TSP Lifecycle funds are a mix of the 5 TSP funds. They are allocated in a way to be more aggressive the further from retirement you are.
The Lifecycle Inocme fund is 74% G Fund and 6% Fund. So, it’s 80% bonds. With a bit in C, S and I.
The Lifecycle 2050 fund on the other hand is mostly in stocks, about 80% with the bulk of the stocks being in the C Fund.
Now, each quarter the Lifecycle Funds get a bit more conservative. ANd that is my only real problem with them.
If you just retired, say are 60 years old and are in the Income Fund, you are simply not going to get any growth on that portfolio and yet you have probably 30 more years to live.
Can’t have that.
In fact after taxes and inflation, the Income fund loses money…
Now it won’t kill you in any given year but each year, year after year, you’re losing purchasing power. And it’s purchasing power that you need in order to grow to deal with rising costs.
The TSP C Fund is a very low cost S&P 500 index fund.
The S&P 500 index is essentially the largest 500 publicly traded companies in the United States.
Largest means market capitalization. Does not mean revenue, sales, number of employees or anything like that. Simply means you take the number of shares outstanding times that by the current share price and VOILA, that is your market capitalization.
The 500 largest market capitalization stocks in the US are in the SP 500.
So, now that you know what the C Fund is how do you incorporate it into YOUR portfolio?
Well, in my opinion, the C Fund should be the foundation of ALL portfolios where the investor won’t need the money for 5 years or more.
If you can withstand some serious market chaos, and by serious I mean a 50% decline like we saw from Oct 2007 to Mar 2009, a 25% decline every 4 years or so and on average a 14% decline EACH YEAR, you could make a lot of money in the C Fund.
In fact, since inception the C Fund has averaged 10.53% a year. That means you’ve doubled your money every 7 years. Put $100k in there in 1988 and that is worth $2 million now.
Put $100k in there in 1988 and have added $5k a year and you’re worth $3 million today!
That’s a lot of money. But how many people actually did that? Not many. Why? Because the markets go up….and then they go down.
WHen they go down people get real nervous and bail. Can’t do that.
So before you buy into the C Fund you’ve got to make a deal with yourself that you will not touch the money for 5 years. If you can convince yourself to stay pat for 5 years running. You’re probably going to do okay.
No guarantees of course. But what are the alternatives? A Bond Fund paying 2.85% and that’s BEFORE taxes and inflation… YIKES!