When you look around the innerwebs for TSP info from an employee perspective, there isn't a ton out there. This forum is a good resource and the short-term folks have carved out a nice place to discuss various formulas and strategies for short-term gains. That's fine, but the overwhelming majority of TSP investors are either novice, don't understand investing, or are afraid to delve too far into the subject. I notice this place attracts a lot of guests, so I assume those are people looking for guidance but maybe just wanting to see things at a safe distance so they can get a better feel. So this is for you and for those without the time or gumption to invest a ton of effort into your retirement accounts.
First off here is the TSP summary where you can find the basic information to get you on the right path. Secondly, know that the TSP is one of the best 401k equivalent plans in the world. The investment options aren't what private 401k plans offer, but you can't beat the fees nor the administration of the plans. And finally, for the novice investor TSP offers enough to put you on the right path towards a secure and prosperous retirement.
So do you have 100% of you allocation in the G fund? I know a lot of employees who do and none of them are doing it because of market conditions or a short-term view. They do it because they've always done it that way. The only people that should be doing this are people that are so risk averse, that they can't stomach losing even a few dollars in your account. That's fine, but there is a better way.
I do not personally invest in the TSP lifecycle funds but I think they absolutely work for most TSP investors. There are five funds:
L Income is designed for those who have already retired, L2020 for those retiring between 2017-2014 and then the others fall into the range of projected retirement dates. All the funds are formula based that shift funds from one investment (like from I fund to G fund or whatever) the closer you get to retirement. According to TSP the objective of the lifecycle funds is: "to strike an optimal balance between the expected risk and return associated with each fund."
If you take a look at the 2040 fund for example, you can see that right now the fund is invested in G (20%), F (6%), C (40%), S (12%), I (22%). But if you scroll through the player at the bottom of the pie chart you will see that in January of 2030, it will be G (34%), F (7%), C (31%), S (9%), I (17%). So over time the fund automatically re-balances your allocations to reflect a lower risk tolerance the closer you get to retirement. Now you are putting 26% into bond funds and 74% into equities, in 2030 it will be 41% into income producing investments and 59% into equities.
It's not a bad formula and one that all the big mutual fund companies now do. For example...
TSP 2030 Fund 5 year return: 7.58%
Vanguard 2030 Fund 5 year return: 7.21%
So not bad. Most financial advisors will say not to mix the life cycle funds with any other investment, because you defeat the strategy employed by the computers and gurus that create the formulas. I think there are exceptions, namely investing in sector funds (ie Energy, Healthcare, emerging technology) outside the TSP, and the G fund within the TSP. If you're so risk averse that you just hate looking at your portfolio in down markets, then maybe you would consider mixing in more G fund. I think because the TSP offers so few investment options that just sticking with a Lifecycle fund is best, but in the end it always boils down to individual goals and risk tolerance.
Finally, I think the lifecycle funds are generally a little conservative, at least for me. If you have a little higher risk tolerance but don't want to mess around with re-balancing, market functions, and logging into your account more then you want to, then here is the answer. If the TSP recommends that you use the 2030 fund because you can retire in 2032, put your money in the 2040 lifecycle fund instead. For example, IMO even in retirement you should have a good deal of money in equities. The LIncome account only invest around 20% in equities, I think being closer to 50% is more appropriate, even in retirement. The L2020 fund is about 46% equities, so that is where I'd probably put my money if I were invested in Lifecycle funds. In theory you could go the other way as well, going with the 2030 instead of 2040 because your afraid the sky will fall sooner than later.
In the end your investment choices are individual and based on several variables. To me there are only two rules that every long-term investor should follow: Contribute at least 5% to get the full match and don't be 100% in the G Fund. Other than that, it's based on you and your goals.
I am someone who believes in buy and hold with some short-term views in down markets to buy more equities. But according to the research firm Dalbar, stock funds returned 8.3% on average in 2014 while investors got a 5.5% return. Why? Because of cost of the plan or funds which we in TSP don't have to worry about, and investors trying to time the market. The Lifecycle funds aren't going to produce the sexiest of returns but I think for most people they work great. At minimum, it's exponentially better to invest in a life cycle fund than just leaving your nest egg in the G fund. Inflation alone will eat all your returns, and in investing time is the most important variable. You want your money compounding, not lagging or barely beating inflation.
I have several buy and hold strategies and am glad to discuss them going forward but let's see how this goes first. Good luck and happy investing!