There are five investment options that are available to the millions of federal employees, as detailed below:
The "G" Fund (think "G" for government securities) is invested in very short-term U.S. Treasury securities (bonds) guaranteed by the federal government. These are unique government securities not available to the general public and are backed by the full faith and credit of the US Government. The G Fund was the initial fund established by the TSP when it began operations on April 1, 1987. This is equivalent to a high-yield stable value fund, so there is no possibility of a loss of principal, and there is no risk of loss. As set forth by law, the interest paid by this fund is equal to the average rate of return on outstanding Treasury securities with four or more years to maturity. There is no ticker symbol for the G Fund.
The "F" Fund (think "F" for fixed-income bonds) is invested in high quality securities of BlackRock's U.S. Debt Index Fund. The fund tracks the Barclays Capital Aggregate Bond Index. The F Fund was opened to Federal employees in January 1988 but was limited to only a portion of contributions; beginning January 1991 all restrictions on F Fund contributions were lifted. This index represents a diversified group of U.S. government, corporate and mortgage-related securities. It will also perform similarly to the Vanguard Total Bond Market Index Fund (ticker symbol: VBMFX). For tracking purposes, one can either use the Vanguard Total Bond Market Index Fund (ticker symbol: VBMFX) or the IShares Lehman Bond Index (ticker symbol: AGG). Through the G and F Funds, TSP participants with low risk tolerance can avoid the stock market entirely.
The "C" Fund (think "C" for common stocks) is invested in BlackRock's Equity Index Fund. The fund is a portfolio of stocks that track the stock market as a whole by replicating the performance of the Standard & Poor's 500 Index. Meaning, this fund invests in very-large-cap U.S. stocks. The C Fund also opened to employees in January 1988 and was subject to the same restrictions as the F Fund until January 1991. It will behave similarly to S&P 500 Index funds such as Vanguard 500 Index (VFINX). For tracking purposes, we will use the S&P 500 Large Cap Index (ticker symbol: $SPX).
The "S" Fund (think "S" for small stocks) is invested in BlackRock's Extended Market Index Fund. The fund is a portfolio of stocks that tracks the Dow Jones U.S. Completion TSM index. The S Fund opened to employees in May 2001. These are the largest U.S. stocks and it does not include stocks of the S&P 500 Index. Meaning, it tracks the performance of the non-S&P 500 stocks in the U.S. market. The C and S Funds combined cover almost the entire U.S. stock market. This fund will perform similarly to the Vanguard Extended Market Index Fund (VEXMX). For tracking purposes, we will use the Dow Jones U.S. Completion TSM Index (ticker symbol: $DWCPF). One can also use the Wilshire 4500 Completion Index ($EMW).
The "I" Fund (think "I" for international stocks) is invested in BlackRock's EAFE Index Fund. The fund is a portfolio of stocks designed to track the performance of an index that represents the international equity markets. The board chose to mirror the MSCI EAFE index, which tracks the large companies in 21 countries in Europe, Australia and the Far East. The I Fund opened to employees in May 2001. For tracking purposes, we will use the IShares MSCI EAFE Index Fund (ticker symbol: EFA).
The TSP offers investors five funds in which to invest. Five are individual funds (one dealing with government bonds and the other four tracking specific market indices). All TSP funds are trust funds that are regulated by the Office of the Comptroller of the Currency and not the Securities and Exchange Commission. There is no ticker symbol to track actual performance (though with the individual funds except the G Fund, the comparable index is easily tracked).
Employees may choose from any or all of the individual funds in which to invest (any allocation must be expressed as a whole percentage) and may change their allocation for future pay periods at any time (if the request is received before noon Eastern time it is usually effective as of the close of business that day; otherwise, it is effective the following business day). If no selection is made the default is 100 percent allocation into the G Fund. As all funds except the G Fund have a potential risk of loss of principal, an employee is required to acknowledge this risk before investing into those funds.
Participants may also choose to change the allocation percentage of their existing fund balances (referred to as "Interfund Transfers"). Prior to May 2008 participants could change the allocation as often as possible (limited to one per day) among any and all funds. Beginning in May 2008 participants are limited to two unrestricted transfers per calendar month, all subsequent transfers must be into the G Fund only.
In 2005, the TSP introduced the lifecycle funds (L2040, L2030, L2020 L2010, L Income), which are composed of percentages of the five funds based on target retirement year. The composition of the L funds will shift to be more secure as the target years approach. For instance, around 2010, the L2010 fund will be given a makeup similar to the current L Income fund, and an aggressive L2050 fund will be established. These asset shifts are automatic and the advantage of the L funds.
The following percentages indicate the initial breakdown of the L funds at the time of their creation. According to TSP literature, these funds are rebalanced on a quarterly basis, becoming less risky (higher percentage in the G fund), as they eventually align with the initial "L income" percentages by their "target dates".