The earlier you are in your career, the more aggressive you should be invested. When you're young and have many years/decades before retirement, you should be invested mainly in the C, S, & I funds. Image: jd8/Shutterstock.com
By: Dallen HawsFederal employees enjoy the benefit of having a retirement account called the TSP (Thrift Savings Plan). The TSP was created in 1987, starting with the G fund. Federal employees now enjoy more options like the F, C, S, I, and ten different L funds. Each fund has unique characteristics that give federal employees the ability to meet their retirement goals.
The C and G funds are very popular among federal employees. They are often described as polar opposites.
Let’s take a look at their returns over time:
https://www.tsp.gov/fund-performance/
The G fund is represented by the dark red line, the C fund is represented by the light green line. The G fund seems to be very consistent over time while the C fund is very volatile.
Now, let’s take a look at their average returns over time:
https://www.tsp.gov/fund-performance/
Time Required to Double
Let’s look at the math. We’re going to be using the average 10 year return for each fund and the rule of 72 to find the answer. The rule of 72 states that 72 divided by the annual return will give you the rough number of years for the investment to double.
To calculate the C fund, we’re going to divide 72 by 13.37 to get 5.39 years. To calculate the G fund, we’re going to divide 72 by 2.47 to get 29.15 years.
It takes roughly 5.4 years for the C fund to double while it takes the G fund roughly 29 years to double. Take this with a grain of salt because this is just using the returns of the last 10 years. These returns can certainly change over the next 10 years.
So, is the C Fund Better?
If the average annual return of the C fund is so big compared to the G fund, why do people even consider investing in the G fund? As of December, 2023, the G Fund had $294.9 billion in assets and the C fund had $339 billion in assets. Why do people bother investing in the G fund if it does worse over time?
There’s a downside to the C fund. If you went into retirement invested entirely in the C fund, there will most likely be moments when your return will be negative (as seen from the first graph). The C fund is similar to the stock market. And there have been many moments when the stock market has not done well. If you were to take withdrawals for retirement during these negative returns, you will lose money faster than if it had been invested in a more conservative fund.
As federal employees approach retirement it is important to have some investments that are conservative and provide a reliant source of income (if you plan to use it). The G fund is considered to be a very conservative fund in the TSP.
Is 100% in the G Fund in Retirement a Good Idea?
Having 100% of your G fund investments in retirement is rarely a good idea. Most people want a combination of secure money but also some money that grows over time. Your retirement will most likely last many years and even decades, you cannot rely solely on the G fund (or conservative funds) to provide you with the needed growth.
To give an example, some federal employees have a TSP allocation of 60/40. This means that 60% of their retirement money is in growth funds like the C, S, & I funds while 40% of their retirement money is in conservative funds like the G and F funds. This allocation is NOT the perfect answer for everyone. A good rule of thumb is to have 7-8 years worth of expenses invested in conservative funds.
The earlier you are in your career, the more aggressive you should be invested. When you’re young and have many years/decades before retirement, you should be invested mainly in the C, S, & I funds.
Conclusion
The TSP offers great investments that give great flexibility based on your career/retirement goals. The important thing for you to do is to make your goals and stick to them. If you have questions about your retirement and would like to know how you should invest, feel free to check out our website here or to schedule an appointment with us here.
Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.
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