Step 2 to Crush the Thrift Savings Plan – Decide

by | 27Mar2018 | Crush the TSP, Thrift Savings Plan | 0 comments

The Thrift Savings Plan (TSP) is the military’s retirement account. Learning how to maximize its utility should be high on your financial priority list. At Military Millions we’re going to create a guide that will show you how to crush it with the TSP. We already showed you step 1 in that guide. Here’s step 2…

The 2nd Step to Crush the TSP – Decide

If you want to crush it with the TSP, you’ve got some decisions you have to make. You have to decide:

  1. How much you’re going to invest.
  2. What investments you’re going to use.

Decide How Much You Are Going to Invest

If you want to crush it, you need to invest as much as you can afford. How much can you contribute? Here is the TSP page that lists the contribution limits.

That page may be confusing, so here is the bottom line:

  • You can contribute $18,500 in 2018.
  • If you are 50 or older, you can contribute an additional $6,000.
  • If you are deployed to a combat zone, you can contribute even more.
  • Any matching contributions you get from the DoD due to the Blended Retirement System or BRS (if you’re in it) does not count toward these limits.

How much should you contribute? As much as you can. Period. Even a few hundred dollars is better than nothing.

Decide Which Investments You Are Going to Use

The TSP is pretty simple in this regard. You only really have six options.

The first option is to just let someone else handle this for you by using a Lifecycle fund. According to the TSP:

The L Funds, or “Lifecycle” funds, use professionally determined investment mixes that are tailored to meet investment objectives based on various time horizons. The objective is to strike an optimal balance between the expected risk and return associated with each fund.

I wrote about how to invest with the TSP using Lifecycle funds. It is a simple, easy, and effective strategy that is completely fine for most people. If that is how you want to do it, you can just read that blog post and skip the rest of this one.

If you are more of a do-it-yourselfer, then you have five other investment options besides using a Lifecycle fund. The five investment options are listed this table from the TSP website:

G Fund  F Fund  C Fund S Fund I Fund
Description of Investments Government securities (specially issued to the TSP) Government, corporate, and mortgage-backed bonds Stocks of large and medium-sized U.S. companies Stocks of small to medium-sized U.S. companies (not included in the C Fund) International stocks of more than 20 developed countries
Objective of Fund Interest income without risk of loss of principal To match the performance of the Bloomberg Barclays U.S. Aggregate Bond Index To match the performance of the Standard & Poor’s 500 (S&P 500) Index To match the performance of the Dow Jones U.S. Completion TSM Index To match the performance of the MSCI EAFE (Europe, Australasia, Far East) Index
Risk Inflation risk Market risk, Credit risk, Prepayment risk, Inflation risk Market risk, Inflation risk Market risk, Inflation risk Market risk, Currency risk, Inflation risk
Volatility Low Low to moderate Moderate Moderate to high — historically more volatile than C Fund Moderate to high — historically more volatile than C Fund
Types of Earnings*** Interest Change in market prices

Interest

Change in market prices

Dividends

Change in market prices

Dividends

Change in market prices

Change in relative value of currency

Dividends

2017 Net Administrative Expenses**** 0.033% 0.032% 0.032% 0.032% 0.032%
Inception Date 04/01/87 01/29/88 01/29/88 05/01/01 05/01/01

 

That is really it. You can either use a Lifecycle fund, or one of the five funds listed in the table.

 

The Bottom Line – Decisions You Have to Make

Like we said at the beginning, you have to decide:

  1. How much you’re going to invest. (Hint: as much as you can afford.)
  2. What investments you’re going to use – Lifecycle vs do-it-yourself with the five available funds.

If you decided against the Lifecycle funds, the next thing you have to do is determine your asset allocation, which is our next step to crushing it with the TSP…coming soon.

USAA
Personal Capital

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