How TSP Charts Investment Patterns are Changing

The TSP has charted how investment patterns among its investors are changing. One major factor is changing the default investment fund for newly hired employees from the government securities G fund into the lifecycle L fund appropriate for the person’s age.

An analysis of investor behavior shows that employees under age 30 have 63 percent of their assets in L funds, and those between 30 and 39 have 39 percent. In contrast, those aged 50-59 have 20 percent in L funds, those 60-69 17 percent, and those 70 and over 13 percent.

“Fund utilization is likely influenced by the default investment changing from the G fund to an age-appropriate L fund in 2015 and the impact of ongoing communications regarding the benefits of utilizing the L funds,” the report said.

It added that older participants have higher allocations to the G Fund than younger participants—38 percent by those 60-69 and 43 percent by those 70 and above, compared with just 9 percent by those under 30 and 18 percent by those age 30-93.

“This behavior is consistent with the expectation that participants tend to shift their investment allocation toward the relative safety of guaranteed/income-producing assets as they approach retirement age. This is also a significant improvement from 2014,” when the youngest participants held 42 percent of their assets in the G fund, it said.

The TSP changed the default investment fund largely out of concern that younger employees were over-invested in the G fund. While those who are enrolled by default may change the investment fund, or the amount being invested at any time, the TSP has repeatedly found that significant percentages make no changes.

The G fund is the only fund that is guaranteed not to decrease in value. Approximately 75% of the L Income Fund is invested in the G Fund, with a mix of the other funds to provide some growth to hopefully keep up with inflation.

Ask your financial planner: Is TSP L Income Fund too conservative?

The L Income Fund is the most conservative of the L Funds since it focuses on capital preservation. When an L Fund reaches its target date, it goes out of existence and any money in it becomes part of the L Income Fund, which generally keeps the same target.

2023 © FedChoice Charitable Foundation, Inc. All rights reserved. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular individual or circumstance. This article is not intended to be a client-specific analysis or recommendation. Do not use this article as the sole basis for any financial decisions. Consider all relevant information. Information should not be considered as tax or legal advice. You should consult with your tax advisor and/or attorney regarding your individual circumstances.

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