How Good is the TSP’s G Fund? Are You Using it Wisely?

What is the G Fund? Why Is it Valuable to TSP Investors?

The G Fund in the federal government’s Thrift Savings Plan (TSP) is a valuable part of the future retirement income for federal employees. For new federal employees who may not be familiar with it, the G Fund is the Government Securities Investment Fund. The objective of this fund is to preserve capital and generate returns above those of short-term U.S. Treasury securities.

The G Fund is unique. It pays investors a higher yield from longer-term US government bonds but without the risk of their day-to-day market price fluctuations. This is a valuable benefit for federal employees. The federal government does not make it available to the general public.

Even when the stock market drops, TSP investors have never lost money with the G Fund. That does not always make the G Fund the best investment, but it provides investment stability for TSP investors.

The G Fund is a safe investment with modest returns.

Returns by the G Fund From July 2005 to March 2024

Research by Morningstar provided an analysis of the G Fund, which found that the G Fund had cumulative returns of about 65%, and money market funds returned about 21% over a 20-year period.

With this type of return, should TSP investors put all of their money into the G Fund?

How the G Fund Reduces Investment Returns

As of March 31, 2024, TSP investors allocated 25.7% of their investments to the G Fund, 34.1% to the C Fund, 9.8% to the S Fund, and 3.7% to the I Fund. This means that 47.6% of investor assets in the core TSP Funds were in the stock funds and 25.7% in the G Fund.

The C Fund has averaged a return of 10.88% since its implementation in 1988.

Also, 24.5% of investor dollars were in Lifecycle Funds at the end of March. The percentage of money in each Lifecycle fund varies, but these funds are quite conservative. The L Income Fund, for example, has almost 70% of assets in the G Fund. This Fund is primarily for retired federal employees but will often provide a higher rate of return than the G Fund as it has some stock funds.

The L 2035 Fund has 27.32% invested in the G Fund. Federal employees also benefit from an annuity with FERS. Because of the annuity provided by Uncle Sam under FERS, federal employees may be able to take on more risk than others.

For those with an appetite for higher risk, the high allocation into the G Fund for those retiring about 10 years in the future may be too much, as stock funds often provide a higher rate of return.

The L 2045 Fund has about 16% in the G Fund. The L 2065 Fund has 0.40% in the G Fund. The L Funds with the shortest time until retirement have more in the G Fund. The longer the time frame, the less that will be invested in the G Fund.

Each person’s risk aversion level and savings accumulation may be different. A benefit of the TSP is that each investor can make a personal decision about the level of risk and desire for possible higher returns that is appropriate.

Number of TSP Millionaires Growing

This data may encourage TSP investors: there were 116,827 TSP millionaires as of December 31, 2023. At the end of 2022, there were 76,889—a 52% increase in one year.

The average years of contributions to the TSP among the $1 million and up account balances is 28.91 years. The average years of contributions among all TSP participants is 10.66 years.

This table displays how the number has changed over time.

How to Become a TSP Millionaire

The road to becoming a TSP millionaire is easy to explain but hard to do. Emotions and money go hand in hand. Investors see their TSP funds dwindle when the market is down. There is often a negative emotional reaction when this happens. That is normal.

But, when you see your stock funds dropping fast, how do you react? Often, people start selling their stock funds before they lose any more money. Instead, they put their money into the G Fund, and some will sit tight and ride out the stock drop. Some will start to buy the stock funds while they are down.

Putting your money into the G Fund is safe. It has never gone down in value. It also goes up much less than stock funds go up in most years (not all years).

Investing in a combination of the C, S, and I Funds (and some in the G Fund), taking advantage of the government matching funds every pay period, and not watching the value of your TSP Funds every day will likely result in your TSP account exceeding your expectations over the length of a federal career.

Historically, stock funds have a higher rate of return than the G Fund. Over time, money invested in the TSP stock funds pays off—but may generate strong emotions during bear markets. You can always leave your money in the G Fund and be very safe. If you can invest in stocks, and suffer through down markets, past experience has been that it will be easier to achieve a more secure retirement as your money often grows more in stocks.

The keys to making more from your TSP: Take full advantage of the government’s matching funds, stay invested, and keep rebalancing your portfolio with a mixture of TSP Funds.