It was suggested I x-post from /r/ThriftSavingsPlan. The original is here.
This post is for those who ask about asset allocation (AA) in TSP. It is also for those who say they don't understand investing, finance, or the TSP. Which fund is the best, why, etc? No one can answer this question for you. Fortunately it is not rocket science. No calculus or higher math involved. There are people and paid services that will try to tell you the answer, maybe they are right - maybe not.
AA depends on many factors to include your age, goals, risk tolerance, wealth, salary, savings rate, spending, spouse, kids, US economics, world economics, the price of oil, and on. I know the best answer for me. You have to decide for you. You should not make changes to your account based on some random person on Reddit answering 50/50 C/S, or 100% C, or 100% G fund. It is probably right for their age, goals, and risk tolerance.
Rule #1: Invest as much as you can in the TSP. There really are no other rules. There are now many feds with a lot of money in TSP and you can easily be one of them. Most of them did NOT agonize over asset allocation. They made a plan and stuck with it over a long period.
Rule #2: if you are not investing a minimum of 5% of your salary in TSP, then don’t even ask about asset allocation. You are giving up an immediate 100% return on your money with the government matching.
There are currently only 5 investment choices in the TSP. That's it. Nowhere else in American life will you only be faced with 5 choices. Want to buy ranch salad dressing at the grocery? 30 choices. Want to buy a new TV? 200 choices. A new cell phone? Don't get me started. Want to sign up for federal health insurance (FEHB)? 100 choices. TSP has 5 choices - you can handle it. Read this post and do a little more research on each of the choices and you will literally know everything about the program.
C Fund: If you want the historically best performing fund that invests in 500 of the largest US companies - all of which have made money for a minimum of one year (positive earnings). Currently, your biggest holdings in 2021 will be Facebook, Apple, Amazon, Netflix, Google, Tesla, etc. You will own another 494 stocks, many of which you will recognize like Disney, AT&T, Walmart, Dupont, Boeing, etc. There will be some you don’t know.
S Fund: If you want a very good performing fund, but arguably not the best, that invests in the 3500 US companies that are not in the C fund. There are no requirements that the companies have ever made money, just that they are not in the S&P 500. Currently, your biggest holdings in 2021 will be Square, Zoom, Blackstone, Snap, Uber, Roku, etc. You will own another 3494 stocks which you mostly will not recognize. Sure you will know Zillow, AirBnb, and Lululemon. But you will probably not know Quotient Ltd, Prelude Therapeutics, Inc, BayCom Corp., etc.
C/S Fund combination: If you don't want to exclusively invest in the historically best performing fund with 500 of the largest stocks (C fund) or the very close performing fund with 3500 of all the other US companies (S fund), then maybe you want to invest in ALL US companies by buying both funds. It turns out by holding roughly 80% C and 20% S you will closely approximate something called the "Total Stock Market Index." If you are asking about 80/20, 85/15, or 50/50, I say who cares. By choosing any combination of C/S you mathematically guarantee that your returns will fall between both. You will also own Apple/Amazon as well as Zoom/Uber.
I Fund: If you exclusively invest in the I fund, then you don't want anything to do with US Stocks and believe that 843 international stocks from 21 different countries hold the key to your future. Even though the US stocks have proven themselves historically, you know better and choose to put your money elsewhere - and you could certainly be right. Or maybe you don't exclusively invest in the I fund, but rather "hedge" your bets with 10% thinking that the US economy will do worse than these combined 21 countries. As of 2021, your biggest holdings will be Nestle, ASML Holding, Roche Holding, Novartis, Toyota, Astra Zeneca, SAP.
F Fund: Instead of purchasing US or International stocks, you would rather loan money to over 9000 "investment-grade" entities including the US Government, US corporations, US states, US municipalities, or US counties - and get paid some interest to do it. In 2021 your biggest holdings will be the US Treasury, Federal National Mortgage Association, Uniform MBS, Government National Mortgage Association II, Federal Home Loan Mortgage Corporation, Bank of America, Morgan Stanley.
G Fund: A very good "cash" account. It pays better interest than most bank accounts. You choose this exclusively if you don’t want to make or lose money. Or you might put a portion of your portfolio in the G fund to protect it.
L Funds: Are simply combinations of the five C,S,I,F,G funds. If you want to invest in all 5 funds this is a very easy way to do it - though it is also very easy to do individually. The main reason to choose an L fund is because it will adjust the percentages over time. There is no reason to purchase multiple L funds. Likewise, you should not purchase an L fund along with the other funds. If you are doing that, you don't understand the purpose of the L fund. If you insist on an L fund, which one? Just look at how each allocates C/S/I/F/G and decide which one suits you. You do *not\* have to choose the one that corresponds to your retirement year.
Final Note: I titled this post, "Not Rocket Science For Now." Currently in 2021 there are only 5 funds that you need to understand. L funds are just combinations of those five. Easy. In summer 2022, TSP plans to introduce a "mutual fund window" providing access to 5000 different investments. Evaluating those options *will\* be rocket science. If you stumble across this post after that happens, just stick with understanding the original 5 funds. You should do very well.
Edit: In the x-post, I can not insert the image of historical returns. Please check out the OP.
This post is for those who ask about asset allocation (AA) in TSP. It is also for those who say they don't understand investing, finance, or the TSP. Which fund is the best, why, etc? No one can answer this question for you. Fortunately it is not rocket science. No calculus or higher math involved. There are people and paid services that will try to tell you the answer, maybe they are right - maybe not.
AA depends on many factors to include your age, goals, risk tolerance, wealth, salary, savings rate, spending, spouse, kids, US economics, world economics, the price of oil, and on. I know the best answer for me. You have to decide for you. You should not make changes to your account based on some random person on Reddit answering 50/50 C/S, or 100% C, or 100% G fund. It is probably right for their age, goals, and risk tolerance.
Rule #1: Invest as much as you can in the TSP. There really are no other rules. There are now many feds with a lot of money in TSP and you can easily be one of them. Most of them did NOT agonize over asset allocation. They made a plan and stuck with it over a long period.
Rule #2: if you are not investing a minimum of 5% of your salary in TSP, then don’t even ask about asset allocation. You are giving up an immediate 100% return on your money with the government matching.
There are currently only 5 investment choices in the TSP. That's it. Nowhere else in American life will you only be faced with 5 choices. Want to buy ranch salad dressing at the grocery? 30 choices. Want to buy a new TV? 200 choices. A new cell phone? Don't get me started. Want to sign up for federal health insurance (FEHB)? 100 choices. TSP has 5 choices - you can handle it. Read this post and do a little more research on each of the choices and you will literally know everything about the program.
C Fund: If you want the historically best performing fund that invests in 500 of the largest US companies - all of which have made money for a minimum of one year (positive earnings). Currently, your biggest holdings in 2021 will be Facebook, Apple, Amazon, Netflix, Google, Tesla, etc. You will own another 494 stocks, many of which you will recognize like Disney, AT&T, Walmart, Dupont, Boeing, etc. There will be some you don’t know.
S Fund: If you want a very good performing fund, but arguably not the best, that invests in the 3500 US companies that are not in the C fund. There are no requirements that the companies have ever made money, just that they are not in the S&P 500. Currently, your biggest holdings in 2021 will be Square, Zoom, Blackstone, Snap, Uber, Roku, etc. You will own another 3494 stocks which you mostly will not recognize. Sure you will know Zillow, AirBnb, and Lululemon. But you will probably not know Quotient Ltd, Prelude Therapeutics, Inc, BayCom Corp., etc.
C/S Fund combination: If you don't want to exclusively invest in the historically best performing fund with 500 of the largest stocks (C fund) or the very close performing fund with 3500 of all the other US companies (S fund), then maybe you want to invest in ALL US companies by buying both funds. It turns out by holding roughly 80% C and 20% S you will closely approximate something called the "Total Stock Market Index." If you are asking about 80/20, 85/15, or 50/50, I say who cares. By choosing any combination of C/S you mathematically guarantee that your returns will fall between both. You will also own Apple/Amazon as well as Zoom/Uber.
I Fund: If you exclusively invest in the I fund, then you don't want anything to do with US Stocks and believe that 843 international stocks from 21 different countries hold the key to your future. Even though the US stocks have proven themselves historically, you know better and choose to put your money elsewhere - and you could certainly be right. Or maybe you don't exclusively invest in the I fund, but rather "hedge" your bets with 10% thinking that the US economy will do worse than these combined 21 countries. As of 2021, your biggest holdings will be Nestle, ASML Holding, Roche Holding, Novartis, Toyota, Astra Zeneca, SAP.
F Fund: Instead of purchasing US or International stocks, you would rather loan money to over 9000 "investment-grade" entities including the US Government, US corporations, US states, US municipalities, or US counties - and get paid some interest to do it. In 2021 your biggest holdings will be the US Treasury, Federal National Mortgage Association, Uniform MBS, Government National Mortgage Association II, Federal Home Loan Mortgage Corporation, Bank of America, Morgan Stanley.
G Fund: A very good "cash" account. It pays better interest than most bank accounts. You choose this exclusively if you don’t want to make or lose money. Or you might put a portion of your portfolio in the G fund to protect it.
L Funds: Are simply combinations of the five C,S,I,F,G funds. If you want to invest in all 5 funds this is a very easy way to do it - though it is also very easy to do individually. The main reason to choose an L fund is because it will adjust the percentages over time. There is no reason to purchase multiple L funds. Likewise, you should not purchase an L fund along with the other funds. If you are doing that, you don't understand the purpose of the L fund. If you insist on an L fund, which one? Just look at how each allocates C/S/I/F/G and decide which one suits you. You do *not\* have to choose the one that corresponds to your retirement year.
Final Note: I titled this post, "Not Rocket Science For Now." Currently in 2021 there are only 5 funds that you need to understand. L funds are just combinations of those five. Easy. In summer 2022, TSP plans to introduce a "mutual fund window" providing access to 5000 different investments. Evaluating those options *will\* be rocket science. If you stumble across this post after that happens, just stick with understanding the original 5 funds. You should do very well.
Edit: In the x-post, I can not insert the image of historical returns. Please check out the OP.