The TSP recently released the results of its 3rd-party audit for Calendar Year 2013. While most of the findings are a snoozer, what continues to amaze me is that almost a majority of assets in the TSP are invested in the G Fund.
Don’t get me wrong- I love TSP, and I love the G Fund, but I think Federal Employee (and Uniformed Military) members putting almost half their investments in the G Fund is way too conservative. See the table below:
When you add it up (including the TSP Lifecycle funds) the G Fund takes the top spot, and adds up to more in assets than the next two funds (C- and S Funds) COMBINED. All-in, some 42% of TSP assets are invested in the G Fund:
Why do I think this is too conservative?
1) Look at the composition of the L 2050 fund– It has over 10% of its assets in G Fund. If you’re in your twenties right now, this is definitely way too conservative for your retirement asset mix, especially if you are using a Life Cycle fund from Schwab, Fidelity, or Vanguard. (Note, however, that the TSP’s G Fund is a unique creature in that it invests in longer-term Government securities, waves a magic wand, and turns them in to the equivalent of a money market fund for TSP participants). Still, there’s a danger of inflation whacking your long-term returns over the next 30 working years, even in an investment as superior as the G Fund.
2) Feds and retired veterans already have guaranteed money as a backstop- It’s called FERS Annuity (and/or your Military Retirement Check). If you’ve already earned a Government-Guaranteed, Fixed Annuity, with COLA/Inflation Rider, this is the Holy Grail of financial security. Almost nobody in the private sector has a defined benefit pension anymore, and even those chosen few do not have a pension 100% guaranteed by Uncle Sam. Knowing this, why would you do the equivalent of ‘stuffing money under the mattress’ in the G Fund?
3) For more reading, have a look at “Are you a Stock or Bond?” by Moshe Milevsky. He introduces the concept of ‘Human Capital’ and makes a convincing argument that Feds, Municipal Employees, and Tenured Professors should be Very aggressive with their financial investments.
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