Lifecycle Funds Growing in Popularity--But With an Unexpected Twist
By Ralph Smith
Tuesday, August 18, 2009
The number of Thrift Savings Plan investors moving into the lifecycle funds is continuing to grow.
As of July 31st, 606.828 people are investing in a lifecycle fund. As of December 31, 2008, 584,468 participants were investing in an L fund.
How Investors Use L Funds
But it is somewhat surprising to look a little further. The concept behind the L funds is that a person can put money into a fund based on a projected retirement date. It makes it easier to invest your retirement funds in one place and the allocation becomes more conservative as you near retirement age.
In reality, the number of TSP participants with their entire account balance invested in one lifecycle fund is fairly small. 4% of FERS participants have their money in one fund. For CSRS participants, 3% of participants have all of their TSP money invested in one lifecycle fund.
G Fund Is the Most Popular TSP Fund
Currently, Thrift Savings Plan Investors who are under the FERS retirement system have 10% of their money in an L fund. The biggest chunk, 48%, is in the G fund and 23% is in the C fund.
Here is a chart depicting how TSP investors under the FERS retirement system have elected to invest their retirement funds:
Thrift Savings Plan investors under the CSRS retirement system have 8% of their money in an L fund and 56% of their money in the G fund. 21% is in the C fund. CSRS employees are generally closer to retirement (or more likely to be retired) than those under FERS as the CSRS plan was in place before being displaced by FERS.
Here is a depiction of how TSP investors under the CSRS retirement system have allocated their retirement investments:
In effect, TSP investors are using the L fund as they would use one of the TSP funds--apparently as a way of diversifying their investments rather than using it as the primary source of investing for their retirement future.
While TSP investors are now using the L funds more, they have obviously not bought into the concept of the lifecycle funds as a way to invest all of their retirement funds using a pre-determined allocation feature. That probably indicates a lack of trust in the concept as investors appear to want to make their own investment decisions on how to allocate their money rather than relying on the formula used for the different funds.
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