In October there was quite a change we started to see a culmination of the market being overbought over the past couple years. Rising interest rates, decreasing home sales, fears of an impending trade war, all played into it. This culminated in a rough December seeing the market drop over 20% before recovering in the final couple trading days of the year. 2019 has seen much of this rebound in the first 6 months of the year.
Thrift Savings Plan
The Thrift Savings Plan (TSP) consists of 5 Individual funds (Government Securities, Fixed Income, Common Stock, Small Cap Stock, International Stock) and 5 Lifecycle funds (L 2050, L 2040, L 2030, L 2020, L Income) which correspond to your retirement year and adjust their allocations accordingly.
Individual funds attempt to match returns based on their specific sector.
Fund Options
G Fund
Government securities fund invests itself in U.S. Treasuries and bonds issued to the TSP itself and earns returns based on interest income on the securities owned. The goal of the G fund is to avoid any loss of principal and be a very stable fund in return for reduced returns. In 2018 the G Fund earned 2.91% and has a 5-year return of 2.28% and 10-year return of 2.30%. You do run the risk of not out-pacing inflation if you are invested solely in the G fund and are leaving extensive returns on the table over a long period. It is a low-risk, low-return fund.
F Fund
Fixed Income funds is designed to match the Barclays U.S. Aggregate Bond Index which is an intermediate-term bond index. The average length to maturity of the bonds held in the F fund is 5.6 years and primarily held in government bonds, asset backed securities, and corporate bonds. The F fund has a 1-year return of 0.15%, 5-year return of 2.88%, and a 10-year return of 3.73%. It remains a low-risk, low-return fund but does have the ability to lose value in an increasing interest rate market and has greater returns over time than the G fund.
C Fund
The C fund mirrors the performance of the S & P 500 Index, which is comprised of the 500 largest companies in the U.S. These are large or mid-size companies and represent 67% of the total market value. 1-year returns of the C fund were -4.41%, 5-year returns were 8.53% and the 10-year return was 13.17%. It remains a medium-risk and medium-high return fund. The best thing you can do in the event of a market downturn is nothing, let it ride, the fund will return to its previous value. If you get out it is highly unlikely you will be able to properly time the market and run the risk of missing out on gains.
S Fund
The S fund looks to mirror the Dow Jones Total Stock Index incorporating 95% of the companies in the U.S. This includes nearly 3,700 companies compared to the 500 in the S&P 500 (what the C fund is designed to match). The S fund has a 1-year return of -9.26%, 5-year return of 5.49%, and a 10-year return of 13.67%. This has a similar risk profile to the C fund.
I Fund
The I fund desires to match the performance of the MSCI EAFE Index. This consists of Europe, Austalasia, and the Far East economies. With the international fund, not only does the market change effect fund returns but the value of the U.S. Dollar effect it as well. The I fund has a 1-year return of -13.43%, 5-year return of 0.88%, and a 10-year return of 6.48%. International funds have been much more volatile and had more down years over the past 10 years but provide effective diversification in a limited manner for your portfolio.
Lifecycle Funds
The Lifecycle funds available for 2019 are continually shifting funds for asset allocation based on expected retirement age. They vary their growth and risk based on your objectives. These asset allocations are accurate as of January 2019. The Lifecycle funds are a great choice for a hands off approach. You can also use them to hold your investments until you decide how you want to portion funds.
L Income
The income fund looks for low growth and low risk. It holds the G fund for nearly 75% of its assets and the remaining 25% in F/C/S/I funds.
L 2020
The Lifecycle 2020 fund is similar with slightly better growth prospects albeit with higher risk. It holds 64% in the G fund, 15% C fund, 10% I fund, 6% F fund, and 4% S.
L 2030
Lifecycle 2030 maintains moderate growth with moderate risk. 33% of it’s assets are in the G fund. 30% C fund, 21% I fund, 9% S fund, and 7% F fund.
L 2040
The Lifecycle 2040 maintains higher growth and higher risk. It’s allocation is 21% G fund, 36% C fund, 25% I fund, 11% S fund, and 7% F fund.
L 2050
Lifecycle 2050 is similar to the Lifecycle 2040 with 11% G fund, 40% C Fund, 29% I fund, 13% S fund, and 7% F fund.
The L Funds are designed to match risk and growth with the expected time horizon for retirement. Asset allocations shift greater towards G and F funds as your time horizon gets closer. Ultimately this moves to the L Income fund as that timeline is met. In 2020 the L2020 will cease to exist and will join the L Income fund. At that point a new L 2060 fund will be created.
Thanks for reading!