The Truth About Thrift Savings Plan F and G Funds

Are you a TSP contributor? Are you sitting in the G Fund; or maybe the F Fund? Did you know you are losing money?

The G Fund is basically a cash account that pays some interest. Think Money Market account.  This characteristic of the G Fund appeals to many people. It’s easy to understand. Their principal is safe and the account value only goes up.

The F Fund is invested in bonds. People are comfortable with bonds and they feel safe also. Bonds protect your money right? But a significant increase in interest rates could cause the fund to lose some principal. 

Over the last 12 months, the G Fund in the TSP returned 1.44%. The F Fund returned -0.48%. While looking at the returns tells a story, it is only a small part of the story. With returns like these, by the time you factor in taxes and inflation, you are losing money.

What’s that mean in real money? Let’s say you had $10,000 in your TSP account. At 1.44% over 15 years, your money grows to about $12,390. On the other hand, if inflation goes back to the historic average of 3%, your $10,000 after 15 years would be worth about $6400 in purchasing power. The net outcome would be that your $10,000 would be worth $7950 in purchasing power after 15 years with inflation. Imagine yourself retired, $10,000 to spend your first year and having only $7950 to spend 15 years later. And we still haven’t factored in taxes you would owe.

The lesson? Being safe and conservative does not build wealth. And wealth is what you need to retire. You can build wealth but you have to take ownership over your future and your investments.

You have to establish an investment plan that builds wealth over your working lifetime or you lose. Keeping your money “safe” is not going to work unless you plan to have a very inexpensive retirement.

Think about it…you have to accumulate enough money over your working life to live on (create income) for the 20, 30 or 40 years you will be retired. You have one working life to get it right or you’ll be at the mercy of the government.

Source:  Multiple Sources 

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

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