The Lifecycle (L) funds are an often-overlooked TSP option. However, choosing to invest in the TSP L funds could simplify your TSP decisions in the long term. The TSP L funds are professionally managed mixes of the G, F, C, S, and I funds that are balanced to meet investment goals over various periods of time. The objective is to strike an optimal balance between the expected risk and return associated with each fund. The closer to the target date the funds reach, the more conservative they become. The TSP L funds rebalance every quarter saving investors time and energy. Rebalancing can be crucial for keeping your portfolio properly diversified and controlling risk.
TSP L funds also keep investors from making decisions based on hearsay or emotions. Too often investors get caught chasing high market returns or pulling out of the market due to nervousness about future performance. Emotional investing driven by fear or greed may lead to unwise financial decisions. It’s important to keep a long-term time horizon with retirement planning. The L fund’s automatic rebalancing toward a more conservative strategy the closer you get to retirement, may help you “stay the course” and limit the detrimental repercussions of emotional investing.
You’ve probably heard the saying not to put all your eggs in one basket. That is exactly what TSP L funds keep investors from doing by diversifying between all the funds. TSP L funds are an easy way to have a professionally managed account that keeps pace with ever-changing risk tolerance and time horizons.
At RBI trainings, we stress the importance of combating emotional investing with four key investment principles. These fundamentals are not formulas by which you achieve financial success, but rather guidelines to return to time and again as you consider your investments. The first of the four principles is to determine your investor profile; click here for more on this principle.
See the chart below for a quick reference on the current TSP L funds available.
WHICH L FUND IS RIGHT FOR YOU?
Your portfolio can contain more than one L fund or a combination of TSP L funds and individual funds, if you so choose.
Picking a TSP L fund is generally a better strategy than not having any investment strategy, as it provides some intentional diversification of asset classes and rebalancing. It can make investing and staying diversified easier. However, while investing in TSP L funds may be easier, is it the best thing to do to maximize your retirement income?
It’s generally not wise to make investment decisions based on what is easiest or what the government suggests that you do. More important is what gives you the right combination of risk and returns.