Investing Your TSP Funds
Lifecycle (L) Fund basics
Individual TSP Funds
How involved do you want to be when it comes to investment choices for your TSP account? How close are you to retirement? And much risk do you like to take? These are important questions relating to the choices of how to invest your TSP funds.
Investment options for your TSP account range from short-term US Treasury securities to index funds comprised of domestic and international stocks – market diversification ranging from guaranteed not to lose money (G Fund) to riding the stock market and bond market waves (Individual Funds).
Choosing how to invest your TSP funds
As we mentioned in our TSP Overview article, unless you initiate a change, contributions for a new TSP participant are deposited into the Lifecycle (L) Fund most appropriate for your age. So what is a Lifecycle Fund? The L Funds, as they’re called, are a combination of all five TSP Individual Funds - G, F, C, S, and I – with money invested in each fund. The mix of how much money is invested in each fund is determined by the future date at which you plan to start withdrawing money. Think of this as your “time horizon.” Each day, the L funds are re-balanced to maintain appropriate target allocations. And each quarter, the investment mix of each fund is adjusted to more conservative investments as the fund’s target date shortens. You don’t need to worry about re-balancing your TSP to match your target date because it’s done for you!
Currently, there are L Funds with target dates in ten year intervals - 2020, 2030, 2040, and 2050. The plan is to change to five year intervals in 2020. But until then, an individual who will be retiring in the next few years would pick the L 2020 Fund while someone younger would be better suited for a fund with a longer time horizon, say L 2050.
Maybe you prefer to make your own decisions about your TSP investment mix. That can be achieved with the Individual Funds. You can choose any combination of the individual TSP funds that support your personal investment strategy…and risk tolerance! The five funds (G, F, C, S, and I) offer a broad range of investment options including government securities, bonds, and domestic and foreign stocks.
The TSP offers a very thorough guide to TSP fund information including the objective of each fund, fund facts, time horizon guidelines, and much more. Interested? Click here
Interfund transfers may sound like an intergalactic term but it’s really just a fancy term for redistributing the money in your TSP account. If you’d like to change how your money is distributed in your account that can be accomplished by requesting an interfund transfer, or IFT.
You can redistribute all or part of your existing TSP account among the different funds via an IFT. Doing so will only impact your existing money – it does not affect the investment of future deposits. Changing the direction of future contributions is achieved by amending your Contribution Allocation.
While you can make an IFT at any time, there are some limitations concerning what can be done in a calendar month. And you should know that you cannot move specific dollar amounts among the funds. Rather, you designate the new percentage that you want invested in each fund. For more details on IFTs, visit Interfund Transfers at the TSP site.
Determine your “investment comfort zone” by familiarizing yourself with TSP investment mix choices.
Learn more about the objective of each fund, risks, and consider all your TSP investment choices by viewing the Fund Comparison Matrix.
Watch the TSP video about Lifecycle (L) Funds.
The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular individual or circumstance. This article is not intended to be a client-specific analysis or recommendation. Do not use this article as the sole basis for any financial decisions. Consider all relevant information. Information should not be considered as tax or legal advice. You should consult with your tax advisor and/or attorney regarding your individual circumstances.
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