5 TSP Funds Explained – Guide to the C, S, I, F, & G Funds | Military Money Manual Podcast Episode #37

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Jamie and Spencer break down the 5 Thrift Savings Plan (TSP) Funds:

  • C Fund – the S&P 500 fund
  • S Fund – The rest of the US stock market
  • I Fund – International stock market fund
  • F Fund – US Bond market fund
  • G Fund – US treasuries fund

And explain the historical rates of returns of the funds.

Military Money Manual Podcast Episode #37 Links

Military Money Manual Podcast Episode #37 Transcript

[00:00:00] Jamie: So one big question I think that people ask themselves as we go through the funds and talk about the expense ratios and things like that is, is the TSP still worth it? If we talk a lot about low cost index funds, like at Vanguard, where you're paying maybe 0.03 or 0.04, three or four basis points, somewhere around there.

Why is the TSP beneficial for us if I can get a little bit cheaper at Vanguard?

[00:00:25] Spencer: Welcome to the Military Money Manual Podcast.

Hey guys and gals, Spencer here from MilitaryMoneyManual.com and author of the new book, The Military Money Manual Practical Guide to Financial Freedom, just released last year, available on my website, MilitaryMoneyManual.com or on Amazon as well. 

I'm here today with my co host Jamie to present today's episode on the 5 TSP or 5 Thrift Savings Plan Funds.

Our podcast is all about achieving financial independence in the military. Every episode of the podcast is designed to help you get one step closer to financial freedom. Just a quick reminder that this episode is for informational purposes only. We're not investment advisors and this episode does not constitute investment advice.

[00:01:09] Jamie: Hey, Spencer, we do believe that personal finance shouldn't be boring or intimidating. And the ultimate financial goal worth pursuing is financial independence, which is achievable for you within 10 to 20 years of starting your journey, no matter what your current net worth is. Before we get started, we just want to thank you all for the five star reviews and the questions that we've had that keep coming in.

If you would please continue to leave those reviews on your podcast app and hit the subscribe button or the plus button. So you'll see new episodes each week. As we released them also consider what friend or coworker you could share the podcast with this week to help them grow in their own personal finance journey.

And as always, if you have any questions or feedback, you can send that to us on Instagram @militarymoneymanual, or via email at info@militarymoneymanual.com. If you are new to our podcast and the TSP, be sure to go back and listen to episode number two. It was back in our early stages of the podcast before we had this excellent audio quality, like we do now in our high quality recording studios.

But everything you need to know about the TSP in detail is discussed in episode number two.

[00:02:12] Spencer: And speaking of those reviews that people are leaving for us, Jamie, we had one here on apple five stars. His username is Justanarmydude and he says it's a must listen for all military service members and families.

This show provides such valuable advice for military members. And so that's from Apple there. 

[00:02:39] Jamie: Thank you very much. Justanarmydude, who maybe his name is Justin. I don't know, but we appreciate you.

[00:02:44] Spencer: Yeah. And Oh, here's another one. As a newly commissioned lieutenant heading down to pilot training this year, finding the podcast has been incredibly beneficial. So that's awesome. That's also from Apple where we've got 5.9 stars. It's actually 26, five star reviews and one one star review. So if you left the one star review on our podcast on Apple.

We implore you, please go ahead and maybe just bump it up to two stars. 

Today, we're talking about the five TSP funds. And before we get into the weeds here, and we are going to get into the weeds here. One concept that I want to introduce is. It costs and expense ratios. So what expense ratios are you'll hear people reference when they're talking about index funds whether they're at Fidelity, Schwab, Vanguard, or in the TSP. And what it is it's a percentage of your portfolio or of your asset that the fund manager takes every year.

So if you have a financial advisor, they might be charging you, like a betterment, they charge 0. 25 percent per year as an investment management fee. But that's actually on top of the expense ratios of the underlying funds. So if you go in clicking, like if you have a betterment account and you click on the funds that you're invested in, those funds will have underlying expense ratios.

So the nice thing about the TSP is you only have really one expense ratio to worry about. And that's the expense ratio of the fund, because there are no financial advisors for the TSP other than if you had a third party one and a basis point is 1 percent of 1 percent of a decimal. So you'll hear us talk about that fund having a 0.01 percent expense ratio. That gets really confusing when you start using decimals. So one concept that we'd like to use as the basis point where. 1 percent of 1 percent becomes one basis point. So if we say, Hey, that fund has a 0. 049 percent expense ratio. We can also just abbreviate and say that it has a 4.9 basis point expense ratio. And then that lets us easily compare expense ratios to each other. So if you had a 1% expense ratio, that would be a hundred basis points. If you had a 0.01 percent expense ratio, that would be one basis point. And then you can easily tell that, Hey, the guy who's charging 1 percent is a hundred times more expensive than the guy who's charging 0.01%. 

Everybody confused now, clear as mud. So that's the basis point and getting into. The five TSP funds, usually the expense ratios that we'll be talking about will be 4.3 to 5.9 basis points. So we're talking about less than a 10th of a percent for the total costs of owning these funds.

And the other way to think about that is to think about every thousand dollars that you have invested. You're paying, if it's 4.3 basis points, you're paying 43 cents for every year, for every thousand dollars you have invested, then you can just do the math after that $10,000 would be 4 and 30 cents a year that you're paying in expense ratios.

At first it doesn't seem like a very large amount, but as your net worth grows and as compounding interest  takes effect. And what starts as, just a few thousand dollars of contributions when you're in your twenties can easily and quickly grow to a million dollars of net worth in your sixties or even earlier.

And all of a sudden your expense ratios start to matter a lot. Yeah.

[00:06:23] Jamie: Thanks for explaining that in such detail, because a lot of times we get lost in the financial jargon and sometimes you're just afraid to ask or you end up Googling it and finding some blog that may or may not have a good explanation or an accurate explanation of it.

But so like you said, today, we're going to talk about the five TSP funds. And they're all identified by a letter. 

So can you run down the five TSP funds for us and just a brief overview of each one? 

[00:06:47] Spencer: So the first thing to understand about the five TSP funds is that they're all passive index funds.

So the way that they've been set up is there's no active manager behind them. Every fund has an index, or you can think of it as like a concept or an idea of that fund and that's how the funds are invested. So there's no human going out there and picking the funds. It's just basically a computer that spits out, Hey, I think that these 500 companies should be in this fund.

And then the fund manager says, yep, that makes sense. And then they go and purchase it. Whereas if you had an actively managed fund, they might think one of the popular ones over the last couple of years has been ARK investments and they invested heavily in Tesla because they thought Tesla was going to do really well.

And it didn't do really well for a couple of years there. But now if you look at ARK investments over the last, I think year to date, they're down like, something like 50 percent or something. So that's the example of an active fund manager where they're picking the stocks and they're picking the bonds that they want to be invested in.

Whereas a passive index fund manager. They don't do any of the picking; they just have the fund, they just have the index that they're following and then that's it. 

So from a high level you have the C fund the S fund the I fund the F fund and the G fund. Starting at the most risky, you have the I fund The S fund, the C fund, the F fund, and then the G fund.

So that's moving from highest risk to lowest risk. And that's taking you from an international stock index fund, all the way to a government bond investment fund. So on the C fund, we'll start with that one just because that's the largest fund in terms of market capitalization, I think. That's the common stock index investment fund.

So the easiest way to think about this is its large and midsize US company stocks. And we'd talk about large and midsize. We're talking about their market capitalization. So we're talking about all you have to do is take their share price, multiply it times how many shares are outstanding. So let's say for Amazon, if there were a billion shares out there and each one costs a thousand dollars, then the market capitalization of Amazon is a trillion dollars.

And for the C fund. If you ever hear anybody refer to the S and P 500 or the 500 largest companies in America, that's what they're talking about. They're talking about the C fund. So the C fund, the index of the C fund follows is the S and P 500. And that's the largest companies in America. So you're talking about your Amazons, your Microsoft, your Googles, Tesla's on the list now, and it's all just sorted by market cap.

So at the bottom of that list, A lot of times those companies will change every year and that's what the job of the index fund manager is to sell shares of companies that fall off the index and then buy shares of companies that come onto the index. So there's about 4,100 publicly traded companies in America.

And when you buy the C fund. You're buying 500 of them, the 500 largest of them. If you look at the lifetime returns of the C fund, it's 11.13 percent versus the index, the S&P 500 index is 11. 15%. So using our basis points, you have just a difference of two basis points there over the entire lifetime of the index fund.

So that's, that's like very negligible over, over the long run, just two basis points. And it's very comparable to the S and P 500

[00:10:17] Jamie: Because it's a benchmark of the S and P 500. It'll go up, go up and go down with the stock market. Right now, early 2022, the market's kind of down world events and, or when, when COVID happened.

So you'll see a little bit more volatility there, just like you would with a normal stock market, right?

[00:10:34] Spencer: Absolutely. One of the ways that you can check to see what your daily performance of your C fund is going to be is. Either go to Google or go to Yahoo finance or wherever the stock app on your iPhone.

But if you type in V O Victor Oscar, that's the S and P 500 index fund for Vanguard. Or you can type in S P Y that's the spy. I think it's the I shares 500. It's the I shares version of the S and P 500 index and whatever percentage that goes up and goes down is what the C fund is going to do.

So the TSP is very slow to report performance numbers just because of the way that it's set up. It's not, you're not day trading with your TSP account or at least you shouldn't be. And so if you want to know what the TSP or what your C fund did on a day to day basis, you can just go and look up the S the, like I said, the SPI ETF exchange traded fund or the VOO exchange traded fund.

[00:11:34] Jamie: That's great. So the C fund is a benchmark and a foundation of a lot of different strategies out there for the TSP. Let's move to the S fund now. What does the S stand for? And how is that one composed?

[00:11:45] Spencer: So the S fund is the small cap stock index fund. So the S is, you can think of that as small. And that's everything else in the U S. So we talked about how there're 4,100 publicly traded companies in the U S and the 500 of them are in the C fund, the largest 500, but the other 3,600 have to go somewhere.

So they go into the S fund. So that allows you to, by purchasing the S fund, you're purchasing all the companies that are smaller than the 500 largest companies in America. And a lot of people, when they talk about investment strategies, they might talk about having a small cap tilt, and that's when you own.

More small cap index fund allocation than the market capitalization would dictate. But there's also other ways of doing it. You can just do a market cap weighted investment portfolio where you own a ratio of C fund to S fund. That simulates the total U.S. stock market and usually that's about a 4x or four times multiple.

So if you have 60/60 percent C fund then you want to have 15 percent or a quarter of that money in the S fund. And like I said, it's everything else in the U.S. So it tracks an index called the Dow Completion Index And lifetime, the S fund is returned about 9.7 percent versus the Dow Jones completion index returned 9.6%. It's negligible again, within the margin of error there.

[00:13:14] Jamie: So it just gives you a little bit more diversification of the stock market compared to just the largest 500 companies. Is that kind of the main difference between the C and the S?

[00:13:25] Spencer: Absolutely. Yeah. And if you want, if you're following a Jack Bogle theory of just buying everything and holding it, then you gotta have some S fund in there because if you only own the S and P 500, then you're purchasing Tesla when it's already one of the largest companies in the world.

Whereas if you had bought the S fund five or 10 years ago, you bought Tesla when it was a small cap company. And so you've been able to. Get the returns of the companies that grow and eventually become S and P 500 companies by purchasing the S fund. The other thing to note though, is the C and the S fund track each other pretty closely.

And when you, but when you own both of them then you're owning every single publicly traded company in America. And that's just, that's a great diversification. Tactic right there. I talk about my book, the lads are the low cost automatic diversified and simple method of investing. That's how I do all my investing.

And when you own. The C fund, you loan the S fund, you're diversified. It's simple, it's extremely low cost, and it's an automatic way to invest in the entire U S stock market.

[00:14:36] Jamie: Awesome. So the next one on the list is the I fund or the international stock index. What's that one about?

[00:14:42] Spencer: So this is owning shares of companies outside the United States.

I don't. And I, it's not that I have a personal vendetta against it, but it doesn't accurately represent the entire world. It's very heavily weighted into Japanese stocks. So 22.5 percent of the I fund. It's made up of Japanese stocks. And then the next couple of funds are the next couple of countries that make up the index are the United Kingdom, France, Switzerland, and Germany.

And you'll notice, China's not there. You'll notice that there's a lot of big markets that don't get included in the iPhone. And a lot of that is for political reasons, because it doesn't look good when you have the U S government essentially investing in other countries. But I think you miss out on a lot of the potential growth.

If you want to be a global investor, there's this idea called home country bias, and if you look at how people invest all over the world, so if you look at Australians, they tend to invest in Australian stocks. If you look at people in the United Kingdom or France, they tend to invest in their own country's stocks.

It's the same thing in the US. People in the US tend to buy US stocks, but I think you miss out On a lot of the potential growth around the world if you're not owning alibaba if you're not owning You know, a lot of these countries South Korea, for instance which I think actually is in the, no, it's not.

So like South Korea, it isn't in the I fund and having been there, that is a, that's a huge economy and a lot of consumers there. So you just miss out. And that's something that you would get if you bought VT, which is the Vanguard total world Stock Index Fund or the other one is V-T-I-A-X or is their Admiral Shares version of the Total World Stock Market except US Index Fund.

[00:16:44] Jamie: it's gonna be similar, but not quite the same because of the way that the TSP International Fund doesn't quite represent the emerging markets. So there's absolutely those are not quite identical. 

I forgot to ask real quick, if I can jump back to the S fund you mentioned for the C fund tracking it, if you wanted to look at it on Google with SPY or VOO, what about for the S fund?

Is there something I can look at to track that one a little closer?

[00:17:09] Spencer: Yeah, so for the S fund, you can look up Victor Bravo VB. That's the Vanguard small cap ETF. And that'll show you how the small cap market did over the last day or two. The other index or ticker you can look at is DWCPF, Delta Whiskey, Charlie Papa Fox.

And that's going to be the Dow Jones U.S. completion total stock market index. So that's the actual index that the S fund is following. 

All right. So for the iPhone Jamie, it's going to be EFA Echo Fox Alpha. That's the iShares MSCI EAFE ETF, so that's complete alphabet soup right there. The military would be very happy with that one.

I'm sure we could add a couple more acronyms in there. But yeah, that's the EFA and that's gonna be tracking the same index with Europe, Australasia, and the far east that the I fund is made up of.

[00:18:10] Jamie: Okay. And did we say yet, if we didn't say at the lifetime performance of this, of the I fund.

[00:18:15] Spencer: So the I fund is going to give you about 5 percent versus 4.9 percent on the EAFE index. Again, it's a negligible difference there, but International funds have not performed very well, especially compared to us funds in the last 10 or 20 years, they might have their day again. And every time someone's Oh, international is dead.

Emerging markets are dead. Then they end up being like the best performing asset class the next year. So I wouldn't count them out yet. International funds, large, Portion of my portfolio 25 percent is allocated to international stocks. So I do think that international stocks have a future and they could be in the future uncorrelated from US stock market performance.

So there could be a scenario in which the US stock market's down, but international stock markets are up. It hasn't happened in a long time, but there's potential out there. Yeah.

[00:19:12] Jamie: Okay, cool. Moving down the list. The next one is the F fund.

[00:19:17] Spencer: So the F fund is your fixed income index investment fund.

Again, it's a mouthful, but it tracks the Bloomberg Barclays U.S. aggregate bond index, which is just a broad index representing the U.S. bond market. It's a pretty simple fund. They invest in High grade triple A rated corporate securities. All that mumbo jumbo just means that when let's say Citigroup needs to borrow some money, it'll issue a bond and the F fund will go and purchase that bond and then Citigroup will pay 5 percent 6 percent whatever the interest rates are at the time.

Back to the F fund. It's 5.7 percent lifetime return average versus the same 5.7 percent for the bond index, the Barclays that we talked about there. It's a great fund if you want to add some bond exposure to your fund. The other way to understand the bond, bond funds aren't really something that you should be checking every day.

They're a set it and forget it. They're not, they shouldn't be that volatile right now. It might be changing a little bit because interest rates are bouncing around, but you really want to have bonds in your portfolio to outweigh the volatility. Of your stock market index funds. Okay.

[00:20:42] Jamie: And the last one, excuse me, is the G fund which like we said in episode two, I think does not stand for good. It has its role, but as far as performance goes, it's not necessarily the highest performing ones to talk about the G fund a little bit.

[00:20:58] Spencer: So the G fund is a 4.7 percent lifetime return, which sounds great until you look at their 10 year performance.

It's 1.94 percent and the G fund gets a bad rap because originally everybody, when you signed up for the TSP, they put them in the G fund because they didn't want to be accused of, misallocating or misinvested investing people's money. Thankfully that's changed now. And when you open up a TSP, Your funds are automatically contributed to the life cycle fund, which is most closely correlated to your retirement date.

So for most of the guys and gals coming in right now, that's going to be the L 2065 fund. And we'll talk a little bit about life cycle funds in just a second, but the G fund, it gets a bad rap, but it's actually, it serves its purpose. If you want a bond fund that is inflation protected, And provides a stable return and it doesn't go down.

It might not go up very much, but the beauty about the G fund is it preserves its purchasing power because it purchases short term US treasury securities from the United States government. I know it's weird because the TSP is a government agency too. And it just shows it all just goes around, right?

Like money is completely made up and. buT you, but what they're doing is they're purchasing the short term U. S. treasury securities and you're getting a pretty good return in the long run for a bond fund and you have the guarantee of the United States government. So as long as the U. S. government continues to exist in a way, shape or form that allows it to pay its debts, and every time we run into the debt ceiling, the G fund is threatened by that.

But so far, the Democrats and Republicans have been able to agree to continue to increase the debt ceiling. And hopefully that will continue to happen going forward, or they'll find a way to bring it on so much debt. Going to debt.

[00:22:53] Jamie: That'd be the ideal one for me personally

[00:22:54] Spencer: Yes. But until, until that happens, which we might be waiting a long time, the G fund's there for you.

And especially in an inflationary environment, You want to own a lot of stocks because, as prices rise, hopefully companies raise their prices. And so they continue to make more money, but you can also have a lot of your assets in the, or some of your assets in the G fund as well, which should be inflation protected because of the way that it purchases securities.

So again, we talked about five TSP funds ranging from the most risky or the international stock. Index investment fund or the I fund then the S fund the small cap fund the C fund think S& P 500 The F fund which is your fixed income index and then the G fund which is your US government bonds As the most secure and the lowest risk also though remember With lowest risk comes lowest returns with higher risk comes potentially higher returns that's the way that capitalism is set up If you don't take on as much risk, then you don't make as much in returns.

[00:24:02] Jamie: Very true. All right. You mentioned a minute ago Spencer the life cycle funds. 

Can you explain what a life cycle fund is? 

You mentioned 2065. What does that mean and what other options are out there? And then how are they composed?

[00:24:17] Spencer: So the life cycle funds are made up of the five core TSP funds.

So if you understand the five core TSP funds, then you can understand the life cycle funds. And a lot of times I'll see people mix the five core TSP funds with the life cycle funds, and they're not really designed to do that. The life cycle funds are there to be a target date retirement fund. They're there to set it and forget it, put all your money in here.

And you have professional investment managers allocating your money in such a way that you take on a lot of risk when you're younger. And then you take on a little bit less risk as you get older. So what that means for the L 2065 fund is it's invested. Let me back up when we say L 2065, what we're talking about is somebody who's going to be.

Retired within plus or minus, let's say five years in 2065. So if you were born in the year 2000 and you're expecting a normal retirement, or, most people consider a normal retirement of 60 or 65 years old, then you probably want to be invested in the L 2065 fund for anybody, who's going for financial independence, you probably don't want.

To pick a life cycle fund that corresponds to your early retirement or financial independence day, you actually probably want to pick one that's later because the whole point of financial independence is to have assets that are going to grow faster than inflation. And that usually means having a lot of stocks.

You don't normally want to have any more than, let's say, 50 percent of your portfolio in bonds or else you risk having failure over long periods of time. Of your portfolio. So the life cycle funds are broken up into five year chunks. So I think the closest one to us right now, tell me if I'm wrong. Is it 2025 or have they moved on from that?

I think you're right. There is a 2025 one right now. And then there's also, so once you're done or once you retire, the life cycle fund transit first into the, they call it the life cycle or the L income fund, and that's the most conservative. So that's going to have a lot of bonds. And not so many stocks, but yeah, right now there's a L 2025 fund and there's the furthest one out is the L 2065 fund and probably in about two, actually, I think as they sunset.

So once we get close to 2025, then the 2070 fund. The L 2070 fund will come out, which is pretty crazy to think about. 2070.

[00:26:53] Jamie: I'm sorry, you mentioned that it automatically assigns new enrollees to the one that matches them. So if they enlist this year, for example, they'll get enrolled in 2065. Do they still have the ability to go in and change it to 2060 or 2055, or they can make their portfolio more or less conservative, right?

[00:27:11] Spencer:  Absolutely. Yep. And if you're, if you don't want to do the life cycle fund, you want to set up your own asset allocation and we'll talk about that in a future episode. You can pull all your money out of the life cycle fund and put it in the G fund if you want, or put it in the C fund you want, or put it into an asset allocation that's appropriate for you.

I really like what they're doing where if you sign up for the TSP and you just contribute your 5 percent and get your 5 percent match and you don't even open up your TSP account, it goes into the L2065 fund. And for most people, when they, if they never looked at their TSP and they max it out every year, let's say for 20 years, and then they open it up at age 60, they're going to be shocked, I think, at the size of the number in there.

We're talking millions. And that's a great, that's a great thing. Whereas if they had put it all into the G fund, they'd still have a lot of money in there, but they wouldn't have as much money in there when you're talking about 30 or 40 years of compounding returns from money invested in the U S stock market.

[00:28:06] Jamie: What about the expense ratio? It seems like there's a little bit more going on or a little bit more intentional planning for the lifecycle funds. Does that mean they're more expensive?

[00:28:17] Spencer: No, not really. The most expensive fund TSP fund. I think the I fund is 0.059 percent or 5.9 basis points like we talked about earlier and the Lifecycle 2065 fund is 4.9 basis points. So you're actually one basis point cheaper and that's because it's an average of the five funds that are in there and that it has a lot more C fund and S fund than it does. I fund. Speaking of the composition. So the L 2065 fund, 50 percent C fund, 35 percent iPhone, 14 percent S fund, and then less than 1 percent F and G fund.

A lot of people like to talk about all the lifecycle funds aren't aggressive enough for me. But if you look at the L2065, it's less than 1 percent bonds. That's a very aggressive portfolio for most people who have 99 percent of your invested assets. It's more aggressive than what I have.

Yeah, exactly. It's more aggressive than what I have. And that's a pretty large allocation to international shares as well. And it stays that way until 2037. So it really doesn't adjust very much for the next 15 years. And what I like about that is I think the life cycle funds are a great place for people to park their money.

It's aggressively invested into us international stock market index funds. And then. It's going to sit there and give, it gives you a chance, the next 15 years. Oh my gosh. You can imagine how knowledgeable you could become about asset allocation and building your own portfolio. You could probably read a book called the military money manual and learn just about 80 percent of what you need to know about it.

But that's a great place to start. It's a great place to learn about asset allocation. And then if it's too conservative for you or not risky enough for you. Then you can move your money out and you don't really have to worry about it. The 2065 returns were 21. 19 percent lifetime. Now granted like this fund just came out and it had, it was probably released in 2020 right before the COVID dip.

But if you compare that to the L income fund, it only returned 4.24 percent lifetime. And that's because again it's invested super conservatively. Into a lot of, it's probably got a lot of G fund and a lot of F fund.

[00:30:36] Jamie: Awesome. So one big question, I think that people will ask themselves as we go through the funds and talk about the expense ratios and things like that is, is the TSP still worth it?

If we talk a lot about low cost index funds, like at Vanguard, where you're paying maybe 0.03 or 0.04, three or four basis points somewhere around there. 

Why is the TSP beneficial for us if I can get a little bit cheaper at Vanguard?

[00:31:02] Spencer: I think once you're below 10 basis points or 0.1%, you're really splitting hairs.

I know Fidelity has index funds that are zero. There's zero expense ratio. And the way that they can afford to do that is one, it's a marketing thing, right? They want to attract people because they're selling. And then they can hopefully sell some of those people into higher fee funds. But the other way they do it is they just, they sell shares to short sellers and they're able to make enough money off of that, that they can cover the costs and they can offer.

0 percent expense ratio index funds. So at this point you're in, at Vanguard, you can get their VTI total stock market, US stock market index ETF, or three basis points. I know at Schwab, they have similar funds that are extremely low and probably cheaper than Vanguard. But even though it's extremely low and we're talking about a few basis points, I think the TSP is still worth it.

And it's not just, I'm not just saying it's worth it because at this point we're completely splitting hairs when we're talking about basis points, I think it's worth it because it's your largest tax advantage retirement space that's available to military service members. 

So if you're not putting money into here, where are you investing your money?

And if it's into a taxable brokerage account, okay, that's fine. But eventually you're going to be on the hook for short term or long term capital gains tax. And you're not taking advantage of, especially in the military, you have extremely low taxable income. You should be stuffing your Roth TSP account full every year and letting that grow for 30 or 40 years.

And then when you're 59 and a half, you've got a million dollars in there tax free that you can be pulling out. And cause you already paid the taxes on it. And they were probably extremely low when you were in the military. And the other thing too, is if you don't like it, if you don't, if you think the TSP isn't worth it anymore, because it's one basis point more expensive than Vanguard, then you can move your money out.

After you've maxed out your TSP for a couple of years while you're in the military, once you leave the military, whether it's retirement or separation, you can move, you can transfer your money to an IRA, you can transfer it to another company's 401k and it's a. It's not the end of the world to have your money locked up in the TSP but it's not locked up, right?

You can move it out.

[00:33:25] Jamie: So one other question, someone, maybe they're inspired by this podcast. Maybe they've been in the military a little bit and they're only in the G fund and they've never really looked at it before. What options do they have on TSP.gov to move their money around? You mentioned that it's not really a day trading asset and there's some limitations they place on us to keep us from day trading, but I, we can move money around inside of our TSP portfolio.

[00:33:49] Spencer: Absolutely. Yeah. So log into TSP.gov. If you don't have an account set up, go to my pay, make sure that your address is correct in my pay. Because when you go to create a TSP account, they're going to physically mail you your password the first time which I think is going away in the new 2022 Changes, but at least last time I checked that's the way that they're still doing it And yeah, you can log into your TSP.gov account and you can set up a interfund transfer And let's say that you've been putting money into the g fund for years You can say I'm definitely going to stop running the G fund. Let me put it into the L 2065 fund. And then I'll come back in a few months after doing some research and I'll figure out how I want to divide it up.

But if you're pretty sure you've listened to our episode about asset allocation and about the different portfolios you can build in the TSP, which is going to be a future episode. So stay tuned for that. If you've listened to that episode and you think you're ready to go build. Your own portfolio then go for it, allocate your funds to the C fund to the S fund.

And then the other thing you want to make sure you do is Set up your contract if you're still in active duty or guard a reserve and you're still getting a military paycheck. Make sure your contribution allocation is set up correctly as well. So the inner fund transfer is just going to move money that's currently in the account and the Contribution allocation is going to set up future money that you deposit into the account. One thing I'll mention real quick in 2022, I think it's in June.

The TSP is going to go through some massive changes and we're going to have an episode about that, but they're actually changing the name. So contribution allocation used to be how money that flowed into your TSP was allocated. That's going to be called an investment election. And then the inter fund transfer is changing to a reallocation.

That's the new nomenclature that the TSP is going to, and that's going to be taking effect after June of 2022. All right. That's great. 

[00:35:49] Jamie: This is a good detailed review of the five funds of the TSP.

And if anyone wants to dig in more into the TSP do you have a website or blog post that you want to refer them to?

[00:35:58] Spencer:Yep. Head over to militarymoneymanual.com and Google and search on their thrift savings plan. Or just Google “thrift savings plan military review”. And I've got a post up there, which will be updated soon with all the changes coming. In June, 2022 to the TSP, but the one change that's probably not going to happen for years and years, if ever is the index funds.

So the C, S, I, F, and G funds are probably not going anywhere. I would say for the next a hundred years. 

[00:36:34] Jamie: Thanks again for joining us today for this episode on TSP funds. As a review, we talked about the five funds available in the thrift savings plan, the C, S, I, F, and G and the life cycle funds that make it even easier for you.

Remember the TSP is an incredible benefit for your retirement savings goals and is very low cost. If you haven't yet go back and listen to our most popular episode of the podcast, that's episode number two, where we discussed all the nitty gritty details of the TSP.

[00:37:00] Spencer: If you're enjoying our podcast, we would appreciate a five star review on Apple podcasts or Spotify.

All the reviews we've received so far have been great, and we certainly do appreciate them. Subscribe to the podcast so you don't miss future episodes, hit the plus or the little alarm bell so you get notifications. And if you have any questions or feedback please message us on instagram at military money manual or email info@militarymoneymanual.com if you want to support what we're doing here On the podcast. My new book, the military money manual is available on Amazon prime with free shipping, Kindle ebook, and audible audiobook. Thanks again for listening and thanks for being the best part of the military money manual community. We'll see you on the next episode of the military money manual podcast.

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