The Thrift Savings Plan offers a limited, yet very ideal selection of investment options for federal employees. Essentially, there are 5 investments available: the G, C, S, I and F funds. The “L” funds, or target date funds, are simply various combinations of these 5 core funds that have been professionally balanced to maximize the risk to reward tradeoffs for individuals with different time horizons for investing.

One of the biggest questions when it comes to the TSP is: what funds should I be invested in? Of course, that depends. For a 30 year old, investing in a way that is more weighted towards the C,S and I funds would be a prudent decision. These funds all track stocks, which are more volatile, but have also historically performed better over longer periods of time. With potentially 30+ years ahead until needing to use the money, these options should provide the best bang for the buck for younger individuals. On the other end of the spectrum, an individual who is 5 years or less away from retiring and wanting to soon begin accessing their TSP should take the opposite approach. With such a short amount of time left until the TSP funds will need to be used, risk in the stock market needs to be minimized. This type of individual will want to reduce exposure to stocks (C,S,I) and instead begin shifting a larger majority of the account into the G and F funds, the more stable investments. The general rule of investing in anything is that with youth invest in risk, with age invest in security. Everything in between just needs to be adjusted accordingly.

Determining a specific asset allocation( I.e how much should be in the C, S or I funds) is a difficult task. Some people enjoy spending the time researching markets to determine which sector is a better buy right now, but that’s neither practical nor prudent for most people. Heck, even the professionals attempting that feat rarely succeed. Most of us should prefer to just set it and forget it; have the contributions to the TSP deducted from our pay every two weeks, and go about living life. For that reason, I strongly favor the use of L funds. The meager cost of .03% ($3 for each $10,000) and a professional allocation of investments with automatic rebalancing makes it an attractive investment. It’s as simple as selecting the fund with the date that closely matches the anticipated date of withdrawal, E.g L2040 for withdrawing funds in the year 2040. As time goes on, these funds will automatically adjust the appropriate mix of stocks and bonds on their own, relieving the individual of having to continuously figure out how much should be invested in what. The L funds can simply operate on autopilot, providing us the most sensible range of investments while freeing us up to go spend time doing things that we enjoy. For the average federal employee, this is the most sound course of action when it comes to investing in the TSP.