Financial planner Arthur Stein has many clients who are TSP investors, even several TSP millionaires. He offered advice in today's guest column.
Many Thrift Savings Plan investors consider the treasury securities G fund the safest investment option they have. During the Great Recession, tens of thousands moved from the stock indexed C, S and I funds into the safety of the G fund. Many never returned even though the market bounced back big time.
Financial planner Arthur Stein has many clients who are TSP investors, even several TSP millionaires. He offered advice in today’s guest column:
The G fund is often described as the safest of the TSP investment funds. Sometimes it is called the “super safe” G fund that “never has a bad day.” It invests in short-term, non-marketable U.S. Treasury securities guaranteed by the federal government.
As a result, TSP participants keep a higher portion of their TSP balances in the G fund than any other fund.
| Percentage Allocation to TSP Funds, June 30, 2018 |
| Investment | G fund | F fund | C fund | S fund | I fund | All L funds |
| Percent | 31% | 4% | 29% | 11% | 5% | 20% |
| Source: FRTIB Memorandum for Board Members, July 12, 2018. Data as of June 30, 2018. |
However, there are many types of investment risk. The only guarantees provided by the G fund are the lack of volatility — fluctuations in value — and the guarantee against loss of principal provided by the government. None of the other TSP funds offer those guarantees. More information on volatility and TSP Fund returns can be found on my website.
Historically, using the G fund as a long-term investment exposed investors to a higher risk of losing purchasing power. The rate of return for the G and F funds was not sufficient to increase purchasing power after subtracting out the negative effects of inflation and taxes on withdrawals.
The loss of purchasing power may not be noticed until withdrawals are needed to supplement the federal annuity and Social Security.
For example, at the beginning of 1993, retirees Bill, Jack and Mary each had $10,000 in the TSP. Each invested their $10,000 in one fund:
• Bill in G (short-term US Treasury securities),
• Jack in F (government and corporate bonds) and
• Mary in C (stocks of large US companies).
Each year they annually withdrew the same dollar amount, enough to buy 2,000 first class stamps, after paying taxes of 30 percent on the withdrawals.
Why First Class stamps? They are are unique in that the value (service provided) is the same year after year. Thirty years ago, one First Class stamp was sufficient to mail a letter anywhere in the U.S. and the same is true today. That makes First Class stamps a good proxy for inflation.
The graph below shows what happens to the TSP balances of Bill, Jack and Mary as a result of the annual withdrawals.
Stein will be the guest today on our Your Turn radio show, which airs 10 a.m. on www.federalnewsradio.com or on 1500 AM in the metro Washington area. If you have questions for them send them to me before showtime at mcausey@federalnewsradio.com
Nearly Useless Factoid
ByAmelia Brust
Maine has a unique natural phenomenon for New England: a 40-acre desert outside the town of Freeport. When theTuttle family began farming on the then-300-acre property in 1797, they neglected to rotate crops, conducted a massive clearing and allowed for overgrazing of livestock. The effects were severe soil erosion which exposed a hidden desert. The site is now a tourist attraction.
Source: Desert of Maine
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FAQs
Many Thrift Savings Plan investors consider the treasury securities G fund the safest investment option they have. During the Great Recession, tens of thousands moved from the stock indexed C, S and I funds into the safety of the G fund. Many never returned even though the market bounced back big time.
How safe is the G Fund in TSP? ›
The G Fund is invested in U.S. Treasury securities specially issued to the TSP. Payment of principal and interest is guaranteed by the U.S. government. Thus, there is no “credit risk.”
Is the G fund safe if US defaults on debt? ›
G Fund and the debt limit — As of January 23, 2023, the U.S. Treasury was unable to fully invest the Government Securities Investment (G) Fund due to the statutory ceiling on the federal debt. However, G Fund investors remain fully protected and G Fund earnings are fully guaranteed by the federal government.
Is the G Fund safe from recession? ›
A protected account is an investment account that can grow but cannot lose money. The G Fund (the G stands for Government Securities) is the only account in the TSP that is a protected account. It's a popular choice since your money is safe from market downturns.
What is the most aggressive TSP fund? ›
But to summarize that article, the 5 core funds can be broken down into conservative and aggressive funds. The conservative funds are the G and F funds and the aggressive funds are the C, S, and I funds.
Should I keep my money in the G fund? ›
The G-fund can be an incredible tool but is rarely the best option for your entire portfolio. Because everyone's situation is different, the best portfolio is invested in the mix of funds that matches your stage of life and financial situation, but almost always should include some stocks.
What are the safest TSP funds? ›
The G Fund is often considered the safest option among TSP funds. It invests in U.S. Treasury securities, providing a stable return with minimal risk.
What happens to the G Fund if the government defaults? ›
As a G Fund investor, you should know that if the Treasury takes this action, your investment is always protected, and your G Fund earnings are fully guaranteed by law under the Thrift Savings Plan Investment Act of 1987.
What happens to G fund when interest rates rise? ›
Also, when interest rates rise, the G Fund rate will rise right along with them — again, without the loss of principal that you would experience in the F Fund under the same circ*mstances. From this perspective, as far as bond funds go, the G Fund is still a better deal than just about anything else out there.
What is the safest place for money if the government defaults? ›
Savings accounts are a safe place to keep your money because all deposits made by consumers are guaranteed by the FDIC for bank accounts or the NCUA for credit union accounts. Certificates of deposit (CDs) issued by banks and credit unions also carry deposit insurance.
Thrift Savings Plan G Fund Monthly Returns is at 0.38%, compared to 0.33% last month and 0.35% last year. This is higher than the long term average of 0.37%.
What is the best TSP fund to invest in 2024? ›
The C Fund has grown 7.49% in 2024, marking the best performance among the TSP's core funds. The small- and mid-size businesses of the S Fund posted the strongest numbers in February, gaining 6.03%. That's good enough to bring the fund 3.48% into the black in 2024.
What is the alternative to the G fund? ›
The G Fund invests in special non-marketable U.S. Treasury government 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.
What is the return rate for the TSP G fund? ›
G Fund Returns
The G Fund has earned a compound annualized return of 4.2% since August 1990. Its year-to-date return is 1.24%, and its 1-year return is 4.35%. A $1,000 investment in 1990 would be worth $4,044 today.
How many TSP investors are millionaires? ›
As of year-end 2023 just under 117,000 TSP investors had $1 million or more in their accounts, an increase of some 40,000 during the year, another impact of the rebound in stock-based investment funds during the year making up for their losses of 2022.
Where should I put my TSP funds? ›
You might consider investing more in our stock funds (C, S, and I) than in the more conservative G and F Funds at this stage of your career. Stocks present more risk but offer the opportunity for potentially higher returns over time.
Is TSP G fund a good investment? ›
Long-Term Rates and Short-Term Security
The way the interest rate is calculated on the G Fund, along with investing in short-term maturities, gives TSP investors the advantage receiving longer-term rates. In plain English, you get a very good deal the rest of America's investors do not get. Short-term notes are safer.
How is the G fund in TSP doing? ›
Thrift Savings Plan G Fund Monthly Returns is at 0.38%, compared to 0.33% last month and 0.35% last year. This is higher than the long term average of 0.37%.
What is the best TSP allocation? ›
Your best bet is to stick with the C, S and I Funds. Here's the ratio we recommend for your portfolio: 80% in the C Fund, which is tied to the performance of the S&P 500. 10% in the S Fund, which includes stocks from small- to mid-sized companies that offer high risk and high return.
Does the TSP G fund beat inflation? ›
Better Than Inflation
Given that intermediate- and long-term bonds customarily carry real positive yields, it was highly unlikely that G Fund has trailed the rate of inflation since its 1987 launch. In fact, it has not. As the following chart shows, G Fund has easily outpaced the growth of the Consumer Price Index.
