As you know, only federal workers and retirees can invest in the G Fund by participating in the Thrift Savings Plan (TSP). And, when the stock market dips, feds tend to transfer a considerable portion of their account to the G Fund because it’s the safest of the TSP investment options. Though this may seem like a wise move when market performance is uncertain, it’s important to understand the pros and cons so that you can make an informed decision.
The G-Fund Is One Of The TSP’s 5 Core Funds
The G Fund (Government Securities Investment Fund) is considered low risk because it guarantees a non-negative return by investing in short-term U.S. Treasury securities. As a result the G Fund is the only core TSP fund that doesn’t invest in an index.
On the other hand, when you look at historic performance, the G Fund has the lowest rate of return when compared to the other TSP funds. As of May 2024, the interest rate for the G Fund is 4.750%. And, as of November, 2023, its assets were estimated at $294.9 billion.
“When you’re close to retirement, the G Fund offers a good option for saving money that you plan to withdraw over the next two to three years to supplement your retirement income.”
The G-Fund Advantages
Essentially, when you invest in the G Fund you can count on never losing money. It has proven to pay a modest yield over time and it continues to outpace the rate of inflation. When you’re close to retirement, the G Fund offers a good option for saving money that you plan to withdraw over the next two to three years to supplement your retirement income. In fact, if you invest in the Roth TSP with post-tax dollars, the G-Fund can be used as a tax-advantaged emergency savings account that usually pays a better interest rate than traditional savings accounts.
The G Fund Disadvantages
When you’re getting close to retirement, the usual rule of thumb is to rebalance your TSP to minimize risk by moving money into the G Fund. The logic being that, once you separate from service, you’re no longer in the position to recoup any losses of investments in some of the riskier TSP funds.
However, for TSP participants counting on their investments to provide substantial, long-term growth, the G Fund will likely never give you the returns you’re looking for. The bottom line — deciding on how much of your TSP balance should be invested in the G Fund is based entirely on your risk tolerance. Before you put your entire TSP balance in the G-Fund basket, connect with an FRC® trained advisor who can help you make an informed decision.
https://www.tsp.gov/funds-individual/g-fund
