Sure you could have a 5% gain. You could also have a 5% loss or worse like right now.
Here is another way of looking at it. I want to retire and live off this money someday, maybe today. So what do I do if I'm currently retired and withdrawing funds to live off of that I wan't to make sure stays there? You stick it in something guaranteed to preserve your capital like the G Fund. How much? Well, that depends on how long you think it will take you to make up a loss like we are currently experiencing. A rule-of-thumb typically says it could take up to 5 years to make up a loss from a crash so if you don't want to be forced to sell low you can stick 5 years of living expense in safety, like the G Fund. How much is that? 15%, 20%,25%. What ever it is you keep it safe. This strategy is called something like buckets of money. It budgets your funds in different withdrawal time horizons where the more distant ones are invested in more risky funds with the hope for greater returns. So you figure all this out and end up with the allocations that looks like something akin to our L Funds. Highly modified of course.
Granted this is hard to do inside TSP with our withdrawal options, but it is one way of looking at it. The way you look at it is what counts because in this game your emotions work against you. If you want to look at the math don't think about how you could be making 5% instead of 1.25%. Think about being 100% in the S Fund since the start of the year where every day you tell yourself this has to be the bottom and we will rally from here only to see another day of losses, some of them 2% - 3% in one day. Now you are @ -12% and realize you only have 88% of your entire life savings left. What do you do? That really is hard to answer if you don't have real money in the game. Why? Emotions! Yeah, it is a game to only put half in and say "I kept half safe" or "I only lost half as much as I could have", but if that is what it takes to keep you from panicking that is what you do. The market is geared to use your emotions against you to get you to buy high and sell low. Your job is to stop that by what ever means works for you. Too many people learn that lesson the hard way.
Bookmarks