Ask The Experts: Money Matters

By Mike Miles

F Fund vs. G Fund

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Q. Your Sept. 24 column in Federal Times made the suggestion to increase allocation in the G Fund at the expense of the other funds, including the F Fund. I have not normally been heavily invested in the F Fund in my 25 years. However, with the F Fund having the second-highest return of any fund since its inception (5.86 percent); that it has never had a negative yearly return; that there is a continually declining performance of the G Fund; and the low probability that interest rates will go up any time soon, I see the F Fund as a safe haven. With the G Fund barely keeping pace with inflation, the small risk to stay invested in the F Fund seems low risk. Am I missing a key risk factor?

A. Hmm. So, you think I’m exactly wrong? I guess it’s possible, but not very likely. ;-) The fact that the F Fund has performed well in recent years and that interest rates are near zero (falling interest rates fueled the F Fund’s rise) mean that the risk in the F Fund is relatively high. The G Fund offers a yield close to that earned by the F Fund but without the risk of loss. That’s my rationale. If I understand you correctly, yours is that what has gone up will keep going up?

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Comments

  1. herbert gary maxwell Says:
    October 3rd, 2012 at 7:59 pm

    In 2006 and 2007, I sold all of my stocks and got into bonds and CDs in my IRA. When my CDs and bonds matured or were called, I transferred all of my IRA money into the TSP G fund due to uncertainty of the stock markets. Early this year I moved all of my TSP money into the F fund. On October 1, I moved all of my TSP money into the F fund as I, too, feel the F fund is in danger with the 10yr T-bills perhaps going to 2.5 to 3.0 % in the spring of 2013. Now I will sleep soundly having no fear of losing money. TSP F and G funds offer the best way to maintain my money without the impossibly rigorous task of layering CDs; and layering CD’s now is almost a moot concept with their laughable returns.

  2. herbert gary maxwell Says:
    October 3rd, 2012 at 8:02 pm

    Ooops, I meant to say On October 1, I put all of my TSP F fund money back in to the G fund.

  3. John Says:
    October 4th, 2012 at 10:17 am

    I understand your rationale, that with funds reaching all-time highs, the funds will likely head down and reallocation to the G Fund is preferred. I was just trying to apply some basic numerics – the F Fund has never had a negative year, and even if it goes down, it would likely stay positive. As such, with it remaining positive, it would like outpace the G Fund. Since 1988 the F Fund has outperformed the G Fund but for 7 years, and most of those were when the G Fund was at or above 7% annual return. The G Fund hasn’t seen that since 1995. Overall, if I can manage an annual return of 5.8% over the next 10 years I will meet my target. With the F Funds past peformance, I thought that would give me my best “low risk” chance. Thanks.

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