TSP G-Fund - Good for Cash Portion?

[MiniB]

For those who have TSP access, is the G-Fund usable for the Cash portion?  If so, would you cap it at a certain % of cash just to be safe?  Perhaps up to 50% of cash in TSP G-Fund?

[beafet]

I would think so. Over the last 23 years, the G Fund has averaged a 6% annual return, and has never gone into the red. It is what I intend to use for much of my cash portion of the PP.

[Reub]

MiniB,

I believe that the TSP guarantees your G fund investments and pays an interest rate that is above what you can get in the free market. Therefore, it is an excellent place to invest your cash.

[beafet]

From TSP.gov

Investment Strategy
The G Fund invests exclusively in a nonmarketable short-term U.S. Treasury security that is specially issued to the TSP. The earnings consist entirely of interest income on the security.

Risks
The G Fund is subject to inflation risk, or the possibility that your G Fund investment will not grow enough to offset the reduction in purchasing power that results from inflation.

Rewards
The payment of G Fund principal and interest is guaranteed by the U.S. Government. This means that the U.S. Government will always make the required payments. In other words, your G Fund investment is not subject to credit (default) risk.

The G Fund interest rate calculation is based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. As a result, participants who invest in the G Fund are rewarded with a long-term rate on what is essentially a short-term security. Generally, long-term interest rates are higher than short-term rates.

[HB Reader]

I've had access to the GFund since the 1980's and have used it at various times for anywhere between 20% to about 50% of our PP cash.  I would try to also maintain a significant percentage of your cash in other alternatives (T-Bills, I Bonds, SHV or SHY, etc.).

Access to the TSP is a great perk, but it can be challenging to use at times (with no gold or viable bond options) as your assets grow and you need to keep things in balance.  When I retired in 2003 I rolled my TSP over to an existing IRA that I now use as a VP.  After my wife retired in 2009, we kept her TSP to use as part of our PP -- primarily to retain access to the GFund.      

[davissnider]

I am dealing with TSP since last 1 year..It's really safe and good for investing our cash.I personally feel that it's the best place for investing cash...

[Greg]

Resurrecting an old thread, anyone ever try to look at what the duration is for the G fund, or to calculate it before? I've seen the F Fund is around 4.35 years for duration. If the G Fund is near that, it seems to me it'd make more sense to have for adding to LT bonds/Cash than the F Fund (for making a lemonade PP, can't get long term bonds in TSP account but can use a combination of G/F Funds).

[TripleB]

The duration for the G-Fund is essentially undefinable because it can't lose value. It's guaranteed to redeem at the face value regardless of what happens to interest rates. Essentially, it's a T-Bill with a 1 day maturity that has a significantly above average yield that is subsidized by US Tax Payers.

The only risk that I can see with using the G-Fund is if the US Government changes the rules to restrict redemptions due to underfunded assets. e.g. if the Government can no longer afford it, they could potentially change the rules to say "We promise you will have this exact amount of TSP money plus whatever returns would be from your investments, but you have to wait until you're 65 to touch any of it."

I don't think that's necessarily likely, but it seems more likely than the US Government seizing 10% of all deposited assets like they did in EU recently.

[Greg]

I was trying to figure out what its upside duration is then. So for instance in a declining interest rate environment, how much does it grow when comparing it to F-Fund? In a rising interest rate environment, I would think the G Fund would win out over the F, but how well would the G Fund do in comparison to an F-Fund if the interest rate dropped by perhaps 1%. Trying to figure out how I'd want to break up my bond funds within the TSP.

[HB Reader]

I was trying to figure out what its upside duration is then. So for instance in a declining interest rate environment, how much does it grow when comparing it to F-Fund? In a rising interest rate environment, I would think the G Fund would win out over the F, but how well would the G Fund do in comparison to an F-Fund if the interest rate dropped by perhaps 1%. Trying to figure out how I'd want to break up my bond funds within the TSP.

Just view the GFund as a "near cash" or "near money market fund" equivalent that fortunately pays you bond-like rates.  It seems to me that "duration" is not a very useful concept here. 

The FFund would definitely win out in a declining interest rate, but since it represents nearly the entire private and government bond market and has a fairly short duration (about 4.5 years, I think -- I haven't checked it lately) it needs to be supplemented somewhere else (like in an IRA) with a fair amount of long-term Treasury zeros or something like EDV.  A number of years ago (in the 1990s) I supplemented my FFund holdings with Treasury zeros -- about 15% zeros and 10% FFund, if I remember correctly.