TSP Fund Information

Summary: The C-Fund invests in the stocks of the 500 largest companies in the US. These companies are considered "blue chip" as they are generally considered the safest stocks in the US stock market. The F-Fund invests in US corporate and government bonds. The value of the F-Fund will go up when interest rates fall and will fall when interest rates rise. The G-Fund invests in US government bonds. The G-fund is the safest of the TSP funds and is the only TSP fund where the principal is guaranteed (you cannot lose money). The S-Fund invests in US companies that are smaller than the 500 companies of the C-Fund. The I-Fund invests in foreign companies in 21 countries in the regions of Europe, Australasia, and the Far East. Here my opinion of how the TSP funds rank, from the safest to the riskiest: G-Fund, F-Fund, C-Fund, S-Fund, I-Fund.

G-Fund

The G-Fund is the safest investment option in the TSP family of funds. An investment in the G-Fund is very similar to investing in Certificates of Deposits (CDs) at your local bank or having your money in a money market account. The most important thing to know about the G-Fund is it invests in short term government bonds. Therefore, your investment, both principal and interest in this fund is guaranteed by the U.S. Government. This is the only TSP fund with a guarantee that you will not lose money.

Investment:
The G-Fund invests in US Treasury securities (short-duration government issued bonds) with a maturity of 1-4 days, yet its returns equivalent to longer-maturity (4 years or more) Treasury securities. Normally in the bond world, the longer the maturity, the higher the interest rates. So, this arrangement of short duration with higher interest rates is a really great deal for us G-Fund investors because we get the higher returns associated with the longer maturity bonds, but because of the short maturity of the G-Fund securities the G-Fund has no interest-rate risk. Interest rate risk, a risk you incur when you invest in the F-Fund or any other bond fund for that matter, results from the fact that rise in interest rates causes the value of bonds to decrease. Think of the G-Fund as a savings account that earns 4% a year.

Click here for the TSP Fund information sheets then click on "Fund Sheets .

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F-Fund

The F-Fund is a bond fund. You may be asking, “What is a bond? When you buy a bond (or invest in the F-fund) you are lending your money to a government or a corporation for a fixed period of time. In return, they pay you interest every month for this fixed period of time. This period of time is called the maturity. At the end of this time (when the bond matures), they give you back the money you loaned them.

The most important thing to know about the F-Fund is that your investment in this fund is not guaranteed by the U.S. Government. All things being equal, the F-fund will generate a higher rate of return than the G--fund. However, with this extra return comes extra risk. This risk comes from two areas: interest rate risk, and risk of default of the bond issuer.

Let’s discuss interest rate risk. With bonds, when interest rates fall, the value of the bond increases. Conversely, when interest rates rise, the value of the bond decreases. A 1% rise in interest rates will result in an approximately 4% decline in fund value (The converse is also true, a 1% decline in interest rates will result in an approximately 4% rise in fund value.

The risk of default in the F-fund results from the F-fund buying bonds that are not guaranteed (Although in the matter, the F-fund is no different than most other bond mutual funds). An example of a bond that is not guaranteed is corporate bonds. One of the corporations that sold bonds to the F-fund could come upon hard times and might not be able to make the interest payment or might not be able to pay you back the principal of the bond when the bond matures. Either of these events will reduce the F-funds rate of return,

The best time to own the F-fund is when the interest rates are falling. The worst time to own the F-fund is when interest rates are rising.

Investment:
The F-Fund is an index fund that invests in a representative sampling of all the bonds in the world. This index fund is designed to track the Lehman Brothers US Aggregate (LBA) index. You can think of this as an average of every bond available in the United States. The money in the F-fund is invested in bonds from the US government (treasury securities), US state and local governments, US corporations (corporate bonds), mortgage backed securities, foreign governments, and foreign companies (foreign corporate bonds).

Click here for the TSP Fund information sheets then click on "Fund Sheets .

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C-Fund

The C-Fund is a stock mutual fund that invests in the stocks of the 500 biggest companies in the US Stock Market. You may be asking “what is a stock?”. When you buy a stock, you are buying a part of the company. For example, if you own 100 shares of a company and there are 10 million shares outstanding of that company, you own 100/10 millionth of that company. As the company grows and makes more money, the value of your investment will grow. A stock differs from a bond in that a bond is a loan to a company, with a stock you actually own a part of that company.

The companies in the S&P 500 are considered “blue chip”, high-quality companies because they are the biggest, probably have better management than smaller companies, and they have the resources needed to survive economic downturns. The value of the S&P 500 is about 75% of the value of the entire US stock market.

Investment: The C-fund is designed to perform the same as the S&P 500 index.

Click here for the TSP Fund information sheets then click on "Fund Sheets.

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S-Fund

The S-Fund is a stock mutual fund that invests in the stocks of the small companies of the US stock market. Although the S stands for small, many of the companies are actually pretty big. The S-Fund is designed to perform the same as an investment in the Wilshire 4500 index. If you consider all the companies of the US stock market as one pie, the S&P 500 (or C-fund) makes up about 75% of that pie, the Wilshire 4500 (or S-fund) makes up the remaining 25% of the companies left in the pie.

Investment:
An investment in the S-fund is typically considered riskier than an investment in the C-fund, because small companies are more vulnerable to competition, management problems, and economic downturns than largest companies. Although, there are many times in the cyclical economy of the United States when the stocks of small companies outperform those of big companies. As a result of these factors, while it can be easier to make more money in the S-Fund than in the C-Fund, it is also easier to lose more money in the S-Fund than the C-Fund.

Click here for the TSP Fund information sheets then click on "Fund Sheets .

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I-Fund

The I-Fund is a stock mutual fund that invests in the stocks of foreign, i.e. international) companies. The I-Fund is designed to perform the same as an investment in the MSCI EAFE index (Morgan Stanley Capital International Index of 21 countries in the areas of Europe, Australasia, and the Far East)

Investment:
An investment in the I-fund is generally considered much riskier that an investment in the C-fund or the S-Fund. There are several reasons for this risk. The first is that foreign economies are nowhere near as strong as the US economy, therefore any global economic downturn impact foreign companies much more that US companies. The second is that we do not have as much information on a foreign company’s internal health because, foreign companies are not required to publicly disclose as much information as US companies. Third the value (in $USD) of a foreign stock is dependent on the currency exchange rate of that country’s currency and the $USD. If the currency of that country falls relative to the $US, the stock in a company in that country will be less valuable in $USD. Therefore, when the value of the $USD goes down, the value of the I-Fund goes up, and vice versa.

Click here for the TSP Fund information sheets then click on "Fund Sheets .

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