F Fund and G Fund

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Q. I recently decided to shift the corporate bond portion of my overall portfolio into my retirement accounts (i.e., shift my retirement account holdings largely into corporate bonds, and shift my taxable account holdings away from them) since the income from bonds is taxed at a higher rate than income from equities.

Since the Thrift Savings Plan is about one-third of my retirement account money, I took a closer look at the F Fund and I was shocked to see that the majority of the Barclays Capital U.S. Aggregate Bond Index that the F Fund tracks is treasuries.
I think of the purpose of the nonlifestyle funds being to allow TSP participants access to some diversification options to tailor their own portfolio. Why then would F be constructed in a way that it consists of essentially more than half G? If I wanted a portion of my bond holdings to be treasuries, I can always add more G. But if I only want to hold non-Treasury bonds, there’s no way to do it. I can’t go long F and short G.

This makes so little sense that I would bet dollars to donuts that most F Fund investors are unaware of the overlap. I generally hold the TSP design in high regard. Am I missing something?

A. The two assumptions that have inspired your concern are incorrect. First, the G Fund is not a bond fund, it is a cash equivalent, and there is no overlap between it and the F Fund. Second, as of Jan. 17, 2014, the F Fund’s index consisted of about one-third U.S. Treasury debt, and this has been historically typical.

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