Investment Alternatives in Retirement To The TSP (2024)

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The TSP is one of the lowest-cost providers of index mutual funds for the military and federal civil service employees. But when you retire from the federal government and separate from service, you can roll over the TSP into an IRA at a different provider. Or you leave your retirement savings in the TSP and take distributions from that retirement account.

Suppose you choose to roll it over to a new provider watch that you are getting the same benefits of the TSP at the same cost of their index funds. In this blog post, I provide suggestions on investment alternatives by breaking down the five funds of the TSP and suggesting alternative index funds.

The C Fund represents the S&P 500 of the largest capital-weighted stocks in the U.S. The companies in the S&P are commonly known as national and international brands. Many of them have a long history and good track record of performance. Alternatives to the C Fund are iShares Core S&P 500 ETF (IVV) or Vanguard S&P 500 ETF (VOO). A mutual fund version of the C fund could be Fidelity 500 Index Fund (FXAIX). All of these funds have low costs equivalent to the C fund.

The S Fund is the Dow Jones U.S. Completion Total Stock Market Index, a broad market index comprising stocks of U.S. companies not included in the S&P 500 Index. Essentially, it represents all other stocks in the U.S. stock market, not in the C fund, which is the small and medium-sized focus. So if you own the C and S Funds, you essentially own the entire U.S. stock market! For the S fund, alternatives are the Vanguard Extended Market ETF (VXF) or the Fidelity Extended Market Index Fund (FSMAX) for a mutual fund.

The I Fund is essentially a non-U.S. developed market index fund. It covers markets in Europe, Australasia, and the Far East, also known as the MSCI EAFE. Note that it does not have much coverage in emerging markets. An alternative is the Vanguard FTSE Developed Markets ETF (VEA) or the iShares Core MSCI EAFE ETF IEFA. The Fidelity ® International Index Fund (FSPSX) is a mutual fund equivalent.

You have the iShares Core U.S. Aggregate Bond ETF (AGG) or the Vanguard Total Bond Market ETF (BND) for the TSP's fixed income or bonds sleeve. The mutual fund equivalent you could use is the Fidelity U.S. Bond Index Fund (FXNAX). There are no international bond index funds in the TSP, like the notable absence of the emerging markets, which can prevent greater diversification and lower portfolio risk.

Finally, there is no good match for the G or Guaranteed Fund. The G Fund invests in special non-marketable U.S. Treasury securities issued by the U.S. government for the TSP. So the suggestion here is to use Short-Term Treasury index funds. But these are not guaranteed, so an alternative is to get a CD with a comparable interest rate of 1-2 percent.

As you can see, there are alternatives to the TSP if you decide to roll over the money into a new provider after separating from the federal government. As mentioned, the TSP is an excellent option for federal workers. In addition, some notable improvements can be made to the TSP, such as providing more diversification into emerging markets and international bond index funds. Reach out to me below if you want to discuss options for rolling over your TSP or keeping it intact in retirement.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on to avoid federal tax penalties. Individuals are encouraged to seek advice from their tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation of a specific investment or the purchase or sale of securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.