L Fund Returns Show Diversification’s Effect

Troubling as recent returns in the stock market have been, TSP officials said at a recent board meeting that the lifecycle funds have performed as they were designed to do, which is to manage the risk/reward exposure of participants according to their investment time frame. TSP officials have been outing L fund investment since those funds were created three years ago, partly in reaction to the relatively poor record that TSP investors had shown in maintaining investment profiles suitable to their ages. There are five L funds, an income fund for those already making withdrawals or who expect to do so soon, and target date withdrawal funds for 2010, 2020, 2030 and 2040, whose investment profiles become more aggressive the farther out the target date gets. For example, the large company stock C fund is down 32.84 percent this calendar year through October, the small company stock S fund is down 33.69 percent and the international stock I fund is down 42.67 percent. So far this year, in contrast, the L fund is down 5.43 percent, the 2010 fund 10.57 percent, the 2020 fund 21.83 percent, the 2030 fund 26.11 percent and the 2040 fund 29.82 percent.