TSP Funds

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TSP Funds and Thrift Savings Plan Investment Choices

TSP funds are available for participants in the Thrift Savings Plan.  FERS or CSRS eligible employees can invest any portion of your retirement savings in the TSP Funds listed below:  More information is avaialble at: TSP.gov

TSP G Fund (Government Securities)

• TSP F Fund (Fixed Income Index)

• TSP C Fund (Common Stock Index)

• TSP S Fund (Small Capitalization Stock Index)

TSP I Fund (International Stock Index)

TSP F Fund (Lifecycle)

Below is information on the TSP funds available through the Thrift Savings Plan (TSP) and a brief description of some of the risks and rewards that should be considered as well as how the various TSP Funds might fit into your TSP Investment portfolio.

*Always consult with your own financial advisor before making any investment selection.   More information is available through TSP.gov.

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The TSP G Fund: Government Securities Investment Fund

The TSP G Fund’s investment objective is to produce a rate of return that is higher than inflation while avoiding exposure to credit (or default) risk and market price fluctuations. It invests exclusively in nonmarketable short-term U.S. Treasury securities that are specially issued to the TSP. The earnings consist entirely of interest income on these special securities.

Risks*

The TSP G Fund is subject to inflation risk, or the possibility that your G Fund investment will not grow enough to offset the reduction in purchasing power that results from inflation.

*For a complete list of potential risks and rewards please visit TSP.gov

Rewards

The payments of the TSP G Fund principal and interest is guaranteed by the U.S. Government. This means that the U.S. Government will always make the required payments. In other words, your G Fund investment is not subject to credit risk.
  Consider investing in the G Fund if you would like to have all or a portion of your TSP account protected from loss. If you choose to invest in the G Fund, you are placing a higher priority on the stability and preservation of your money than on the opportunity to potentially achieve greater long-term growth in your account through investment in the other TSP funds.

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The TSP F Fund: Fixed Income Index Investment Fund

The F Fund’s investment objective is to match the performance of the Barclays Capital U.S. Aggregate Bond Index, a broad index representing the U.S. bond market. Its assets are held in a separate account and managed to track the Barclays Capital U.S. Aggregate Bond Index. This broad index includes U.S. Government, mortgage-backed, corporate, and foreign government (issued in the U.S.) sectors of the U.S. bond market. The earnings consist of interest income on the securities and gains (or losses) in the value of the securities.  The F Fund uses an indexing approach to investing. In other words, it is a passively managed fund that remains invested according to its investment strategy regardless of conditions in the bond market or the economy.

Risks*

Because the F Fund’s returns move up and down with the returns in the bond market, an investment in the fund is subject to market risk. For example, when interest rates rise, bond prices (and thus, the returns of the index and the F Fund) fall. Conversely, in an environment of falling interest rates, bond prices, as well as the index and F Fund returns, rise.

As an F Fund investor, you are also exposed to credit risk, or the possibility that principal and interest payments on the bonds that comprise the index will not be paid.

The F Fund is also subject to inflation risk, meaning that your investment may not grow enough to offset the reduction in purchasing power that results from inflation.

It is also exposed to prepayment risk, which is the probability that if interest rates fall, bonds that are represented in the index will be paid back early, thus forcing lenders to reinvest at lower rates.

*For a complete list of potential risks and rewards please visit TSP.gov

Rewards

Although there are several types of risks associated with the F Fund, the overall risk is relatively low in comparison to certain other fixed income investments in the market because the fund includes only investment-grade securities. As a result, F Fund investors are rewarded with the opportunity to earn potentially higher rates of return over the long term than they would from investments in short-term securities such as the G Fund.

Using the Thrift Saving Plan F Fund in Your Account

In periods of falling interest rates, the F Fund will experience gains from the resulting rise in bond prices. So in the long run, you may expect F Fund returns to exceed those of the G Fund; however, you should also expect greater price volatility.

It is also important to know that higher returns are not guaranteed. This is because losses may occur when interest rates are rising, causing bond prices to fall.

The F Fund can be useful in a portfolio that also contains stocks funds. This is because the prices of bonds and stocks don’t always move in the same direction or by the same amount at the same time. So a retirement portfolio that contains stock funds, like the C, S, and I Funds, along with the F Fund, will tend to be less volatile than one that contains stock funds alone.
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The TSP C Fund: Common Stock Index Investment Fund

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

Risks*

An investment in the C Fund is subject to market risk because the prices of the stocks in the S&P 500 Index rise and fall. By investing in the C Fund, you are also exposed to inflation risk, meaning your C Fund investment may not grow enough to offset inflation.

*For a complete list of potential risks and rewards please visit TSP.gov

Rewards

While investment in the C Fund carries risk, it also offers the opportunity to experience gains from equity ownership of large and mid-sized U.S. company stocks.

Using the Thrift Saving Plan C Fund in Your TSP Account

The C Fund can be useful in a portfolio that also contains stock funds that track other indexes such as the S Fund (which tracks an index of small U.S. company stocks) and the I Fund (which tracks an index of international stocks). The C, S, and I Funds track different segments of the overall stock market without overlapping. This is important because the prices of stocks in each market segment don’t always move in the same direction or by the same amount at the same time. By investing in all segments of the stock market (as opposed to just one), you reduce your exposure to market risk.

The C Fund can also be useful in a portfolio that contains a large percentage of bonds. Again, it is because the prices of stocks and bonds don’t always move in the same direction or by the same amount at the same time. So a retirement portfolio that contains a bond fund like the F Fund, along with other stock funds, like the S and I Funds, will tend to be less volatile than one that contains stock funds alone.

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The TSP S Fund: Small Cap Stock Index Investment Fund

The S Fund’s investment objective is to match the performance of the Dow Jones U.S. Completion Total Stock Market Index, a broad market index made up of stocks of U.S. companies not included in the S&P 500 Index. The S Fund uses an indexing approach to investing. The Fund invests in a stock index fund that tracks the Dow Jones U.S. Completion Total Stock Market Index. The earnings consist of dividend income and gains (or losses) in the price of stocks.

Risks*

An investment in the S Fund is subject to market risk because the Dow Jones U.S. Completion Total Stock Market Index returns will move up and down in response to overall economic conditions. By investing in the S Fund, you are also exposed to inflation risk.

*For a complete list of potential risks and rewards please visit TSP.gov

Rewards

While investment in the S Fund carries risk, it also offers the opportunity to experience gains from equity ownership of small to mid-sized U.S. companies. It provides an excellent means of further diversifying your domestic equity holdings.

Using the Thrift Saving Plan S Fund in Your TSP Account

The S Fund can be useful in a portfolio that also contains stock funds that track other indexes such as the C Fund (which tracks an index of large U.S. company stocks) and the I Fund (which tracks an index of international stocks). The C, S, and I Funds track different segments of the overall stock market without overlapping. This is important because the prices of stocks in each market segment don’t always move in the same direction or by the same amount at the same time. By investing in all segments of the stock market (as opposed to just one), you reduce your exposure to market risk.

The S Fund can also be useful in a portfolio that contains bonds. Again, it is because the prices of stocks and bonds don’t always move in the same direction or by the same amount at the same time. So a retirement portfolio that contains a bond fund like the F Fund, along with other stock funds, like the C and I Funds, will tend to be less volatile than one that contains stock funds alone.
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The TSP I Fund: International Stock Index Investment Fund

The I Fund’s investment objective is to match the performance of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index. The Fund invests in a stock index fund that replicates the above index. The earnings consist of gains (or losses) in the price of stocks, dividend income, and change in the relative value of currencies.

Risks*

An investment in the I Fund is subject to market risk because the Morgan Stanley Capital International EAFE Index returns will move up and down in response to overall economic conditions.

Because of its exposure to currency risk, the EAFE Index (and the I Fund returns) will rise or fall as the value of the U.S. dollar decreases or increases relative to the value of the currencies of the countries represented in the EAFE index. By investing in the I Fund, you are also exposed to inflation risk.

*For a complete list of potential risks and rewards please visit TSP.gov

Rewards

While investment in the I Fund carries risk, it also offers the opportunity to experience gains from equity ownership of non-U.S. companies. Because it represents the stocks of companies in many developed countries (excluding the U.S.), it is an excellent way to diversify the stock portion of your TSP allocation.

Using the Thrift Saving Plan I Fund in Your TSP Account

The I Fund can be useful in a portfolio that also contains stock funds that track other indexes such as the C Fund (which tracks an index of large U.S. company stocks) and the S Fund (which tracks an index of small U.S. company stocks). The C, S, and I Funds track different segments of the overall stock market without overlapping. This is important because the prices of stocks in each market segment don’t always move in the same direction or by the same amount at the same time. By investing in all segments of the stock market (as opposed to just one), you reduce your exposure to market risk.

The I Fund can also be useful in a portfolio that contains bonds. Again, it is because the prices of stocks and bonds don’t always move in the same direction or by the same amount at the same time. So a retirement portfolio that contains a bond fund like the F Fund, along with other stock funds, like the C and S Funds, will tend to be less volatile than one that contains stock funds alone.

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The TSP L Funds – “Lifecycle” Funds

The L Funds, or “Lifecycle” funds, use professionally determined investment mixes that are tailored to meet investment objectives based on various time horizons. The objective is to strike an optimal balance between the expected risk and return associated with each fund. The L Funds’ strategy is to invest in an appropriate mix of the G, F, C, S, and I Funds for a particular time horizon, or target retirement date. The investment mix of each L Fund becomes more conservative as its target date approaches.

L Funds Composition

Each of the L Funds available through the Thrift Savings Plan has a target asset allocation. In other words, each is made up of the combination of the five individual TSP funds (G, F, C, S, and I) that maintains an optimal balance of investment risks and rewards for a particular time horizon.

Each quarter, the TSP L Funds’ target asset allocations change, moving towards a less risky mix of investments as the target date approaches. So if you are invested in one of the L Funds, you will notice that as you get closer to your target date, your allocation to the riskier TSP funds will get smaller while your allocation to the more conservative G Fund gets larger.

The rate of change in the target asset allocation is small when the L Fund target dates are distant. The rate of change increases as the funds approach their target dates. New Lifecycle funds will be added for distant target dates as they are needed.

Risks*

When you invest in the Thrift Savings Plan L Funds:

You are subject to the investment risks associated with the G, F, C, S, and I funds.

Your account is not guaranteed against loss. The L Funds can have periods of gain and loss, just as the individual TSP funds do.

*For a complete list of potential risks and rewards please visit TSP.gov

Rewards

The L Funds simplify fund selection. You choose the fund that is closest to your target date (or, if your target date falls between the target dates that are offered, you can split your account between the two target date funds closest to your time horizon).
When you invest in the L Funds:

•  broad diversification

•  Automatic allocation changes

Using the Thrift Saving Plan L Funds in Your TSP Account

Use the L Funds if you are looking for a simple, low maintenance way of investing money in your TSP account. The L Funds make the investing process easy for you because you do not have to figure out how to diversify your account or how and when to rebalance.  The L Funds are designed so that 100% of your TSP account can be invested in the single L Fund that most closely matches your time horizon (or in the two L Funds closest to your time horizon). Any other use of the L Funds may result in a greater amount of risk in your portfolio than is necessary in order to achieve the same expected rate of return.

*Investments have risk.  Not all risks have been explained here and you should always consider your time horizon, age, income needs and other factors before making any investment decision.  TSP.gov has a more exhaustive list of facts and risks regarding the TSP Funds available to you and you should read the information available to you on TSP.gov as well as consulting with your chosen financial advisor before making any investment decisions.  PSRetirement.com is not liable for your investment decisions.