Thrift Savings Plan for Idiots and Dummies
Continuing my “Investing for Complete and Utter Idiots” series (and for anyone else who feels intimidated by the subject of investing!) I’m gonna tackle one that I actually knew a little bit about: the Federal government’s Thrift Savings Plan (TSP) which is offered to the military, the post office, and most federal employees.
Back when I was in the Army, we used to say everything was written on the 8th grade level. The Army doesn’t want anyone to have the excuse that they just didn’t understand a technical manual or op-order. Believe it or not, the TSP isn’t too terribly hard to understand :) After all, I think I have a pretty good grasp of the basics!
The Thrift Savings Plan started out in 1988 with only three funds. They came out with two more parts of the TSP back when I was perpetually hung-over private, and explained it to us as the military’s equivalent of a 401(k) without the matching. I’ve since heard that some civilian federal employees get the matching, but the Army doesn’t. TSP contributions are pre-tax, like a 401(k). The TSP has six funds to choose from: G, F, C, S, I, and L. Here is a chart of what they are, what their objective are, and the risks associated with these TSP funds.
If you never tinker with your TSP, all money will be put into the G fund. This is government securities (bonds), the least risky and least growth. It is also the default setting…so apply for your login for TSP.gov and change that one! If you’re not comfortable with doing it online, I think they still let you fiddle with things on paper…but the government is really trying to go paperless and online is actually very easy.
There is also the F fund, which is Fixed Income. Not as “bad” as the G fund, but still low risk and low return. It is designed to match a bond index fund ( a whole group of different bonds that have different interest rates).
The C fund is “common stocks” like an S&P 500 index fund. It’s mostly stuff you’d find in any standard mutual fund. Getting this fund is like playing most of the stock market, and can provide good returns…but if you’ve been anywhere near the news lately you know the market has been up and down a lot recently. Overall it goes up long-term.
The S fund is small and medium-sized company stocks. You can make a lot in this area, but the risks are higher as well. Everyone hears about how so-and-so should have bought Microsoft stock back when Bill Gates and Steven Jobs had the business in their garage…well, this is the fund that is supposed to be finding the Next Big Thing. It’s also kind of like watching someone dribble a basketball: up and down and up and down.
The I fund is for international stocks as in non-U.S. companies. This one’s been doing great lately. It mostly covers Europe, Australia, and the “Far East” part of Asia.
Then there’s the new L funds, which stand for Lazy…er…Lifecycle. It’s the newest fund, since it came out after I left the Army. It’s a combination of the other five funds and they have it broken up into target retirement dates. If you pick the furthest out retirement date, it will be more risky than a closer retirement date. The closer the L date, the more G funds it has, so “go long” if you want to get decent returns. If you don’t yet understand the how, what, or why of the other five funds, set your money to go into the L fund to give yourself time to do some research.
So, what do I have hubby in as far as his TSP goes? Since hubby plans to do his twenty years and get his military retirement pension, I decided to go aggressive with his TSP: 40% C fund, 40% S fund, and 20% I fund. Yeah, it’s “pretty ballsy” but both hubby and I are getting late starts on the retirement savings idea so I figure maybe we can make up for lost time a little. I’m debating the idea of kicking some into an L fund as we start to amass more, but right now I think that’s the basic proportions of the furthest out L fund when you subtract out the G and F portions.
I’m sure I have oversimplified something here, but this is just a “q-ref” version of the Thrift Savings Plan. Those of you who know more than I do, feel free to add to or correct :) This is after all a learning process for me!