The four best uses of the G Fund are based on the objectives of the fund. They are to preserve capital—your investment and interest—and earn a return rate above short-term U.S. Treasury securities.
Before I break down the G fund, just a reminder…
I’m a financial coach and don’t give investment advice. My article is intended to educate you on the G Fund. If you want financial advice for your unique financial situation, I recommend reaching out to a financial coach or fee-only financial planner for help.
Just like any investment, there are pros and cons to a government securities fund. Here are some of the best uses of the G Fund in your portfolio.
My G Fund Coaching Story
I dropped my boys at preschool—careful not to get my suit dirty. No matter how many times I washed their little hands, they always managed to have something on them.
My time was already counting down—T-minus four hours until pick-up.
It was volunteer time. Three days a week, I volunteered at the Financial Readiness Office, helping service members and spouses with money.
Greeting everyone at the front desk, I checked the appointment book to see if I had anyone on my schedule. With excitement (I know I’m a dork), I noticed I did.
She was an E-7 that wanted to talk about retirement.
“Why don’t I have more money in my TSP?”
I hated that I probably already knew the answer. But I asked her to pull up her Thrift Savings Plan (TSP) account to be sure.
“I’ve been saving money for years.” She added with emphasis on “years.”
When I looked at her TSP allocations, it confirmed what I already suspected. She was 100% invested in the G Fund.
Now, I had to explain why she didn’t have the money in her TSP that she imagined she would come retirement.
What is the G Fund?
The G Fund is short for Government Securities Investment Fund. It’s one of the five funds available in the Thrift Savings Plan (TSP). The goal of the government securities fund is to preserve capital and earn a return greater than short-term U.S. Treasury securities.
Here’s what that means.
Preservation of capital is to preserve or keep your investment safe. With the preservation of capital, the goal is not to lose anything. If you make a return, it’s a bonus.
The TSP G Fund earns a return higher than short-term securities because when the calculation for the fund rate is said and done, it’s more on par with long-term rates, which are typically higher. FYI. There’s no ticker symbol because it’s invested in short-term Treasury securities.
Further reading: All Things You Need to Know About the TSP
What’s in the G Fund TSP?
The G Fund is 100% invested in short-term U.S. Treasury securities. The securities are issued specifically for the TSP (yes, the TSP is special like that).
The fund is intended to protect your investment from loss because it’s invested in government securities, which has the perk of being backed by the full faith of the U.S. government.
But the downside is…
Uncle Sam backing up government securities reduces some of the risks of investing. When there’s less risk, there’s less return.
With less return, you can run into inflation risk. Inflation risk is the threat that the return you earn on money invested in the TSP won’t grow enough to outpace the cost of goods and services.
I know that’s a lot, but here’s what the returns look like.
Related content: Effective Ways Service Members Can Use the TSP F Fund
Average Returns (Performance)
The G Fund rate is calculated by taking the weighted average earnings of around 153 Treasury securities.
A weighted average is a method to calculate returns where some values are given more weight.
| 2021 Year-to-Date | .65% |
| 1 Year | .97% |
| 3 Year | 2.03% |
| 5 Year | 2.05% |
| 10 Year | 2.04% |
But what do those percentages mean?
To put them in perspective, the long-term average rate of inflation is around 3%.
You may already be thinking what I’m thinking—inflation risk!
When you compare those returns to the average rate of inflation, you can lose money.
Which leads me to my main point, what’s it good for?
Related reading: Which is Better: Traditional Vs. Roth TSP
The Best Uses of the G Fund-Government Securities
The two best uses of the G would be the preservation of capital and to earn a return rate above short-term U.S. Treasury securities. Both of which are goals of the fund laid out by the TSP.
Another good use of the fund is in the Lifecycle Fund. TSP Lifecycles are professionally designed to allow you to take your money and invest it in one fund. Instead of dividing it up yourself into percentages of the different funds available. All the Lifecycle options have a portion allocate to government securities.
Here’s an example of what a LifeCycle looks like.
It’s also good for people with an extremely low tolerance to risk and who want safety. You have to be able to sleep at night with your money invested. If taking more risk by investing in stock makes you uncomfortable then government securities might be a good option for you.
Fund Comparison
The G Fund isn’t the only fish in the TSP sea. There are five other ones or combinations of funds to consider when deciding how to invest your hard-earned money.
Here’s how it stacks up to the F and the C Funds.
G vs. F Fund
The F Fund is the Fixed Income Index Investment Fund. The biggest difference between the G and F is the F Fund is invested in fixed income securities (notes and bonds) while the G is in government securities.
The objective of the F Fund is to mimic the Bloomberg Barclays U.S. Aggregate Bond index. You get a little higher return in the F compared to the G because of longer-term investments.
Like the G, the F Fund also has inflation risk, but it also has market risk, which isn’t a risk with government securities.
Related content: How to Use the F Fund
G vs. C Fund
The C Fund is different from the G Fund in that it invests in large to medium-sized U.S. companies. Investing in stocks gives you a greater chance of higher returns, especially when you’re comparing it to the government securities’ returns.
The goal of the C Fund is to mimic the performance of the Standard and Poor’s 500, better known as the S&P 500. The stock in the S&P are large to medium cap stocks where the G Fund investment is in short-term government securities.
The C Fund is subject to inflation and market risk, while the G is only subject to inflation risk.
Related reading: Everything You Should Know About the Blended Retirement System (BRS)
Frequently Asked Questions
As a financial coach, I hear some common questions about the G Fund. Here’s what I get asked.
Why haven’t I made money in my TSP?
Just like the E-7, I was helping, “why haven’t I made money?” is the number one question I get asked when it comes to returns. It’s not a fun one to answer, but most often, the number one reason you haven’t made money in the TSP is because all your contributions are going straight to the “G.”
Before 2014, when you signed up for the TSP, the default for your contributions was the G Fund. Which meant that if you did not log into your TSP account and pick how you wanted your money to be invested, it all went into government securities.
Thankfully, that default has changed. Now when your TSP account is started, the default is the Lifecycle closest to your 62nd birthday.
Is the G Fund a Good Investment?
It depends. Whether government securities are a good investment for you depends on your investment goals, risk tolerance, and timeline. If you want to protect your investment from loss without a lot of risk, then yes.
You may want to take more risk to get a higher rate of return and have more money in the future, then maybe not.
Your goal could be to have a portion of your TSP allocated to the G Fund for capital preservation and another amount allocated to other ones like the C or the S Funds to get a higher rate of return, which might be good for you too. It just depends on you.
Another factor to consider is how long you have until retirement. The closer you get to retirement, you may want to reduce the risk in your TSP.
Can the G Fund Lose Money?
No, it can’t lose money because the U.S. government backs it up. But remember, because it comes with a guarantee, it means you won’t make much money. Inflation risk is real!
Will the Fund protect me from inflation?
Nope. The G won’t beat inflation. So if your investment goal is to have a return the outpaces inflation, it’s not the fund you want to be all-in on. You might want to consider allocating some to other ones.
Here’s the Bottom Line
There are pros and cons to using the G Fund in your TSP. For many people, it will be a part of your account in some way—especially if you invest in a Lifecycle Fund. The percentage of your money invested in the fund will depend on many factors like your financial goals, the risk level you’re comfortable with, and the time you have until retirement.
If you want to “kickstart” your finances in the military, you can get access to my free Financial Kickstart Kit here.
Featured image by PCU John F. Kennedy
