Understanding the F Fund in TSP Investments

Apr 11, 2025

TSP Investments Series: Understanding the F Fund

Overview

In the ongoing series about TSP (Thrift Savings Plan) investments, this session focused on the F Fund, one of the more misunderstood funds. Key points include:

  • Explanation of what an index is and its relevance to TSP funds.
  • Insight into replicating TSP funds in the private sector.

Introduction to the F Fund

  • The F Fund is the second oldest TSP fund, initiated on January 29, 1988.
  • It has averaged a return of approximately 5.27% since inception.

Comparison with the G Fund

  • The F Fund is riskier than the G Fund but has higher average returns.
  • Unlike the G Fund, the F Fund can lose money in certain years due to its volatility.
    • Example: Lost 12% in 2022.
  • The G Fund is backed by U.S. Government treasuries, while the F Fund includes a mix of bonds from the private sector.

Composition and Behavior of the F Fund

  • Comprised of various high-grade bonds, such as federal, state, local, and municipal bonds.
  • Contains over 13,000 bonds, spreading risk across a wide range of investments.
  • Interest rate sensitivity: As interest rates rise, bond prices typically fall and vice versa.

Understanding Indexes

  • An index is a collection of stocks or investments representing a market or sector, used to track overall performance.
  • Example: S&P 500 Index includes 500 leading U.S. companies like Amazon, Apple, and Tesla.

The F Fund Index

  • The F Fund is based on the Bloomberg U.S. Aggregate Bond Index, also known as the "AG."
  • The index includes a wide array of bonds, aiming to replicate the aggregate bond market's returns.

Investment Strategy and Audience

  • Ideal for conservative investors seeking slightly higher returns than the G Fund.
  • Appeals to those interested in preserving wealth with moderate risk exposure.
  • Better long-term returns are expected compared to the G Fund, especially when inflation decreases.

Replicating the F Fund in the Private Sector

  • Investors can seek mutual funds with benchmarks like the Bloomberg U.S. Aggregate Bond Index.
  • Examples include:
    • Vanguard's VBTSX Total Bond Market Index
    • Fidelity's FXNAX
    • iShares AG (exchange-traded fund)

Conclusion and Advice

  • Understanding the nuances of each TSP fund helps investors make informed decisions.
  • Younger investors are encouraged to invest more in stock funds over bond funds for higher growth potential.
  • The series aims to educate TSP investors on maximizing their investment strategies and avoiding common pitfalls.

Closing Remarks

  • Encouragement to like, subscribe, and share the series with others.
  • Emphasis on the importance of understanding investment options to avoid regrets and maximize growth.

By gaining knowledge about TSP investments, individuals can make more informed decisions and optimize their financial future.

Full transcript