Investing in the tsp in the best way possible can make a huge difference in your quality of life.
For example if you invest a thousand dollars a month for thirty years compare that at a six
percent rate of return to ten percent rate of return - the difference is 1.2 million dollars!
So watch this video to the end to make sure you're not missing out on 1.2 million dollars!
I'm Tim Wolffe and if you're looking for ways to be smarter with your money
go ahead hit the SUBSCRIBE button. Let's start off with what is the tsp: The thrift savings plan
is for all federal government employees and this includes the military. It's
the federal government's version of the 401k and most people that have the tsp,
have an option to get a match. Which means you contribute at least five percent of your salary
to the tsp and the government will contribute another five percent on top of that. You can
either choose to do a roth tsp or a traditional tsp or both. Roth means you're going to pay taxes
now and pay no taxes later. Traditional means you're not going to pay any taxes now and you're
going to pay the taxes later during retirement. If you're not sure on the difference between
roth or traditional I have a video about it and I'll link it in the description below. But
generally speaking if you start investing younger and earlier a roth tsp is going to be a better
option for you. However, keep in mind anything the government matches (so their five percent)
has to go into the traditional tsp whether you put your five percent into the roth or traditional.
And go ahead if you like this video at all please hit the LIKE button!! And in order to avoid any
unnecessary penalties or tax you cannot withdraw the money in your tsp until age 59 and a half.
So when it comes to investing within the tsp you can choose between life cycle funds or individual
funds. And the life cycle funds like the "L 2060" "L 2050" are made up of the individual
funds. There's five different individual funds; the g fund, the f fund, the c fund, the s fund,
and the i fund. The g fund is the government securities investment fund this is designed to
be a very very low risk investment and produces a rate of return just above inflation. The f fund is
the fixed income investment fund and this is meant to mirror the U.S. aggregate bond market, which
is again going to be a very low risk low return investment fund. The c fund is the common stock
index investment fund this is meant to mirror the s&p 500 which is essentially the benchmark
for the american stock market. The s fund which is the small cap stock index fund
and this is meant to mirror the dow jones U.S. completion total stock market index.
And lastly the i fund, the international stock index investment fund, and this is meant to mirror
the msci fund which is a popular international stock index fund. The life cycle funds are named
by certain years like the L 2060 fund the L 2030 fund. The number in that is
a year that they anticipate you'll retire or start to withdraw that money from the tsp.
So if you're invested in the L 2050 fund they're anticipating that you'll turn age 59 and a half
around year 2050 and start using that money. And within the life cycle funds it's a mixture
of the different individual funds we just talked about the g, f, c, s, and i. The difference in
the life cycle is they allocate differently how much they're going to invest in the g,
how much they're going to invest in the f, how much they're going to invest in the i,
depending on how close you're getting to the date you're going to retire. The closer you get to that
year 2050 or 2060 the more conservative they're going to make those individual investments.
For example the L 2025, fund which is for people that are about to start withdrawing this money
here shortly in around 2025, is invested mostly in the g fund because this is a very low risk
conservative low rate of return investment and now compare that to the L 2065 fund- Where these
are people that are just starting out their careers and a lot of it is invested in the
c fund and almost none of it in the g fund. What I would say about life cycle funds is
they're very mediocre, they're not the worst but not the best. I personally never invested
in them when I had the tsp in the military and you can get a much better rate of return
investing yourself in certain individual funds within the tsp. A good rule of thumb
when you're investing in the tsp is to compare your investments to the s&p 500 which is the
benchmark of the stock market. Historically it has done just over 10 percent a year
since its inception. And in the last 10 years it's done just over 11% every year on average. It's
always good to look back at least 10 years so you have a good chart of how the stock is trending.
Looking back only a couple years may not be representative of the entire history of the fund.
So if we look right on the tsp's website the L 2030 fund over the last 10 years has averaged
8.47 percent. The L 2040 fund has averaged 9.41% and the L 2050 fund has not been around for 10
years yet but if we look at the five year rate of return on average has done 8.49%.
So again you can see they're kind of mediocre. They're not above that 10%
mark that we're looking for and you may not think the difference between 9%
and 10% is a lot but it is it's hundreds of thousands of dollars over the course of your life.
And now we look at the same tsp website and look at the individual funds. So the g fund the last
10 years has done 2.23% on average and the f fund has done 3.99%. These are the most conservative/
lowest rate of return funds the tsp has. And the c fund has done 13.59% which is the best performing
fund in the tsp on average. The s fund has done 13.08% on average every year for the last 10
years. The i fund has done 5.85%. The c and the s are performing really well above that 10% s&p
500 benchmark. So when we're talking about what investments you're going to pick within the tsp
after you've chosen whether to do roth or traditional or both- I'd recommend doing at least
60% in the c fund. This is going to be the s&p 500 equivalent fund and the best performing fund
within the tsp. Well over 13% every single year on your money. And the rest of it into the s fund
because that's done really well too. Just over 13% or you can even do 80% into the c fund and
20% into the s fund. That's what I did when I was in your shoes, that's what I recommend you do now
especially if you're just starting out in your career or you're halfway through
or you have a couple more years until retirement and you're not going to need the money anytime
soon. Invest it as aggressively as you can. The tsp as a whole is really not aggressive at all
it's a very safe investment. Even the c fund and the s fund are very diverse investments.
It's not like you're investing in a single stock when you only invest in the c fund.
You're still invested in a diverse amount of stocks. So it's very safe
and it gives you a much better rate of return than the life cycle funds.
For example say you only make six percent on your money for 30 years and you're investing a
thousand dollars a month. At the end of 30 years you're going to have one million dollars. Cool
that's not bad, but what if you had invested in the c and the s fund and have received a 13%
rate of return after investing the same amount of money per month for the same amount (30 years).
You would retire with 4.3 million dollars!!! Would you rather have 1 million or 4.3 million dollars?
So it does make a huge difference picking the right funds within your tsp.
Thanks for watching guys be sure to SUBSCRIBED and please hit the LIKE button to help this video out
or SHARE this video with anyone that you're in the military with or you're working
in the federal government for that might need to hear this or doesn't
know a lot about the tsp. I'll see you guys for next week's video!