Lifecycle Funds (or L Funds as they’re known) are a key component of the Thrift Savings Plan. But what exactly is the L Fund? Basically, it’s a way of moving your TSP investments around to maximize the benefit, based off of the amount of time until you will need to access that money. According to the TSP website, the purpose of the L Fund is to for there to be an optimal balance between the expected risk and return of each fund.”
The L Fund was initially conceived to help simplify matters by taking the S, I, C, G, and F Funds and combining them within the five L Funds in various percentages. This means that a younger person, newly hired, would be investing in the L 2050 Fund (currently at an automatic 3 percent contribution rate, but will be increasing next year to 5 percent) while a person on the verge of retirement would be choosing between the L 2020 Fund or the L Income. The idea is that as one approaches their investment goal, they should grow more conservative in the allocation of their money.
L Funds will change to 5-year intervals (from 10-year intervals) next year as well.
While the L Funds are adjusted daily (except the L Income which is quarterly), the TSP values can jump around quite a bit, which is why they must be balanced at the end of each day.
The C, I, and S Funds are traditionally the riskiest funds and at the end of the year last year ended up in the negative. The G Fund had a return of 2.91 percent, making it the best performing investment of the year, and the F fund barely turned gains, at only .15 percent. The idea behind the L Fund, if it does what it’s supposed to, would mean that conservative funds like the L Income would generate a higher return while the riskier future funds (like the L 2050 Fund) would perform the worst, seeing as how it’s the furthest away and has the wiggle room not to be played as tightly.