4 Effective Ways Service Members Can Use the TSP F Fund

in Save by Lacey Langford, AFC®

The TSP F Fund is an individual fund available within the Thrift Savings Plan (TSP) to invest your contributions. Knowing the most effective way to use the F Fund can help you earn more money in the long run and reach your investment goals.

The most effective ways for service members to use the TSP F Fund are for diversification, lower risk, and capital preservation.

Before I jump in, just a reminder…

I’m a financial coach and don’t give investment advice. My article is intended to educate you on the F Fund. If you want financial advice for your unique financial situation, I recommend reaching out to a financial coach or fee-only financial planner for help.

Related reading: How to Get Free Financial Help

What’s the TSP F Fund?

The F Fund is the Fixed Income Index Investment Fund. The goal of the fund is to match the performance of Bloomberg Barclays’ U.S. Aggregate Bond Index. So the F Fund is a bond index fund*.

It’s one of five individual funds available in the TSP. The F Fund gives you the option to invest your TSP contributions into investment-grade fixed-income securities. Because they’re investment-grade securities, the risk is lower than other bond funds.

*Terminology note: An index fund is a mutual or exchange-traded fund that copies the performance of an existing list of stocks or bonds.

Further reading: Which is Better: The Traditional vs. Roth TSP


What’s in the F Fund?

The fund holds only high-quality notes and bonds that mature* in more than a year. Recently the fund has been comprised of government, secured, and credit bonds.

Although the fund mimics the Bloomberg Barclays’ U.S. Aggregate Bond Index, not every security in the index is held in the TSP. Since it has over 11k bonds and notes, that’s a little many to have every single one represented in the F Fund.

Because of that, a selection of asset-backed (which means secured), U.S. government, corporate, and foreign government securities is made to include in the F index fund.

*Terminology note: Maturity is when the bond issuer (whoever issued the bond) pays the original value of the bond to the bondholder (you) and the bond you hold no longer pays interest.

What Bonds Are in the TSP?

Bonds are fixed-income investments where investors (you) loan money to a corporation or government. Just like you and me, federal and state governments, corporations, and municipalities need or want to borrow money for some reason. Bonds are a way for those entities to take out a loan to pay for things like new bridges, buildings, or projects.

Bonds are also called fixed-income securities. That’s because, in exchange for you loaning them money, they’ll pay you a fixed interest rate on the loan amount, a.k.a, bond principal.

Who Manages the F Fund?

For many years, BlackRock Institutional Trust Company solely managed the TSP F Fund. Or, as I like to call them, BRock. After review by a consulting firm, it was recommended to the Federal Retirement Thrift Investment Board that it probably wasn’t the best idea to have all of the F, C, S, and I Funds with one investment firm.

In April 2021, a second TSP manager was added. Now, BlackRock manages about 80% of the F Fund. The other 20% is managed by State Street Global Advisors.

Rate of Return

Since its inception in 1988, the average annual return is 6.04%. Here are the latest rates of return.

2021 Year-to-Date -1.49%
1 Year -.18%
3 Year 5.40%
5 Year 3.14%
10 Year 3.63%

Investment Fees

In case you weren’t aware, investments aren’t free. Everything has a cost, including the TSP. The total expense ratio for the F Fund is .060% which means that the TSP and investment managers charge $.0600 for every $1,000 you invest in the fund.

When broken down further…

The administration expense the TSP charges is $.480 for every $1,000 you invest. And BlackRock & State Street Global Advisors charges $.120 for every $1,000 you invest.

Effective Ways to Use the F Fund

How and when you use bonds depends on your investing goals. Here are some of the ways the F Fund can be effective.

When you Want Diversification (Yes! Please)

Since the fund holds different types of bonds, it helps diversify your TSP. If one bond isn’t performing so hot, you have others to help make up the difference.

If you’re adding the F Fund to your overall TSP portfolio, bonds are a good diversification for stocks as well.

When You Want More Return

Bond’s prices move inversely to interest rates. That just means if interest rates increase, bond prices go down. And if interest rates go down, bond prices are going to increase.

The F Fund allows you to earn a higher rate of return than the G Fund because it has longer-term securities.

Related reading: The Best Uses of the G Fund

When you Want Lower Risk

The F index can be good if you have a lower risk tolerance. Bonds have less risk than stocks because they’re a debt instrument, whereas stocks are equity. Equity is the ownership of a company. Investing in debt (i.e., bonds) is safer because, in the hierarchy of who gets paid first when something goes wrong, debtholders get first dibs on payback before shareholders (equity).

When You Want to Preserve Capital

Bonds do have some risk, but if you want to preserve capital, the F Fund is an effective method to accomplish that investing goal. With almost 40% of the portfolio invested in government notes and bonds, the risk is low.

And it’s not just the government backing of bonds that helps reduce risk. The F Fund only invests in investment-grade securities. This means the company has a bond credit rating of “BBB” or higher as determined by Standard and Poor’s or Moody’s.

Terminology note: Preserve capital means you don’t lose the initial amount you invested.

The Risk in a Bond Index Fund

Every investment has its risks. Before you commit with your money, it’s good to know the risks to help decide how you want to invest. Here are the risks in the TSP bond index fund.

Credit Risk

Credit risk is the possibility that the company or bond issuer won’t repay their debt. The risk is your won’t get your money back or your interest payments.

Inflation Risk

Inflation risk is the possibility that the rate of return you earn won’t keep up with inflation. The risk is you’ll lose purchasing power because your money is not making more than inflation rates.

Interest Rate Risk

Interest rate risk—also called market risk— is the possibility bonds will lose value when interest rates rise. The risk is that bonds in your TSP will decrease value because new bonds pay a higher interest rate.

Prepayment Risk

Prepayment risk is the possibility that an investment you make will be returned early if interest rates fall. The risk is you won’t receive the total amount of interest payments on your investment.

Thrift Savings Plan Fund Comparisons

The F Fund isn’t the only fund available in the TSP. They may be another individual fund or combination of funds you prefer.

TSP F Fund vs. G Fund

The main difference between the two funds is that the G is invested in short-term government securities, and the F tracks an aggregate bond index fund.

The F Fund provides a higher return than the G Fund but with a little more risk. However, the risk is still lower than other individual funds in the TSP.

The 5-year average return of the F Fund is 3.14%, while the 5-year average return of the G is 1.99%.

Further reading: Best Uses of the G Fund for Service Members

F vs. C and S Fund

The C and S Fund both have investment objectives to match the performance of stock index funds, while the F aims to match the performance of the Bloomberg Barclays U.S. Aggregate Bond Index.

The C Fund matches Standard and Poor’s 500 (S&P 500) Index, which are large to medium-sized companies. The S Fund tracks the Dow Jones U.S. Completion Total Stock Market Index, which holds small to medium-sized companies in the U.S.

Frequently Asked Questions

Here are some of the most frequently asked questions about the F Fund.

What is the TSP F Fund Ticker Symbol?

There’s no ticker symbol for the F Fund. Since it’s an index fund, it doesn’t have one. Ticker symbols are for stocks and Exchange Traded Funds (ETF), which trade like stocks.

Further reading: What is an ETF?

Is the F Fund better than the G Fund?

The answer depends on what you’re looking for. The F Fund has had a better rate of return in the last 15 years. The G Fund is intended to preserve your investment. If that’s your goal, then the G Fund might be the better investment for you. If you’re looking to have a greater rate of return, then the F Fund would be better for that.

Is the F Fund a good investment?

It’s a good investment if your investing goals are in alignment with the objective of the F Fund, which is fordiversification, lower risk than the G Fund, and capital preservation. But it still has risks just like any investment.

Related podcast: Understanding Funds for Your TSP

Here’s the Bottom Line

The most effective ways to use the TSP F Fund are for diversification, lower risk, and capital preservation. Knowing them and aligning them with your investment goals can help achieve those goals. If you want to have diversification, lower risk, capital preservation, or a rate of return greater than the G Fund, the bond index fund could be an option to add to your TSP portfolio.

If you want to “kickstart” your finances in the military, you can get access to my free Financial Kickstart Kit here.

Featured image by Airman Katherine Jacobus