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At present, the are five Lifecycle Funds offered through the government Thrift Savings Plan: L 2050, L 2040, L 2030, L 2020 and L Income. Five more L Funds will be created soon.
When a new lifecycle fund is created, it starts out with about 80% in stocks and 20% in bonds and then at the age of retirement, it will stop adjusting once it is 80% in bonds and 20% in stocks. The F Fund and G Fund are bonds and the S Fund, C Fund, and I Fund are stocks.
At present, the L 2050 Fund is made up of:
[G Fund = 11.14%]
[F Fund = 7.86%]
[C Fund = 42.76%]
[S Fund = 13.94%]
[I Fund = 24.30%]
The L Income Fund is made up of:
[G Fund = 74.00%]
[F Fund = 6.00%]
[C Fund = 11.20%]
[S Fund = 2.80%]
[I Fund = 6.00%]
Why is this investment strategy bad? It is because it does not serve your specific needs. It is a one size fits all for ALL government employees. It does not factor in your ability to deal with volatility in your portfolio, your income and growth needs, the value of your assets outside of your retirement account, your allocations in other investment accounts, your tax minimization strategy, and your time horizon (time period over which you are investing).
Lifecycle funds also begin with 20% in bonds. If someone is investing for over 30 years, then they should be in stocks to earn a higher return. Because the average person is so risk adverse, the fund administrators are deliberately and extremely conservative with their fund allocations.
Being in the G Fund is bad because there are some years it does not even outperform inflation. Every year inflation can be between 2-4% and if the G Fund cannot earn that, people are net losing money in real dollar purchasing power.
Lifecycle Funds also undercut your stocks’ performance when the economy is good. Because the percentages in the funds are fixed, your stocks actually have to be sold as they increase in value in order to purchase more shares of the G Fund in order to keep the fixed percentages of the L Fund constant. This is a terrible investment strategy to not let each fund perform on its own and let compound interest work in your favor over time.
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LEARN MORE ABOUT: Thrift Savings Plans
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TSP Lifecycle Funds are Terrible – Here is Why
TSP Lifecycle Funds are a popular investment strategy among federal employees, but they may not be the best choice for long-term retirement planning. These funds are designed to automatically adjust your investment mix based on your target retirement date, simplifying the process of asset allocation. However, there are several reasons why these funds are not the best option for investors looking to maximize their returns and minimize risk.
One of the main drawbacks of TSP Lifecycle Funds is that they are not tailored to individual investment goals, risk tolerance, or asset allocation preferences. Instead, these funds are designed to follow a one-size-fits-all approach, with pre-determined asset allocation ratios. This means that investors may end up with a less-than-optimal mix of investments depending on their individual circumstances.
Another issue with TSP Lifecycle Funds is that they are too conservative for younger investors who have a longer investment horizon. These funds are designed to gradually shift from stocks to bonds as the investor approaches retirement age. For younger investors who have decades to ride out market fluctuations, this can result in missed opportunities for higher returns. Instead, younger investors may be better served by more aggressive investment strategies that have a higher allocation to equities.
Furthermore, TSP Lifecycle Funds are not as customizable as some other investment options. These funds only have five target retirement dates, spanning from 2020 to 2065. For investors who want a more tailored approach, this limited range of options may not provide enough flexibility.
Finally, TSP Lifecycle Funds have higher expense ratios compared to other investment options available in the TSP. These fees can eat into your returns over time, meaning that you are paying more for the convenience of automatic asset allocation.
In conclusion, while TSP Lifecycle Funds may offer the convenience of automatic asset allocation, they may not be the best choice for investors looking to maximize their returns and minimize risks. These funds may not take into account individual investment goals, risk tolerance, or asset allocation preferences, and may be too conservative for younger investors with a longer investment horizon. Additionally, the limited range of target retirement dates and higher expense ratios may not provide enough flexibility or value for investors. As with any investment decision, it is important to do your homework, consider your individual circumstances, and consult with a financial advisor before making a final decision.
Thanks for watching everyone! If you found this video helpful, then consider giving this video a LIKE. I really appreciate it! Also, check out my complete playlist on TSP investing: https://www.youtube.com/playlist?list=PLscTZuOqKWIxcH7ZW9STwVqQOY1xUKZgO
Thank you for your video very helpful and easy to understand
I am active duty retiring and have the legacy TSP. I also have money contributed to a ROTH IRA self-directed and managed account. Since I will no longer be able to contribute to the TSP since I am retiring and do not want to be a GS, would it be ok to roll it over to the Schwab account or keep it in the TSP?
Should I move money from life cycle to c & s fund?
Great video.
What option you recommending for today’s market? Stocks are way down and I wonder if C fun will be a better choice?
They have added new Lifecycle funds with more aggressive allocations. I usually go long term based on total return since inception, problem with new funds is that they don't have much of a track record but from what I noticed the initial returns are looking somewhat impressive. I think the L Funds are okay for new participants based on their projected retirement date but historically stocks have provided better returns if you can tolerate volatility over the long term.
I have 7 years to go how do I invest each fun
I am 40 years old. I'm not military. I have all my old money and new money in the C and S fund. I have absolutely nothing in the G fund. Can I loose all of my money or should I move all of my old money to the G fund and keep the new money in the C and S fund. If anyone has advise please help. Thanks
Nice just switched from the L2050 to the C and S fund, people are losing lots of money in bonds overtime, good video thanks man
Good advice thank you
Would you recommend not to invest into a target date retirement fund in a Roth IRA? If no, what funds would you suggest?
This is all about Business Statistics and avoiding the overreaction to the misleading outliers. It's the Bell Curve of financial data.
I need some advice concerning my TSP. I'm 67 years old and have been retired 2 years. I have 20K in the F, 107K in the C, 18K in the S, 7K in the I, and 212K in the L2025 fund.
155K is in a tradition and 209K is in a Roth. I'm in the CSRS retirement plan. I don't anticipate drawing from money from the TSP for a long time….maybe never. What do you changes should I make to give me the best returns?
Hi Jake, I'm 43 years old with 14 years working. I'm thinking to move my money from 2065 and G Funds to 80% on C and 20% on S. Or 100% on C funds? You think is a good idea to move my money right now 09/8/2021. Leave the money there until my 55 years old. Where I can move my money after my 55?
I need some advise on what to do about a deceased parents TSP plan should my father and I leave it alone would it continue to grow since the holder/owner is deceased? Should we take it out? We do have an appointment with a financial advisor but would like to hear an outside opinion!
Man, I needed this video 10 years ago. I’m entirely in the L- funds. Could had made a killing
Big like, man I don't know why I was in L2050… the military needs to explain more to soldiers before blindly choosing something for them.
Do you do consultations ?
What do you recommend if I'm 52 and can retire in 5 to 7 years …
Does the army provide a professional class on how to manage a TSP fund? Most Soldiers don’t know how to start and just leave it in the G fund
Thanks for the explanation. Time to make my move. Thanks