Q. You often express the virtues of the TSP, such as simplicity and low fees, but you also cite that the TSP offers eligible investors (i.e., federal employees, retirees and survivors) the unique G Fund. Besides being composed of “special-issue” Treasury bonds, can you elaborate on why the G Fund is a unique and valuable tool for managing ones portfolio and how one can best use the G Fund?
A. The G Fund is equivalent to cash in that it is guaranteed against loss, but it offers a return that is well above any other “risk-free” investment. This means that it produces a higher risk-adjusted rate of return than you you’ll find anywhere else. This characteristic means that a portfolio that contains the G Fund can be expected to perform better than a similar portfolio without the G Fund. In short, using the G Fund properly will allow you to produce a portfolio that should perform better than any other portfolio, when risk is considered. All you need to do to reap this benefit is maximize the amount of cash in your portfolio that is exposed to the G Fund. Buy the riskier securities you need outside of the TSP whenever possible so that they don’t have to be purchased with TSP dollars, and the money can be left in the G Fund instead.