The TSP’s Lifecycle Funds are designed to mitigate risk and can affect both the upside and downside of fund returns. In a year that is good for the TSP stock funds, the return of even the most aggressive L fund will lag the return(s) of the highest flying stock funds, while in a year where stocks have tanked, the opposite happens.

Let’s take a look at 2017, a year in which the three stock funds did quite well. Both the I Fund (25.42%) and the C Fund (21.82%) returned more than the most aggressive of the L funds (the L 2050, which returned (18.81%). In 2017 the S Fund returned 18.22%.

On the contrary, let’s look at 2008, perhaps the worst year in the history of the TSP for stock fund returns. In this year, the L 2040 fund (which was the most aggressive L Fund at that time) lost 31.53%. The L 2040’s loss was less than the loss of any of the individual stock funds in 2008. The C Fund lost 36.99%; the S Fund lost 38.32%; and the I Fund ended up 42.43% in the hole.

This happens because the most aggressive L fund still has both G Fund and F Fund investments within it. This quarter, the L 2050 Fund is 82.5% in stocks and 17.50% in fixed income.

Similarly, the most cautious L fund (L Income) still has the three stock funds in its makeup (20% stocks and 80% fixed income). A person who was invested in the L Income Fund would have earned 6.19% in 2017, while someone in the G Fund would have earned 2.33%.

Is an L Fund right for you? It depends on your tolerance for risk and where you are in your career but due to the way the Lifecycle funds automatically rebalance they are a good way to mitigate your exposure in the stock funds or other investments.