What’s a thrift savings plan g fund?

A Thrift Savings Plan (TSP) is a retirement plan offered to federal service employees and members of the uniformed services. It mimics a 401(k) plan that is available to private sector employees; both plans allow employees to contribute part of their pay to their retirement account, and still collect a match from their employer. TSP participants have various fund options available to them.

The TSP G-fund is the Government Securities Investment Fund, one of the five funds available to TSP participants. It is invested in short-term US Treasury securities that are issued specifically for the TSP, and it is intended to protect investors from loss since it is backed by the full faith of the US government. The purpose of the G Fund is to preserve capital and keep investors safe so that no money is lost.

What is a Thrift Savings Plan G-Fund?

A TSP G-Fund is a fund that invests in non-marketable US Treasury securities that are guaranteed by the federal government. The purpose of a G-Fund is to produce a return that is higher than inflation and avoid exposure to market price fluctuations. It is the only fund in the TSP that assures participants a return on their principal.

Usually, all the money that is contributed to the TSP is placed into the G-fund by default, but you can choose to put the money in a different fund. Over the years, the G-Fund has provided the lowest rate of return of all the funds since investors are interested in the stability and preservation of money. The federal government guarantees the payment of the G-fund principal and interest, and investors are assured that they will always receive the required payments.

TSP G-fund returns

Since the 1990s, the G-fund has returned an annual rate of return of 4.2% till 2008. From the late 1980s till the early 1990s, the G-fund averaged about 8% rate of return. However, since 2010, the rate of return has steadily declined due to a combination of historically lower inflation and interest rates.

The G-fund yield advantage is that it is invested in short-term US Treasury Securities that are issued specifically to the TSP. Since the long-term interest rates are generally higher than the interest rate paid by short-term securities, the G-fund return should be higher than the average safe investments like the US Treasury bills or money market funds.

If you are nearing retirement, and you want to protect your retirement savings from loss, the G-fund is an ideal investment option. However, if you are interested in long-term growth and not to preserve your capital, and you have a long time before you reach retirement age, a G-fund may be an ideal option for you. You can consider other TSP funds like the C-fund or F-fund, which carry a higher risk but have the potential to earn a higher annual rate of return.

G-Fund vs. F-Fund

The F Fund is an abbreviation for the Fixed Income Index Investment Fund. The main difference between the F Fund and the G Fund is that the former is invested in fixed-income securities while the latter invests in short-term government securities. Also, the F-fund pays higher interest rates than the G-fund, but it does not guarantee the return of the investor’s principal.

G Fund vs. C Fund

The C Fund is the Common Stock Index Investment Fund, and it invests in large and mid-cap companies that make up the Standard and Poor's 500 index. Unlike the G Fund, the C-fund invests in large to medium-cap stocks, and this gives it a higher chance of returning higher returns than the G Fund's short-term government securities. Since the C-fund invests in stocks, it is subject to both market risk and inflation risk, while the G Fund is only subject to inflation risk.

How to manage TSP funds

When deciding how to invest your TSP funds, you have two options:

Lifecycle funds

The lifecycle fund, also known as the L-fund, invests in all five TSP funds, and it changes the direction of the investments from high-risk to low-risk low reward as you approach retirement. This means that your investments become more conservative as you near your retirement age.

L-fund allocates money to all TSP funds according to a pre-set formula that balances the risk and return. The fund adjusts automatically on a daily basis to keep the fund allocations at the desired ratios.

For example, if you are young and have many years till retirement, you can invest your TSP money in riskier investments since you still have sufficient time to make money if you incur a loss. However, if you have less than five years to retire, and you don't want to risk your retirement money in riskier investments, the L-fund will invest in low-risk low reward investments to keep your money safe.

Individual funds

You can also choose to invest in the five TSP funds individually so that you can decide how you want to balance the allocations. This option gives you complete control of your investments since you can decide which funds to include in your portfolio, and which ones to exclude. The five funds include the G-fund, the F-fund, the C-fund, the S-fund, and the I-fund.

The individual funds are only available to TSP participants, and none of them trade on any public exchange. Apart from the G-fund, the other funds are index funds that hold securities matching a broad market index. Each fund’s share is calculated daily and it indicates the investment returns less administrative and trading costs.

Mutual funds

Apart from the five funds, TSP now allows participants to invest in mutual funds. The initial investment in the mutual fund must be at least $10,000, and the funds must be sourced from one of the other funds. Typically, you cannot invest more than 25% of your total account in the mutual fund or make automatic contributions to the mutual fund.

Investors who use the mutual fund trading option of the TSP will incur additional costs in the process. You will pay $150 in annual fees and a fee of $28.75 per trade.