Investing in various funds


Q. I’ve been a GS employee going on six years, and I currently invest 20 percent of pay into TSP. I had been putting my funds into the L Fund 2020 (70 percent) and G Fund (30 percent), and just changed to the L fund 2040 (85 percent), C Fund (10 percent) and G Fund (5 percent). Is this a good way to invest my funds or should I place all of it in the L Fund 2040? I only have just over $24,000 in my TSP account. I’m 49 years old and probably plan to work at least another 15 years.

A. I hear about this kind of allocation frequently. I don’t really understand the logic of doing it this way. Your goal should be to use the lowest-risk investment strategy that will achieve your lifetime financial goals. The L funds are designed to be risk-efficient. That means that when your money is in an L Fund, it is realizing its return in exchange for the lowest possible risk (more or less). By deviating from the L Fund’s allocation, you are likely to be increasing the risk you are facing without a corresponding increase in expected return. In other words, unless you have done the analysis necessary to ensure otherwise, by adding individual funds to your account, you are probably just “contaminating” and degrading the performance characteristics of the L Fund.

You should either construct a portfolio out of individual funds, or use an L Fund, but not both. If you are not sure about the right investment strategy, I suggest that you use the L Fund that most closely corresponds to your life expectancy.


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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to and view his blog at

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