Each of the ten L Funds is a diversified mix of the five individual funds (G, F, C, S, and I). They were designed to let you invest your entire portfolio in a single L Fund and get the best expected return for the amount of expected risk that is appropriate for you.
Every quarter (three months), the target allocations of all the L Funds except L Income are automatically adjusted, gradually shifting them from higher risk and reward to lower risk and reward as they get closer to their target dates. When an L Fund reaches its target date, it goes out of existence and any money in it becomes part of the L Income Fund, which generally keeps the same target allocation. For example, in 2025, the L 2025 Fund will be rolled into the L Income Fund.
One of the important things about the L Funds is that they stick to their target allocations for a full quarter regardless of what the markets do. Every trading day, some of the individual funds in an L Fund will do better than others. At the end of the day, the individual funds that did better will make up a higher percentage of the L Fund than the ones that did less well. To maintain each L Fund’s target allocation, we rebalance it at the end of every trading day. We do this by buying and selling the individual funds that make up the L Fund so that the percentages go back to what they were at the beginning of the day. In effect we’re buying low and selling high at the end of every trading day.
| Funds | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Objective | For participants who were born before 1961, are currently withdrawing from their TSP accounts, or who plan to begin withdrawing this year. | For participants who were born between 1961 and 1964 or will withdraw their money beginning 2024 through 2027. | For participants who were born between 1965 and 1969 or will withdraw their money beginning 2028 through 2032. | For participants who were born between 1970 and 1974 or will withdraw their money beginning 2033 through 2037. | For participants who were born between 1975 and 1979 or will withdraw their money beginning 2038 through 2042. | For participants who were born between 1980 and 1984 or will withdraw their money beginning 2043 through 2047. | For participants who were born between 1985 and 1989 or will withdraw their money beginning 2048 through 2052. | For participants who were born between 1990 and 1994 or will withdraw their money beginning 2053 through 2057. | For participants who were born between 1995 and 1999 or will withdraw their money beginning 2058 through 2062. | For participants who were born after 1999 or will begin to withdraw their money in 2063 or later. |
| Return Year-to-date | - | - | - | - | - | - | - | - | - | - |
| 1 year | - | - | - | - | - | - | - | - | - | - |
| 3 year | - | - | - | - | - | - | - | - | - | - |
| 5 year | - | - | - | - | - | - | - | - | - | - |
| 10 year | - | - | - | - | - | - | - | - | - | - |
| Lifetime | - | - | - | - | - | - | - | - | - | - |
| Inception date | 8/1/2005 | 7/1/2020 | 8/1/2005 | 7/1/2020 | 8/1/2005 | 7/1/2020 | 1/31/2011 | 7/1/2020 | 7/1/2020 | 7/1/2020 |
| Risk | Low | Low-medium | Medium | Medium | Medium-high | Medium-high | High | High | High | High |
| Total expense ratio | 0.060% | 0.062% | 0.064% | 0.064% | 0.065% | 0.066% | 0.066% | 0.067% | 0.067% | 0.067% |
As an enthusiast and expert in the field of investment and retirement planning, particularly in the context of the Thrift Savings Plan (TSP), I bring a wealth of knowledge and experience to shed light on the intricacies of the L Funds offered within this framework.
The L Funds, short for Lifecycle Funds, represent a sophisticated approach to investment, providing participants with a diversified mix of five individual funds: G (Government Securities), F (Fixed Income), C (Common Stock), S (Small-Cap Stock), and I (International Stock). What sets these funds apart is their dynamic nature, designed to adapt to an investor's time horizon and risk tolerance.
The overarching philosophy behind the L Funds is to allow investors to allocate their entire portfolio into a single L Fund, which then optimizes the balance between risk and reward. The key innovation lies in the automatic quarterly adjustments of target allocations, a process excluding the L Income Fund, which serves participants withdrawing from their TSP accounts.
As the L Funds approach their respective target dates, they undergo a gradual shift from higher-risk, higher-reward investments to lower-risk, more conservative options. Notably, when an L Fund reaches its target date, it ceases to exist, and the invested capital becomes part of the L Income Fund, maintaining a consistent target allocation.
An intriguing aspect of the L Funds is their commitment to sticking to target allocations for a full quarter, irrespective of market fluctuations. This is achieved through daily rebalancing, a strategic practice of buying and selling individual funds within an L Fund to restore the desired percentages, effectively implementing a "buy low, sell high" strategy.
Let's delve into the specifics of each L Fund and their corresponding objectives:
-
L Income:
- Objective: For participants born before 1961 or currently withdrawing from their TSP accounts.
- Risk: Low
- Total Expense Ratio: 0.060%
- Inception Date: 8/1/2005
-
L 2025:
- Objective: Participants born between 1961 and 1964 or planning withdrawals from 2024 through 2027.
- Risk: Low-medium
- Total Expense Ratio: 0.062%
- Inception Date: 7/1/2020
-
L 2030:
- Objective: Participants born between 1965 and 1969 or planning withdrawals from 2028 through 2032.
- Risk: Medium
- Total Expense Ratio: 0.064%
- Inception Date: 8/1/2005
-
L 2035:
- Objective: Participants born between 1970 and 1974 or planning withdrawals from 2033 through 2037.
- Risk: Medium
- Total Expense Ratio: 0.064%
- Inception Date: 7/1/2020
-
L 2040:
- Objective: Participants born between 1975 and 1979 or planning withdrawals from 2038 through 2042.
- Risk: Medium-high
- Total Expense Ratio: 0.065%
- Inception Date: 8/1/2005
-
L 2045:
- Objective: Participants born between 1980 and 1984 or planning withdrawals from 2043 through 2047.
- Risk: Medium-high
- Total Expense Ratio: 0.066%
- Inception Date: 7/1/2020
-
L 2050:
- Objective: Participants born between 1985 and 1989 or planning withdrawals from 2048 through 2052.
- Risk: High
- Total Expense Ratio: 0.066%
- Inception Date: 1/31/2011
-
L 2055:
- Objective: Participants born between 1990 and 1994 or planning withdrawals from 2053 through 2057.
- Risk: High
- Total Expense Ratio: 0.067%
- Inception Date: 7/1/2020
-
L 2060:
- Objective: Participants born between 1995 and 1999 or planning withdrawals from 2058 through 2062.
- Risk: High
- Total Expense Ratio: 0.067%
- Inception Date: 7/1/2020
-
L 2065:
- Objective: Participants born after 1999 or planning withdrawals from 2063 onward.
- Risk: High
- Total Expense Ratio: 0.067%
- Inception Date: 7/1/2020
The risk levels vary across the L Funds, from low to high, allowing participants to align their investment strategy with their individual risk tolerance and retirement timeline. Additionally, the provided return information is categorized by year-to-date, 1-year, 3-year, 5-year, 10-year, and lifetime perspectives.
In conclusion, the L Funds exemplify a strategic and well-structured approach to retirement investing within the TSP, providing participants with a comprehensive range of options to suit their unique financial goals and circ*mstances. The evidence of their success lies in the meticulous design of the funds, the systematic rebalancing strategy, and the commitment to optimizing risk-adjusted returns for investors.
