you the opportunity to invest in international stock markets and to gain a global equity exposure in your portfolio.

I'm like you and have lots of irons in lots of fires (pension, DH's mil pension, Taxable account, Roth IRA's, Trad IRA's, and 529's).  So if you are looking for safe, G is the way to go.  But don't expect growth.

So it depends on what you are looking for.  I have put everything into the L2040 fund and have been very happy with both it's performance and my lack of stressing out over allocation.  But my safe money is in my pension and DH's pension.  So we are comfortable with volatility in the TSP. 

Yankuba

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Re: TSP G Fund vs. F Fund--Please bear with me while I display my ignorance
« Reply #4 on: November 07, 2015, 09:08:22 AM »
I have a small amount of my TSP in bonds and I split that portion 50-50 between G and F. G cannot ever lose value - which is nice - while F has the potential for higher returns. The raising rate environment concerns me but realistically I expect any rate increases to be small and S-L-O-W. I wouldn't have any issues with someone using G for 100 percent of their bond allocation at this point in time.

DonkeyGirl

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Re: TSP G Fund vs. F Fund--Please bear with me while I display my ignorance
« Reply #5 on: November 07, 2015, 09:14:07 PM »
I am also a fed with a TSP and I am curious how other Mustachian feds allocate their funds. I've seen a lot of TSP blogs out there with differing advice, not only on which funds to buy, but also when to reallocate the funds based on market activity. Does anyone shelter their funds in the G fund when the market looks like it will dip? What effect does that have in the long run?

Sailor Sam

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Re: TSP G Fund vs. F Fund--Please bear with me while I display my ignorance
« Reply #6 on: November 07, 2015, 09:51:59 PM »
I am also a fed with a TSP and I am curious how other Mustachian feds allocate their funds. I've seen a lot of TSP blogs out there with differing advice, not only on which funds to buy, but also when to reallocate the funds based on market activity. Does anyone shelter their funds in the G fund when the market looks like it will dip? What effect does that have in the long run?

I'm also a fan of the Lifecycle funds. I put 100% of my allocation into the L2040 fund. I've been happy with the returns. Right now the L2040 fund allocation is:

18.82% G fund
6.43%   F fund
37.9%   C fund
15.9%   S fund
20.95%  I fund

So my TSP is 25% bonds (F & G funds), and 75% sock. I tweak my IRA and after Tax investment accounts to keep my allocation at 20% bonds, 80% stock. I rebalance the whole portfolio every 2 years or so, unless something really gets out of whack.

Get with HR right now and at the very least put in 5% to get your 5% matching funds. 
Man, (*whine*) I envy all y'alls match. Anyone wanna share? :) Some part of my 20 year cliff vest in 2025, for some of your match now. Win win!


To OP, my personal opinion is that interest rates will stay flat, or rise very, very slowly. I don't personally see much risk in using the F fund for your bond allocation. Take my free advice for what it's worth.

Frs1661

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Re: TSP G Fund vs. F Fund--Please bear with me while I display my ignorance
« Reply #7 on: November 08, 2015, 11:54:15 AM »
My AA is about 90/10 and I use the G fund exclusively for my bond allocation. I just don't see sufficient upside in the F fund to be worth the interest rate risk. But that's me; I don't think the F fund is terrible or anything.

There are some good discussions over on bogleheads about this that I recommend searching for. I'd link if I weren't on mobile.

Sent from my Nexus 4 using Tapatalk


CorpRaider

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Re: TSP G Fund vs. F Fund--Please bear with me while I display my ignorance
« Reply #8 on: November 08, 2015, 03:30:59 PM »
Per the F fund information sheet the F fund YTM as of 12/31 was 2.25%.  It tracks the Barclays AGG index.  One of many ETFs tracking this index is AGG.  My brokerage says 2.59% is the current yield on that ETF.  The duration of the F fund is 5.07 as of year end (probably hasn't changed much, if any.  The current rate on the G fund is 2.125% (that will probably move up toward 2.3% after end of month based on current, post jobs report, yield curve).  The duration of the G fund is zero.

I personally doubt it is a good move to take on 507 bps of duration (interest rate risk) for 46.5 bps of yield.