Hobo904 wrote: ↑Fri Dec 15, 2023 10:47 amHello all,
See AlsoHow To Invest Your TSP (Thrift Savings Plan)Thrift Savings Plan ContributionsChoosing the Right TSP Fund for Your Retirement: Conquering the Maze:How do rates affect bond performance?First time poster here! Was curious as to what TSP Subject Matter Experts thought about holding exclusively G Fund, exclusively F Fund, or a 50/50 mix in an overall 90/10 equity to bond allocation with an expected 30 years plus to retirement. I understand the TSP has Lifecycle funds; however, I am trying intentionally to allocate the bond portion of me and my wife's portfolio into my TSP. Also, I expect to have two pensions (military and FERS) by age 65 and plan to shift to 80/20 in 10ish years. Thanks!
As you surmise, the G Fund has no risk of principal loss, making it similar to a money market fund, but its rates are set by intermediate- and long-term rates prevailing in the Treasury market. That means it neither loses money when rates rise, nor does it make money when rates fall. In an inverted yield curve, it does worse than a money market fund; in a normal yield curve environment, it does better.
Further, because the G Fund's rates can move with the prevailing rates in the intermediate- and long-term Treasury markets, it cannot guarantee any particular return for more than a month, so it can be said to have zero duration. Again, this is positive in that it has no volatility; it is negative in that it cannot be used to match liabilities directly.
If you are primarily adding bonds to reduce the volatility of an equity-heavy portfolio and perhaps provide liquidity, I would suggest the G Fund is better because it has no downward volatility. It is also possible to get a TSP loan for up to $50,000, which can be indirectly taken only from the G Fund. If you plan to stay at the government, the traditional criticisms of a 401(k) loan are inapplicable.
If you are add a large allocation to bonds to reduce market risk while still retaining duration exposure--or if you just want to bet on interest rates going down--then the F Fund is more appropriate.
Note, if you are concerned about which would return more over time, it is likely that any additional premium earned by the F Fund comes from its corporate bond exposure, which is heavily correlated to--but not exactly the same as--market equity returns. In other words, if you are tempted by slightly higher returns in 90/10 with F instead of 90/10 with G, you could probably get to the same place with 91/9 C/G.
In your circ*mstances, I would recommend 90/10 C/G and be done.
