TSP 101

The TSP offers five funds for allocating your hard-earned money:

C Fund: S&P 500. The king of the indexes, what most people mean when they say "the market."
S Fund: Dow Jones U.S. Completion Total Stock Market Index. Small- and mid-cap companies not in C Fund.
I Fund: MSCI All Country World Index Investable Market Index ex USA ex China ex Hong Kong.
F Fund: Bloomberg U.S. Aggregate Bond Index.
G Fund: Unique to the TSP, but similar to Treasury Bills or cash.

You have different options for managing risk, which we will define as the potential for significant loss:

Fixed Portfolio: This includes the 60% stock / 40% bond portfolio. The key here is resetting the portfolio allocations on a regular basis (e.g., quarterly) to maintain the 60/40 ratio, which is your risk management tool. For example, if stocks outperform and bonds under perform during one quarter, you sell stocks (sell winners) and buy bonds (buy laggards) to reset the 60/40 ratio. If you allow the portfolio to drift to 70/30 or 50/50, your risk profile will change as well.
Lifecycle Portfolio: Portfolio allocations adjust automatically over time based on your retirement date. This turnkey approach eliminates the need to adjust your portfolio, but the allocations are based on an arbitrary date, not on underlying market conditions. Not to mention, gradually shifting to cash and bonds over time does not necessarily lower your risk profile, especially during high inflation or a bear market in bonds.
Dynamic Portfolio: Our preferred option. Here we adjust our portfolio over time to reflect which assets are outperforming during the current phase of the economic cycle. If the economy is chugging along, stocks will outperform bonds, especially as the Fed hikes interest rates to restrain growth. If the economy enters a recession and the Fed cuts rates to stimulate growth, bonds will outperform stocks.

In addition to the five TSP funds, you can allocate up to 25% of your portfolio to third-party mutual funds to enhance portfolio diversification. We are tracking the following 16 low-fee mutual funds from Vanguard:

VTCAX (0.09%): Communications
VCDAX (0.09%): Consumer Discretionary
VCSAX (0.09%): Consumer Staples
VENAX (0.09%): Energy
VFAIX (0.09%): Financials
VHCIX (0.09%): Healthcare
VINAX (0.09%): Industrials
VITAX (0.09%): Information Technology
VMIAX (0.09%): Materials
VGSLX (0.13%): Real Estate
VUIAX (0.09%): Utilities
VEMAX (0.13%): Emerging Market Stocks
VEGBX (0.35%): Emerging Market Bonds
VEUSX (0.08%): Europe
VPADX (0.09%): Pacific
VCMDX (0.16%): Commodities

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TSP 101

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