Breaking Down the TSP Investment Funds (Best TSP Fund) - YouTube

If you are a federal employee and you're  investing in the thrift savings plan this  

video is a must watch for you because if you only  invest in what you think may be best but is not  

actually the best option... even a one to two  percent difference rate of return year over year  

over a long period of time say  30 years could have the effect  

of you making hundreds of thousands  of dollars less had you just picked  

the better fund. So let's decide which fund  is going to be best for you in this video.

Let's break down the different tsp  investment funds that you can choose from.  

There's only a total of five funds within  the tsp that you can choose from. The c  

s i f and g fund. Now you may have also heard of  lifecycle funds, lifecycle funds are just made up  

of the c,s,i,f and g fund and those are chosen  from the tsp. The first of the five options you  

can choose is going to be the c fund. The c fund  is the "common stock index investment fund".  

Now the strategy of the c fund is to match  the standard and poor 500. The s p 500 index  

which is a broad market index made up of stocks  of the 500 large to medium-sized u.s companies.  

So you're investing essentially in the u.s  stock market .So the C fund's performance  

is based solely off of how the s p 500 is doing.  Now if the s p 500 is doing well the c fund should  

be right there with it, if the s p 500 drops a  little bit the c fund is going to drop as well.  

They're judging the performance of the c fund up  against the s p 500. Their goal isn't to make you  

necessarily the most amount of money possible, the  goal of the c fund is to match the exact returns  

of the s p 500. For example, the top 10 holdings  within the c fund right now: apple is number one,  

microsoft, amazon, facebook, tesla, google,  berkshire hathaway, johnson johnson,  

jp morgan and chase... these are all big  companies that you have heard of. So you're  

essentially investing in the us economy when you  invest within the c fund. Now let's look at the  

most important thing- the rates of returns over  the last 10 years the c fund has averaged 16.18%  

year-over-year average rate of return for the last  10 years. Now this is really good considering the  

benchmark for the last 10 years has been anything  over 12 percent is typically a decent investment.  

Now who should be invested within the c fund? Well  if I was a person that wanted to invest in the c  

fund I would be someone who would want to invest  aggressively in u.s stocks of big successful  

united states companies and I'd want my rates of  return to be equivalent that of the stock market  

or the s p 500. Number 2 is going to be the s  fund- the "small cap index investment fund".  

The investment objective of the s fund is to  match the performance of the dow jones, which is  

a broad market index made up of stocks of small to  medium us companies not included in the s p 500.  

So this sounds kind of similar to  the c fund. It is in a way that the c  

and the s fund are invested within u.s stocks of  generally well-known companies. But, the s p 500  

is going to be mid to large size companies...  the dow jones is going to be small to mid-sized  

companies. So they judge the performance of the  s fund and the success of the s fund based on how  

closely it's performing to the dow jones fund. So  if the dow jones has a good year the s fund will  

have a really good year. If the dow jones has  a bad year the S fund will have an off year as  

well. Now here's the top 10 holdings within the s  fund: some of the companies you may have heard of  

some of them you may not have heard of, We have  square, uber, zoom, snapchat, workday, docusign,  

lululemon... reputable companies, successful  companies they just don't have the large cap  

size as a company like apple, google or facebook  that you'd find within the s p 500. Now let's look  

at the rates of return for the s fund over the  last 10 years it has averaged 14.98%. Year-to-date  

it's up 11.8%. In the last year it's up 19.9%. So  who invest in the s fund? If I was someone that  

wanted to invest in the s fund I would want to  invest aggressively in u.s stocks of successful  

companies small to mid-sized companies and I'd  want my returns to be equivalent of that of the  

dow jones or the stock market. The third option  you can choose from is the I fund. Now "i" stands  

for international, it's the best way to think  about it. So the i fund is the "international  

index stock investment fund". Now the objective of  the i fund is to invest or match the performance  

of the msci eafe the europe/australian/far east  (that's what it stands for) index. Now the eafe  

index invests in major companies from 21 different  countries outside the united states and canada,  

mostly europe, australia and asia. So this chart  right here shows you the different countries  

that's invested in... Like I said it's up to 21  different countries, almost a quarter of it is in  

japan stocks or japan companies, then the UK is  the next biggest one, then france, switzerland,  

germany, even has companies a little bit invest  in portugal, australia, israel companies.  

So it's going to give you a large spectrum  of international stocks. Now the i fund is  

meant to mirror the eafe index fund which is  one of the most popular international stock  

indexes that you can invest in. So they judge  how well the I fund is performing based off of  

how well it's tracking compared to the eafe index.  But let's look at the rates of return because this  

is the most important thing that we want to look  at. Over the last 10 years it has averaged 7.62%,  

in the last year alone it's done 10.97%. So we  noticed a decent drop off here from the c and  

the s fund which were u.s stocks. So international  stocks as a whole have never performed better than  

u.s stocks over a long period of time- more than  10 years. Now a lot of people say well you should  

be invested in the c the s and the i fund and have  a little bit in the i fund. Well why? Why would I  

invest in the i fund if it is never, over a period  of time, extended period of time done better than  

the C & S fund? Why do I need to diversify within  the i fund? Well there may be a bad year in the  

u.s stock market and the international index does  better. Yes there absolutely is going to be. There  

has been there will be there will continue to be,  however over a period of time despite off years  

within the u.s stock market the international  index has never done better than the u.s index.

So if we look at the lifecycle funds right, I  said lifecycle funds are basically the tsp's  

way of choosing your investments for you and  they choose how to allocate between the c, s,  

i, f and g fund. So if you look at the 2040  fund which is for people that are going to  

retire around the year 2040. That has 25% of its  investments into the i fund! It actually has more,  

two and a half times more, invested in the I fund  than the s fund. It only has 10 percent invested  

in the s fund. After we've just gone over the  rates of returns for the s fund is at least  

half times, fifty percent better, almost double  some years that the s fund performs better than  

the f fund. But people are so convinced that they  need to diversify it's the only safe way to do it  

even though we look at the lifetime performance  of the fund the 10-year performance, the five-year  

performance, any 10-year performance over the last  50 years the i fund has never made out to beat the  

s and the c fund. But hey if you really feel a  burning desire to invest in it I would suggest  

nothing more than 10% into the i fund. So  if I was someone that wanted to invest in  

the i fund... I would be someone that wanted  to invest in international stocks maybe didn't  

believe in the us companies or the u.s stocks  or just wants a little bit of diversification.  

The fourth option is going to be the f fund. The  f fund is the fixed income investment fund. Now  

the investment objective of the f fund is to match  the performance of the bloomberg barclays u.s agg  

bond index. Which is a broad index representing  the u.s bond market. So this is going to be one  

of the most popular ways that we judge the u.s  bond market. So just like the s p 500 is the  

most popular way to judge the u.s stock market,  well the bloomberg barclays u.s agg bond index  

is going to be the most popular way to judge the  u.s bond market. So essentially you're investing  

in u.s bonds when you invest within the f  fund. So the c, s, i fund were all stocks-  

now the f and the g fund are going to be bond  investments. So similar to the other investments  

this is meant to mirror the u.s agg bond index  fund. It's judged off of that. So I'm going to  

pull up the rates of return here with the f fund,  the C fund and the s, comparing it side by side.  

So year to date the f fund is actually, you've  lost money if you've invested in the f fund:  

minus one percent, compared to 23 percent within  the c fund and 11% almost 12% within the s fund.  

Now let's look at the 10 year. So over  the last 10 years the f fund has done  

just over 3 percent average yearly rate of  return. C fund has done 16% and almost 15%  

for the s fund. When we look at the f fund  compared to the c and the s fund it has done about  

five times worse than the C & S fund over the last  10 years. Over the lifetime of the fund it's done  

more than half worse than the c & s fund. Over  the last year it's... it's just not even close,  

the F fund has performed horribly over the last  year because the u.s stock market has done really  

well, bond market not as much. For the f fund when  we're talking about you investing in the f fund as  

opposed to the c of the s fund we may be talking  about millions of dollars of difference that  

you're losing out on because you're investing in  the f fund because you think you're diversifying  

yourself. So someone that invests in the f fund  would be someone who wants to invest in u.s bonds,  

who wants a very very safe unfluctuating  type of index that they can invest in.

The fifth option is going to be the g fund.  Now the g fund like the f fund is investing  

in u.s bonds. G fund stands for the "government  securities investment fund" and the investment  

objective of the g fund is to ensure preservation  of capital and generate returns above those of  

the short-term u.s treasury securities.  So essentially you can compare the g fund  

to like a high-yield savings account, just  like a bank savings account- you put money  

into a bank savings account you know you're not  going to lose any money. It's your money within  

the bank savings account, the bank will slowly  pay you some small small amount of interest,  

(a dollar, ten dollars maybe a hundred dollars  a year) and that'll help grow your bank account.  

Well the g fund is essentially just a little  bit higher yield. A little bit higher interest  

on your money to allow it to just sit there you're  going to make maybe one percent, maybe less than  

one percent, sometimes 1.5% on your money. But the  money that you put into the g fund is guaranteed!  

It's backed by the us government, meaning  you will never lose money within the g fund.  

You can come out with the same amount of money  and not necessarily have made any money on it,  

but you're never ever going to put money into  the g fund, ex: if you put ten thousand dollars  

in there you're never going to have to look at  your account one day and it's going to be under  

ten thousand dollars. You'll always have  at least the ten thousand dollars in there  

well. In the simplest terms I  could put it, it's essentially  

you loaning money to the federal government,  they're opening up a bond, you're investing in it,  

they're going to use the money that you  loan them to invest in infrastructure,  

government programs, to make up for the national  budget every single year if there's a deficit  

and they're going to pay you back your money  plus a little bit of interest. Now the g fund,  

the reason this is a problem is because in the u.s  inflation typically goes up 2%-2.5% per year. So  

the cost of items is constantly going up right.  A coca-cola may have cost five cents 20 years ago  

and now it may cost three dollars. So the cost  of the coca-cola inflated over time so you  

can no longer buy the same thing today for the  same amount of money as you're going to have to  

10 years from now. So your money is going to have  to grow to keep up with that inflation. So when  

you retire you can't just keep the same amount of  money because things are going to continue to go  

up in price. Your money is going to need to make  some money at least to keep up with inflation.  

The g fund does not do that, so the g fund in  the last year has done 1.33 percent... over  

the last 10 years = 1.94%, so it has not kept up  with inflation within the g fund. So even though  

you're maybe you invested ten thousand dollars  and you still have ten thousand dollars in there,  

it doesn't have the buying power as ten thousand  dollars you put in ten years ago. So you  

are in a sense actually losing money when you  invest in the g fund because you're losing money  

to inflation. If we look at how much money is in  each fund, the g fund has a total of 267 billion  

dollars invested in it! It has more money invested  in the g fund than any other fund within the tsp!  

That's honestly disappointing because that  267 billion dollars last year made 1.3 percent  

when it could have made almost 20% in the c  fund. So this is why you need to watch this  

video and get into your tsp and pick the funds.  Now let's look at the actual lifecycle funds,  

like I said before they're slowly changing out  of your control to invest more conservatively  

as you get closer to retirement. So it's going  to increase the amount that's invested in the  

f and the g fund. So if we look at the L2025  fund: so people that are about to retire. Now  

these people might have chosen this investment 50  years ago and now it's slowly morphed into this-  

almost half of their investment is in the g fund.  So they have a million dollar portfolio they're  

getting ready to retire they have five hundred  thousand dollars invested in the g fund. They  

have less than five percent invest in the s  fund, they have less invested in the c fund  

than they do the g fund... even though the c  fund has done about 20 times better than the  

g fund. And that's what they're expecting  to live off of for the rest of their life.

Now if you want a more in-depth look  at the overall how to master your tsp,  

the rules and regulations, how it functions,  more than just the investment options,  

go ahead check out this video which I'll link  up here and in the description down below. All  

about how to master your own tsp. If you're not  sure whether to pick a roth or traditional tsp??  

They're different, roth means you pay taxes now  you don't pay taxes later, traditional means you  

defer paying taxes now and you pay taxes later, I  have another video breaking down the comparison of  

the roth tsp and the traditional tsp I will link  that down below. You can check that out next.  

And lastly if you don't know what to do with your  tsp when you separate, you left the military,  

you retired from federal employment, you have  a couple different options you can choose from.  

Check out this video right here I'll also link  that down below breaking down what to do with your  

tsp when you leave federal service. Thanks for  watching guys! I will see you in the next video!