The continued outperformance of the C Fund begs the question: Should you just go all in? Image: leungchopan/Shutterstock.com
By: FEDweek StaffAll TSP funds posted gains in July, lead by the small cap S Fund with a solid 6.23 percent jump (15.22 percent over the past year). Year to date the G Fund is up 2.61 percent, the F Fund is up 1.69, the C Fund is up 16.67, the F Fund is up 9.7 and the I Fund is up 8.87 percent.
The lifecycle L funds were up from 5.21 to 12.90 percent on the year. The L Funds year to date: Income, 5.21; 2025, 6.00; 2030, 8.80; 2035, 9.39; 2040, 9.99, 2045, 10.50; 2050, 11.02; 2055, 12.90; 2060, 12.90; 2065, 12.90 percent.
However, a weak jobs report on Friday (114,000 jobs added was well below estimates, with unemployment ticking up) and souring manufacturing and construction numbers added to a selloff that began Thursday and hit the Nasdaq hard on Friday, sending the tech index into correction territory. The global selloff continued on Monday as investors rotated out of riskier assets.
The TSP recently launched a new 2070 target date lifecycle L fund in July, and will be the default investment fund for new enrollees born after 2004 – most of them military. Next year the 2025 fund will be merged with the Income fund when their investment profiles match, and a 2075 fund will be launched.
While the L Funds are the default option for most enrollees, the target date of your particular L fund might come well before you begin to draw it down, so bear that in mind when you think allocations. That could be much later in retirement, arguing for a later target date fund with more equities exposure for longer and one reason why a fund hitting its target date in your early 60s might not be for everyone.
Longterm outperformance of the C Fund begs the question: Should you just go all in? Not necessarily, but if you are early in your career you could probably get away with doing that for a while to reap some higher returns. If you are nearing retirement and planning to begin drawing down your account in the near future, definitely do not over-invest in the C Fund. And one of the worst things you can do is sell the C Fund after a sell off. The C Fund is volatile so if you want the gains you have to be able to stomach the losses and hang on.
How you invest in the TSP and allocate among the funds is largely a question of when you will need the money. If you are far from retirement, invest aggressively. As you approach retirement (and in retirement) we need to be more conservative but not overly conservative.
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