TSP - The "L" Fund

By: Brandon J
Submitted: 2007-01-17 16:17:39
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The Lifecycle "L" fund is designed to automatically adjust your money according to the maturity time of the fund. Professionals will adjust the funds between the other five funds; the G, F, L, S, and I. By the maturity time you will have most of your fund, more than 70%, in the G fund. The G fund invests in Government securities. There are five funds; the L 2040, the L 2030, the L 2020, the L 2010, and the L income. Each of these L funds is descending in retirement times. If you are retiring after 2035, then you will put your money into the L 2040. If you are currently retired then you should put your money into the L income.

Advantages - There are some good advantages to this fund.

The fund will automatically adjust to your retirement time frame by professionals. There are volumes of books written about asset allocation and this fund will eliminate that stress.

The fund is very conservative and will probably be very good at asset preservation. Basically, you will not lose very much money.

The fund will likely give you the same returns as any other semi-educated investor. The asset allocation is the same as most conventional wisdom. You will probably see the same returns as everyone else. You will gain when everyone else gains and you will lose the same as everyone else. But you will not lose as much as everyone.

Disadvantages - There are some disadvantages to this fund too. (Solely, my opinion.)

The fund will automatically adjust to your retirement time frame. It is set in stone to the maturity date and not your personal needs. This is not an investor specific fund. It will not tailor to your retirement wants, but it will cover your retirement needs.

The fund is considered too conservative. You won't lose a lot of money but you won't gain a lot either. According to the prospectus of the fund, only the L 2040 is expected to give you more than an 8% return.*

The fund will give you the same returns as anyone else. You will never be able to brag at the cocktail parties. You will do the same thing as everyone else with some financial education.

* Even though the prospectus states that the L 2040 will receive more than an 8% return; the L 2040 has received a 17.41% increase from 3 Nov 05 - 3 Nov 06. These other L funds have seen descending returns respectively to the L income fund with a 7.8% return.

(All fund information can be found at www.tsp.gov) (A flash animation of the funds' asset allocation can be found at http://www.tsp.gov/lifecycle/flash/index.html.)

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