2-Fund portfolio inside a TSP

[dave.m]

I’d like to only invest in the US funds (not the I Fund) inside my TSP. What’s the best way for me to accomplish this?

Am I correct that about 80% of equities should be in the C Fund and the other 20% be in the S fund?

Should I be using only one of the G or F funds or a mix? And if it’s a mix, at what percentage should that be?

[jpelder]

The G fund is a better deal than nearly any other fixed-income option around. You get intermediate-term bond rates with no principal risk. I wouldn't bother with the F Fund.

[NiceUnparticularMan]

My actual advice would be to just use one of the L Funds.

Assuming you stick to your stated preferences, the ratio of C to S to form a "total US market" equivalent varies a bit over time, but something like 80/20 is typically going to be close.

Far from retirement, you could make an argument for holding roughly equal measures of F and G. I think it is a weak argument but it exists. The closer you get to retirement, the more the G Fund is likely going to dominate. Again, you can look at the L Funds to see how they handle this, although it is a bit dicey using the same approach but taking out the I Fund.

[dave.m]

My actual advice would be to just use one of the L Funds.

Is this because of the simplicity of using an L fund?
Or do you think the I Fund offers additional value the 2 fund portfolio doesn’t?

[trueblueky]

I’d like to only invest in the US funds (not the I Fund) inside my TSP. What’s the best way for me to accomplish this?

Am I correct that about 80% of equities should be in the C Fund and the other 20% be in the S fund?

Should I be using only one of the G or F funds or a mix? And if it’s a mix, at what percentage should that be?

Correct. 80/20 or 75/25 is appropriate mix of C/S.

[dave.m]

The G fund is a better deal than nearly any other fixed-income option around. You get intermediate-term bond rates with no principal risk. I wouldn't bother with the F Fund.

I read elsewhere that the G fund is so great, that it offers the ability to increase the portfolio equity percentage slightly while not having any more risk than a portfolio using an intermediate bond fund. Is this valid? If so, how much more of an equity percentage? 5% ?

[margaritaville]

Am I correct that about 80% of equities should be in the C Fund and the other 20% be in the S fund?

Should I be using only one of the G or F funds or a mix? And if it’s a mix, at what percentage should that be?

If you're trying to mimic a total US market fund, then 80/20 C/S is a good analogue.

If you're considering 100% equities, I assume you have a long investing career ahead of you or you have a significant amount of safe assets in other accounts. If not, maybe a 60/40 portfolio might be more appropriate. I've been 30% C, 15% S, 15% I, and 40% G since my mid 40s (last 13 years) and it has served me well. The diversification of the I fund has helped recently and the G fund allocation helps me not worry about the markets. I may not have done as well as someone that was 100% C during that time, but it has been good enough for me.

[NiceUnparticularMan]

My actual advice would be to just use one of the L Funds.

Is this because of the simplicity of using an L fund?
Or do you think the I Fund offers additional value the 2 fund portfolio doesn’t?

Some of both.

The L Funds, like most reputable Target-type funds, were carefully designed by financial professionals who have studied, and continually restudied, best practices for asset allocation for retirement savers. They use sophisticated lifetime human capital/consumption models, combine them with sophisticated forward-looking asset models, and perform a large range of simulations and robustness tests to come up with their glide paths. With the TSP in particular, the G Fund is an unusual asset that could not normally be included in a marketable Target fund, so they have specifically studied the G Fund in the context of these issues.

From an investor perspective, then, you can just use an appropriate L Fund and know you are at least getting a very well-researched and robust best-practices approach, including careful consideration of the G Fund. And it is all automatic--you put the money in while working, take money out when retired and spending, and don't have to do anything else.

Or you can try to beat the L Funds with your own custom allocation. And in fact there are certain obvious situations in which some customization would make sense. Like, the L Funds implicitly assume you are mostly interested in retirement income, not so much leaving a big inheritance. If you instead want to leave a big inheritance too, you could reasonably split it up between an L Fund for you and just a mix of C/S/I for your heirs.

But to the extent you are planning for your own retirement income, I am personally dubious you (or any of us) can really predictably do better than the L Funds.

OK, so the L Funds, like most reputable Target-type funds, include a significant allocation to the I Fund/ex-US stocks. Long story short, they do that because their forward-looking asset models and simulations/robustness tests have determined that is a good idea. And again, pretty much every reputable company doing that sort of analysis has come to some version of that conclusion.

You can bet against them anyway, and of course you may be right. You may also be wrong. And basically, they have tested all that in a scientific way, and come to the conclusion the bet you would be taking is not a favorable one.

[ruralavalon]

I’d like to only invest in the US funds (not the I Fund) inside my TSP. What’s the best way for me to accomplish this?

Am I correct that about 80% of equities should be in the C Fund and the other 20% be in the S fund?

Should I be using only one of the G or F funds or a mix? And if it’s a mix, at what percentage should that be?

For a two-fund portfolio in a Thrift Savings Plan (TSP) account I suggest:
1) C Fund (S&P 500 index fund); and
2) G Fund (like intermediate-term Treasury bonds)

[dave.m]

My actual advice would be to just use one of the L Funds.

Is this because of the simplicity of using an L fund?
Or do you think the I Fund offers additional value the 2 fund portfolio doesn’t?

Some of both.

The L Funds, like most reputable Target-type funds, were carefully designed by financial professionals who have studied, and continually restudied, best practices for asset allocation for retirement savers. They use sophisticated lifetime human capital/consumption models, combine them with sophisticated forward-looking asset models, and perform a large range of simulations and robustness tests to come up with their glide paths. With the TSP in particular, the G Fund is an unusual asset that could not normally be included in a marketable Target fund, so they have specifically studied the G Fund in the context of these issues.

From an investor perspective, then, you can just use an appropriate L Fund and know you are at least getting a very well-researched and robust best-practices approach, including careful consideration of the G Fund. And it is all automatic--you put the money in while working, take money out when retired and spending, and don't have to do anything else.

Or you can try to beat the L Funds with your own custom allocation. And in fact there are certain obvious situations in which some customization would make sense. Like, the L Funds implicitly assume you are mostly interested in retirement income, not so much leaving a big inheritance. If you instead want to leave a big inheritance too, you could reasonably split it up between an L Fund for you and just a mix of C/S/I for your heirs.

But to the extent you are planning for your own retirement income, I am personally dubious you (or any of us) can really predictably do better than the L Funds.

OK, so the L Funds, like most reputable Target-type funds, include a significant allocation to the I Fund/ex-US stocks. Long story short, they do that because their forward-looking asset models and simulations/robustness tests have determined that is a good idea. And again, pretty much every reputable company doing that sort of analysis has come to some version of that conclusion.

You can bet against them anyway, and of course you may be right. You may also be wrong. And basically, they have tested all that in a scientific way, and come to the conclusion the bet you would be taking is not a favorable one.

Thank you for such a thorough and thoughtful reply

[wetgear]

Is the TSP your only investments? If not it's usually better to look at the portfolio as a whole. Maybe you only put 1 fund in the TSP and 1 fund elsewhere.

[jpelder]

The G fund is a better deal than nearly any other fixed-income option around. You get intermediate-term bond rates with no principal risk. I wouldn't bother with the F Fund.

I read elsewhere that the G fund is so great, that it offers the ability to increase the portfolio equity percentage slightly while not having any more risk than a portfolio using an intermediate bond fund. Is this valid? If so, how much more of an equity percentage? 5% ?

This passes the smell test for me, but I don't know what the magnitude of the reduced risk is (nor do I know a way to calculate it mathematically).

I do know that the past year has been awful for intermediate-term bonds. VBTLX (Vanguard Total Bond Market) returned -13.16% in 2022. The G Fund returned 0.13%.

[Ricola]

Just for reference, the L fund is 25/75 Stk/Bonds.

[dave.m]

Just for reference, the L fund is 25/75 Stk/Bonds.

Which L fund?

[dave.m]

The G fund is a better deal than nearly any other fixed-income option around. You get intermediate-term bond rates with no principal risk. I wouldn't bother with the F Fund.

I read elsewhere that the G fund is so great, that it offers the ability to increase the portfolio equity percentage slightly while not having any more risk than a portfolio using an intermediate bond fund. Is this valid? If so, how much more of an equity percentage? 5% ?

This passes the smell test for me, but I don't know what the magnitude of the reduced risk is (nor do I know a way to calculate it mathematically).

I appreciate you validating that comment I read elsewhere.

[dave.m]

I’d like to only invest in the US funds (not the I Fund) inside my TSP. What’s the best way for me to accomplish this?

Am I correct that about 80% of equities should be in the C Fund and the other 20% be in the S fund?

Should I be using only one of the G or F funds or a mix? And if it’s a mix, at what percentage should that be?

For a two-fund portfolio in a Thrift Savings Plan (TSP) account I suggest:
1) C Fund (S&P 500 index fund); and
2) G Fund (like intermediate-term Treasury bonds)

Thank you

[Joe Public]

I do know that the past year has been awful for intermediate-term bonds. VBTLX (Vanguard Total Bond Market) returned -13.16% in 2022. The G Fund returned 0.13%.

The TSP website is showing that the F Fund returned -12.83% in 2022, and the G Fund returned +2.98% over that same period.

https://www.tsp.gov/fund-performance/

[dave.m]

I do know that the past year has been awful for intermediate-term bonds. VBTLX (Vanguard Total Bond Market) returned -13.16% in 2022. The G Fund returned 0.13%.

The TSP website is showing that the F Fund returned -12.83% in 2022, and the G Fund returned +2.98% over that same period.

https://www.tsp.gov/fund-performance/

[makeitcount]

The G fund is a better deal than nearly any other fixed-income option around. You get intermediate-term bond rates with no principal risk. I wouldn't bother with the F Fund.

I read elsewhere that the G fund is so great, that it offers the ability to increase the portfolio equity percentage slightly while not having any more risk than a portfolio using an intermediate bond fund. Is this valid? If so, how much more of an equity percentage? 5% ?

This passes the smell test for me, but I don't know what the magnitude of the reduced risk is (nor do I know a way to calculate it mathematically).

I appreciate you validating that comment I read elsewhere.

For what it's worth, I also use the g fund for all of my fixed income holdings and bump my equity allocation by +5%. Decision based more on gut feel instead of elaborate analysis but it works for me.

[jpelder]

I do know that the past year has been awful for intermediate-term bonds. VBTLX (Vanguard Total Bond Market) returned -13.16% in 2022. The G Fund returned 0.13%.

The TSP website is showing that the F Fund returned -12.83% in 2022, and the G Fund returned +2.98% over that same period.

https://www.tsp.gov/fund-performance/

Oops! I must have looked at YTD 2023, not total for 2022

[sketchy9]

I’d like to only invest in the US funds (not the I Fund) inside my TSP. What’s the best way for me to accomplish this?

Am I correct that about 80% of equities should be in the C Fund and the other 20% be in the S fund?

Should I be using only one of the G or F funds or a mix? And if it’s a mix, at what percentage should that be?

If you want the actual percentages, you can figure it out.
from TSP.gov:
"By law, the C Fund must be invested in a portfolio designed to replicate the performance of an index of stocks representing the U.S. stock markets. The Federal Retirement Thrift Investment Board has chosen as its benchmark the Standard & Poor’s 500 Stock Index, which tracks the performance of major U.S. companies and industries."

"The FRTIB’s Executive Director currently allocates the selection, purchase, investment, and management of assets contained in the S Fund to BlackRock Institutional Trust Company, N.A., and State Street Global Advisors Trust Company. The Fund is invested in the Dow Jones U.S. Completion TSM Index, which contains a large number of stocks, including illiquid stocks with low trading volume and stocks with prices lower than $1.00 per share."

The Dow Jones U.S. Completion Total Stock Market Index has a mean market cap of $1,770.32M with 3767 constituents, for a total market cap of $6,668,795.40M. Also, "The Dow Jones U.S. Completion Total Stock Market Index is a subindex of the Dow Jones U.S. Total Stock Market Index that excludes components of the S&P 500®." https://www.spglobal.com/spdji/en/indic ... ndex/#data

The S&P 500 has a mean market cap of $71,335.05M with 503 constituents, for a total market cap of $35,883,542.15M. https://www.spglobal.com/spdji/en/indic ... -500/#data

Total market cap is $42,552,337.59M. Adding it all up and doing the math, The S&P 500 (aka C Fund) is 84.3% of the total market cap, and the Dow Jones Completion Index (aka S fund) is 15.7% of total market cap. You can weight your TSP accordingly.