This past week the House authored a bill that would change the default TSP allocation for new Fed Hires.
The Smart Savings Act proposes that new hires have contributions automatically invested in an ‘Age Appropriate Target Date Asset Allocation Fund as chosen by the TSP Executive Director’. Translation: The proposed default investment for new hires is the TSP L-Fund closest to their age.
TSP has been working on this for a while. The FRTIB has been scratching is collective heads in recent years as to why new hires have been piling their TSP investments in to the G Fund.
G Fund isn’t a bad mutual fund- In fact, it’s great. You get 10-year treasury yields in a liquid money-market fund. As the TSP director has said, “The G Fund has never had a bad day”. There’s no investment product available like it anywhere. In fact, it’s such a unique product that even if you quit federal employment you should keep some (or all) of your 401k-equivalent money in the TSP.
But is the G Fund the best choice for a 25-year old? Probably not. In fact, there are some highly-accredited retirement researchers who believe that if you are a Fed, your ‘Human Capital’ is much like a Bond, and therefore you should have your ‘Financial Capital’ tied up 100% (or even as much as 200%) in Stocks (For more about the discussion of Human Capital v s Financial Capital, I highly recommend a copy of Moshe Milevsky’s Are You a Stock or a Bond?).
I doubt TSP will introduce a product that is equivalent to a 2X Leveraged Bull S&P500 index ETF, but providing new hires the appropriate ‘L’ fund as their default investment is a step in the right direction to ensure the next generation of Feds (and Active Duty Military) has enough to retire.
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