BEST WAY to Invest in the TSP | Thrift Savings Plan Explained - YouTube

Investing in the tsp in the best way possible can  make a huge difference in your quality of life.  

For example if you invest a thousand dollars  a month for thirty years compare that at a six  

percent rate of return to ten percent rate of  return - the difference is 1.2 million dollars!  

So watch this video to the end to make sure  you're not missing out on 1.2 million dollars!

I'm Tim Wolffe and if you're looking  for ways to be smarter with your money  

go ahead hit the SUBSCRIBE button. Let's start  off with what is the tsp: The thrift savings plan  

is for all federal government employees  and this includes the military. It's  

the federal government's version of the  401k and most people that have the tsp,  

have an option to get a match. Which means you  contribute at least five percent of your salary  

to the tsp and the government will contribute  another five percent on top of that. You can  

either choose to do a roth tsp or a traditional  tsp or both. Roth means you're going to pay taxes  

now and pay no taxes later. Traditional means  you're not going to pay any taxes now and you're  

going to pay the taxes later during retirement.  If you're not sure on the difference between  

roth or traditional I have a video about it  and I'll link it in the description below. But  

generally speaking if you start investing younger  and earlier a roth tsp is going to be a better  

option for you. However, keep in mind anything  the government matches (so their five percent)  

has to go into the traditional tsp whether you put  your five percent into the roth or traditional. 

And go ahead if you like this video at all please  hit the LIKE button!! And in order to avoid any  

unnecessary penalties or tax you cannot withdraw  the money in your tsp until age 59 and a half.

So when it comes to investing within the tsp you  can choose between life cycle funds or individual  

funds. And the life cycle funds like the "L  2060" "L 2050" are made up of the individual  

funds. There's five different individual funds;  the g fund, the f fund, the c fund, the s fund,  

and the i fund. The g fund is the government  securities investment fund this is designed to  

be a very very low risk investment and produces a  rate of return just above inflation. The f fund is  

the fixed income investment fund and this is meant  to mirror the U.S. aggregate bond market, which  

is again going to be a very low risk low return  investment fund. The c fund is the common stock  

index investment fund this is meant to mirror  the s&p 500 which is essentially the benchmark  

for the american stock market. The s fund  which is the small cap stock index fund  

and this is meant to mirror the dow jones  U.S. completion total stock market index.  

And lastly the i fund, the international stock  index investment fund, and this is meant to mirror  

the msci fund which is a popular international  stock index fund. The life cycle funds are named  

by certain years like the L 2060 fund  the L 2030 fund. The number in that is  

a year that they anticipate you'll retire or  start to withdraw that money from the tsp.  

So if you're invested in the L 2050 fund they're  anticipating that you'll turn age 59 and a half  

around year 2050 and start using that money.  And within the life cycle funds it's a mixture  

of the different individual funds we just talked  about the g, f, c, s, and i. The difference in  

the life cycle is they allocate differently  how much they're going to invest in the g,  

how much they're going to invest in the f,  how much they're going to invest in the i,  

depending on how close you're getting to the date  you're going to retire. The closer you get to that  

year 2050 or 2060 the more conservative they're  going to make those individual investments.

For example the L 2025, fund which is for people  that are about to start withdrawing this money  

here shortly in around 2025, is invested mostly  in the g fund because this is a very low risk  

conservative low rate of return investment and  now compare that to the L 2065 fund- Where these  

are people that are just starting out their  careers and a lot of it is invested in the  

c fund and almost none of it in the g fund.  What I would say about life cycle funds is  

they're very mediocre, they're not the worst  but not the best. I personally never invested  

in them when I had the tsp in the military  and you can get a much better rate of return  

investing yourself in certain individual  funds within the tsp. A good rule of thumb  

when you're investing in the tsp is to compare  your investments to the s&p 500 which is the  

benchmark of the stock market. Historically  it has done just over 10 percent a year  

since its inception. And in the last 10 years it's  done just over 11% every year on average. It's  

always good to look back at least 10 years so you  have a good chart of how the stock is trending.  

Looking back only a couple years may not be  representative of the entire history of the fund.

So if we look right on the tsp's website the L  2030 fund over the last 10 years has averaged  

8.47 percent. The L 2040 fund has averaged 9.41%  and the L 2050 fund has not been around for 10  

years yet but if we look at the five year  rate of return on average has done 8.49%.  

So again you can see they're kind of  mediocre. They're not above that 10%  

mark that we're looking for and you  may not think the difference between 9%  

and 10% is a lot but it is it's hundreds of  thousands of dollars over the course of your life.

And now we look at the same tsp website and look  at the individual funds. So the g fund the last  

10 years has done 2.23% on average and the f fund  has done 3.99%. These are the most conservative/  

lowest rate of return funds the tsp has. And the c  fund has done 13.59% which is the best performing  

fund in the tsp on average. The s fund has done  13.08% on average every year for the last 10  

years. The i fund has done 5.85%. The c and the  s are performing really well above that 10% s&p  

500 benchmark. So when we're talking about what  investments you're going to pick within the tsp  

after you've chosen whether to do roth or  traditional or both- I'd recommend doing at least  

60% in the c fund. This is going to be the s&p  500 equivalent fund and the best performing fund  

within the tsp. Well over 13% every single year  on your money. And the rest of it into the s fund  

because that's done really well too. Just over  13% or you can even do 80% into the c fund and  

20% into the s fund. That's what I did when I was  in your shoes, that's what I recommend you do now  

especially if you're just starting out  in your career or you're halfway through  

or you have a couple more years until retirement  and you're not going to need the money anytime  

soon. Invest it as aggressively as you can. The  tsp as a whole is really not aggressive at all  

it's a very safe investment. Even the c fund  and the s fund are very diverse investments.  

It's not like you're investing in a single  stock when you only invest in the c fund.  

You're still invested in a diverse  amount of stocks. So it's very safe  

and it gives you a much better rate  of return than the life cycle funds.

For example say you only make six percent on  your money for 30 years and you're investing a  

thousand dollars a month. At the end of 30 years  you're going to have one million dollars. Cool  

that's not bad, but what if you had invested  in the c and the s fund and have received a 13%  

rate of return after investing the same amount of  money per month for the same amount (30 years).  

You would retire with 4.3 million dollars!!! Would  you rather have 1 million or 4.3 million dollars?  

So it does make a huge difference  picking the right funds within your tsp.

Thanks for watching guys be sure to SUBSCRIBED and  please hit the LIKE button to help this video out  

or SHARE this video with anyone that you're  in the military with or you're working  

in the federal government for that  might need to hear this or doesn't  

know a lot about the tsp. I'll see  you guys for next week's video!