Federal TSP G fund and compounding

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jiclemens
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Joined: Sat Mar 03, 2007 1:52 pm
Location: North Augusta, SC

Federal TSP G fund and compounding

Post by jiclemens » Fri Jul 13, 2007 11:40 am

The G fund is often recommended here and I've noticed that the returns on this fund are reflected in an ever-increasing share price rather than posting as re-invested dividends earned. Can anyone explain if and how we benefit from compounding in this fund unless the share price is different for everyone invested?

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ddb
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Re: Federal TSP G fund and compounding

Post by ddb » Fri Jul 13, 2007 1:18 pm

jiclemens wrote:The G fund is often recommended here and I've noticed that the returns on this fund are reflected in an ever-increasing share price rather than posting as re-invested dividends earned. Can anyone explain if and how we benefit from compounding in this fund unless the share price is different for everyone invested?
No difference to the end investor since all assets in the fund are owned by investors through tax-deferred accounts. Take two investments: one has a flat share price and pays a 5% annual dividend which is reinvested, the other has a share price which increases by 5% per year and pays no dividends. These funds will have the same value at any point in the future (assuming distributions are not taxable, as is the case in the TSP).

- DDB

savermike
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Location: Chicagoland

daily compounding

Post by savermike » Fri Jul 13, 2007 6:03 pm

There is compounding every business day. If the NAV of the fund were quoted in tenths of cents then you'd see the NAV go up every day. You earn over weekends and holidays, too, but I don't know whether the earnings over non-business days are compounded or simple interest.

The best way to think of the G Fund is as a 30-day CD with daily interest compounding.

Mike

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