Thread: Financial Engines

Originally Posted by Pete1

For the TSP, Financial Engines generally prefers the G Fund over the F Fund. Both funds offer similar returns, but the G Fund does so with lower risk.

Pete1,

Good to see you posting!

Every time I run the Markowitz Mean Variance Optimization, the G Fund drops off the efficient frontier at about 8% return. Since, I want more than 8%, I use the F fund to get it.

Although I respect William Sharpe (duh, he's a Nobel laureate and I'm a humble bureaucrat!), I can't understand why I should leave the F fund out of my portfolio (except that the F fund returns have been lousy over the last three years ).

Since the G fund is essentially cash, theoretically, it seems like bonds (the F fund) should be included in the market portfolio of risky assets. Comments? Finally, the F fund Sharpe Ratio is inferior to the G fund Sharpe Ratio. However, it is superior to the C, S, and I fund Sharpe Ratios.

Having said all of that, the FinancialEngines web site is very interesting and well worth exploring.

"The G fund contains U.S. Treasury securities that together earn a return similar to that of intermediate to long-term U.S. Treasury securities. Because the G Fund securities typically mature in one day, the risk profile of the G Fund securities is similar to the risk incurred by shorter-term securities. However, shorter-term securities tend to be less risky than intermediate to long-term securities."

Rokid - To me, it sounds like FE is equating the G fund to a free lunch. It earns an intermediate to long return with short term risk. The current yield on F is about the same as G but still carries intermediate to long risk. Hence, they prefer G to F.