The Best TSP Fund to Invest in Shouldn't Surprise You

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Feb. 10 2021, Updated 12:27 p.m. ET

Even if you're not a federal employee or member of the uniformed services, you may want to get in on the TSP fund action. This retirement savings plan for civil service citizens has a handful of funds that track different indices in the market. 

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Some perform better than others, and retail investors want to know which ones are worth their dime.

What are the five different TSP funds?

There are five TSP funds that federal employees and members of uniformed services can invest in. They are:

  1. G Fund: Government Securities Investments
  2. F Fund: Fixed Income Index Investments
  3. C Fund: Common Stock Index Investments
  4. S Fund: Small Capitalization Stock Index Investments
  5. I Fund: International Stock Index Investments
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Each of these funds has one or two ticker symbols that represent the fund or track the same index. While the G Fund has no associated ticker symbol, the F Fund can be tracked by the iShares Core US Aggregate Bond ETF (AGG) or Vanguard Total Bond Market Index Fund Investor Shares (VBMFX).

You can track the C fund using the S&P 500 index (SPX) and Vanguard 500 Index Fund Investor Shares (VFINX). Follow the S fund using Vanguard Extended Market Index Fund Investor Shares (VEXMX) or Dow Jones U.S. Completion Total Stock Market Index (DWCPF). Finally, track the I fund using iShares MSCI EAFE ETF (EFA). 

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How are TSP funds doing?

The C fund has a pattern of producing the highest annual returns out of all TSP funds. In 2019, returns for the fund were 31.45 percent. Recently, the S&P 500 has been on a winning streak, which is good news for the C fund. The S&P 500 hit a record high on Tuesday, Feb. 9. 

Even after a slight dip in momentum following the peak, this is a clear fund to follow for the long term. An investment in SPX makes sense for most retail investors, regardless of whether they are a federal employee or member of U.S. uniformed services. Even with the market crash that occurred in 2020, the fund still netted an 18 percent 1-year return rate.

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Should you invest in other TSP funds?

The C fund may be the most consistently promising of all five TSP funds, but you may want to diversify. I recommend the S fund, which follows the Dow Jones Industrial Average. You can select the DWCPF index fund as mentioned above or opt for a ticker symbol such as DIA that follow the same trail. 

Should investors reallocate their TSP funds as time goes on?

TSP fund reallocation is a good idea as your retirement date nears. For federal and uniformed employees, this doesn't happen until age 72—but it's worth thinking about the closer you get to your target date.

TSP Lifecycle (L) funds do this automatically each quarter, so it's not something you need to worry about every few months. For those who are simply following TSP funds for an independent retirement investment plan, you will need to adjust risk on your own. 

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