G Fund vs. F Fund

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Q. Many experts are indicating that there is a bond market bubble growing. In addition, The Wall Street Journal survey report indicates that interest rates will be going up about a point in 2014. For the next year or two, would it be best to move money out of the F Fund and place it in the G Fund, or move monies out of both funds and place them in market funds like C, S or I? Since both G and F are invested in bonds, will increasing interest rates affect invested funds negatively?

A. I have been substituting G Fund for part of the F Fund allocation in my client portfolios for the past two years.

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  1. Since you posted your question two months ago you will have seen the F Fund post negative results. That is because in a rising interest rate environment, the bonds held by the fund will lose value. With interest rates as low as they are, they have nowhere to go but up, and the Federal Reserve has signaled an end to Quantitative Easing which has held interest rates artificially low. Expect interest rates to rise and the F Fund to perform miserably for the foreseeable future. For a very full discussion, see this blog post at http://www.tspallocation.com/f-fund-vs-g-fund-in-tsp-allocation/

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