The Federal Thrift Savings Plan (TSP) is a retirement savings plan for civilian and military employees of the United States Government. It is similar to a 401(k) in that it is a defined contribution plan that is managed by the employee, and it has the same contribution limits and very favorable fees. [1]

A Roth 401(k) option commenced on May 7, 2012. [2]

Contents

Funds

There are five core funds in the TSP and a family of Lifecycle funds that invest in the core funds. The core funds are:

• G Fund . a uniquely attractive bond fund that provides yields similar to an intermediate-term Treasury bond fund, but with the stability of principal of a money market fund, and no default risk.
• F Fund. a fixed income index commingled trust that tracks the Barclays US Aggregate Bond Index .
• C Fund. a large-to-mid cap stock index commingled trust that tracks the S&P 500 Stock Index .
• S Fund. a mid-to-small cap stock index commingled trust that tracks the Dow Jones U.S. Completion Total Stock Market Index, commonly known as an Extended market index fund .
• I Fund . an international stock index commingled trust that tracks the EAFE Stock Index. Note that the I Fund does not have any emerging market or small-cap holdings.

In addition to the core funds the TSP offers Lifecycle (L) funds. Each of the L funds are Target date retirement funds which maintain a mix of the above five core funds that adjusts over time in anticipation of the employee’s expected retirement date. [3]

G Fund

The G Fund offers the opportunity to earn rates of interest comparable to those of intermediate-term Government securities but without any risk of loss of principal and very little volatility of earnings. The G Fund is invested in short-term U.S. Treasury securities specially issued to the TSP. Payment of principal and interest is guaranteed by the U.S. Government. Thus, there is no credit risk. The interest rate resets monthly and is based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. Earnings consist entirely of interest income on the securities. Interest on G Fund securities has, over time, outpaced inflation and 90-day T-bills.

The G Fund is a uniquely good deal for investors, as it has a risk/return profile unrivaled by any other fixed income instrument:

• It is risk-free, like Treasury bonds;
• The yield is equal to the average of intermediate-term Treasury bonds;
• Like a money market, and unlike Treasuries, its price never goes down;
• And, because it repurchases its bonds daily, it provides some of the inflation protection of TIPS .

International funds

Investors should note the lack of emerging markets, small caps, and Canadian stocks in the I Fund. TSP investors seeking to round out the gaps in the I Fund can consider the following:

• To increase exposure to emerging markets, hold the I Fund and an emerging markets fund in their IRA, such as Vanguard Emerging Markets Fund.
• To increase exposure to international small caps, hold an international small cap index fund in an IRA.
• To increase exposure to Canadian stocks, which are 8.6% of Vanguard’s Total International Stock Market Index Fund [4]. hold a Canadian stock mutual fund or ETF such that tracks the MSCI Canada Index Fund such as EWC or Vanguard MSCI Canada Index ETF Fund (VCE)

Approximating Total International Stock Market contains more information for investors who would like to hold this combination of funds.

Or, they can place all of their international investments with Vanguard (e.g. in the Vanguard Total International Stock Market Fund ).

Replicating total stock market

Many TSP investors wish to use the C and S funds to replicate the Total Stock Market. You can hold the C (tracks the S&P 500) and S (tracks the DJW 4500) funds in a 4 to 1 ratio to approximate the total stock market. You can track that this ratio remains correct on the Vanguard benchmark statistics page. According to the TSP, The Dow Jones U.S. Completion TSM Index made up approximately 25% of the market value of the U.S. stock markets; the S&P 500 accounted for the other 75%. Thus, the combined S Fund and C Fund cover virtually the entire U.S. stock market. [5]