The Government Securities Fund, known as the “G Fund”, is one of the select investment options found within the Thrift Savings Plan. It is the most secure investment available in the TSP, as it is guaranteed to never decline in value, while also (historically) outpacing inflation. The fund consists solely of special short-term U.S treasuries that are issued exclusively to the TSP. In the public market, long term treasuries provide a higher return than short term treasuries due to the longer time horizon of risk. The beauty of the G Fund is that its securities are short term in nature, but with long term interest rates. This makes for a uniquely secure investment, which also has an above average rate of return given its risk class. The G Fund is also unique in that, unlike all of the other TSP’s investment funds, there is no equivalent available to the public. The only access the public has to the G Fund, or anything like it, is through the “myRA” government sponsored retirement plan, which is now being phased out. The G fund offers a unique opportunity for Federal employees, and especially Federal retirees, to capitalize on.

The Yield Advantage

Source: http://www.tsp.gov

Since its inception, the G Fund has consistently outperformed the 90-day (short term) Treasury bill, its only publicly available comparison. It has also handily beaten inflation during this time. Meaning that retirement assets within the TSP have been insulated from the eroding effects of inflation, without any risk, through the use of the G Fund. During a few periods, its rate of return has even been 2-3% higher than that of the T-Bill. Keep in mind, this is with an equal amount of risk. Imagine if the government created a special savings account that paid 3% interest versus the virtually 0% interest currently paid by most banks, but you could only use this account as a Federal employee. Of course, most would opt to keep their savings in the account yielding 3%. It’s the same product, with a much more favorable result. This is the essential advantage that Federal employees have over the general public by having access to the G Fund.

Using the G-Fund

The G Fund is clearly a valuable asset to Federal employees, but as with every investment vehicle, its benefits are optimized under specific circumstances. On the risk-reward spectrum, the G Fund is a very low risk, low reward investment. That alone lets you know that it is best suited to an older individual or better yet, a retiree. The older we get, the less risk we should be taking with our portfolio due to the less time available to recover from losses. This idea governs how you should be invested in the TSP. As an employee nears their retirement date (5 years out), their TSP should be begin shifting more heavily into the G Fund. Bear in mind, this doesn’t mean that you go 100% G Fund for retirement so that you don’t risk losing any money. It’s still important to maintain some level of stocks and bonds for growth, just to a much lesser extent than it is in our younger years. Utilizing the “L” funds is immensely valuable in achieving the proper balance. These funds are setup to automatically optimize and adjust the appropriate allocation of the G Fund in your TSP over time, based on when you will begin withdrawing the funds for retirement. I am a big proponent of the L-funds due to their simplicity and effectiveness. For example, if you are currently retired or will be within a year, you may decide to put your entire TSP balance into the L-Income fund. The G Fund makes up 74% of the L-Income Fund, with the other 26% spread across stocks and bonds. Contrast this with the L-2050 Fund, an allocation tailored to younger individuals who plan to retire in the year 2050. The G Fund only makes up 12% of L-2050, with stocks and bonds allocated heavily towards the other 88%. As you can see, due to its stable and low risk nature, the G Fund becomes increasingly valuable (and appropriate) for your portfolio with age.

Figure 1: L-2050 Fund Allocation                              Figure 2: L-Income Fund Allocation

As a Federal employee, the G Fund is an excellent tool to have in constructing a healthy retirement portfolio. With its return that typically beats inflation, and also never loses money, the G Fund makes for a uniquely advantageous investment that all Federal employees can benefit from. However, the closer that an individual gets to retirement age, the more important the G Fund becomes within the TSP.