The Federal Employees Retirement System’s (FERS) Thrift Savings Plan (TRP) allows federal employees to save money and spend a portion of their contributions in investments, which are similar to securities and bonds offered by investment companies.
Under the program, federal employees have two options for investing:
L funds. Also known as lifecycle funds, L funds is an investment strategy that automatically mixes different types of funds such as government bonds and corporate stocks for a certain time frame, or a target retirement date. Employees who invest in L funds are assured that their investments are broadly diversified in different markets throughout the lifecycle of their investment.
Individual funds. For members who want to manage their own accounts, TSP offers five individual funds, namely the Government Securities Investment (G) Fund, the Common Stock Index Investment (C) Fund, the Fixed Income Index Investment (F) Fund, the Small Capitalization Stock Index (S) Fund, and the International Stock Index Investment (I) Fund. These funds are the same ones present in L funds. The only difference is that under this option, members are allowed to choose their investment mix for the growth of their own money.
L funds and individual funds have their advantages and disadvantages. L funds, while simpler and less risky, have lower earning potential. Individual funds, on the other hand, though considered high-risk investments, can yield greater returns.
James A. Foster is part of the team behind the Washington-based company Foster Financial Services. Visit this Twitter account for more information about the firm.
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