‘I Hate the Lifecycle Funds’

Should you put your money into one of the Lifecycle funds in the TSP to maximize your retirement savings? Not according to this financial advisor.

Are you better off investing in the lifecycle funds versus the individual TSP funds? No way says this financial advisor.

National radio talk show host and financial advisor Dave Ramsey answers questions for his listeners each day on his show. One federal employee recently asked Ramsey if he (the employee) should invest in the Lifecycle funds inside of the TSP.

Ramsey was quite direct in his disdain for this idea in his response:

No, I hate the Lifecycle funds; they’re awful. They adjust your investments automatically and the adjustments are uber, crazy conservative. If you’re in the TSP, I recommend putting the vast majority in the C plan. It is the premiere plan of the entire TSP. It is more like an index fund and it has done very well. I would put 80% into that, 10% into the S, and 10% into the I.

Ramsey is on the record as being very much against the asset allocation theory when it comes to investing and planning for retirement which makes his view of the Lifecycle funds predictable. He says that while it’s a popular concept in the financial community, the reality is that it is too conservative and investors following this strategy will fall behind to inflation in the long run.

A quick analysis of data on the historical returns from the TSP would seem to indicate that Ramsey has a point. Since its inception in 1988, the C fund, which tracks the S&P 500 index, the standard indicator of the overall U.S. market, has produced an average annual return of 12%. When compared to the G fund, which has only returned 5.4% in the same time period, it’s easy to see that an investor who puts money into the TSP and leaves it there for an entire working career would fare much better overall with the C fund.

The Lifecycle funds have only been around since mid-2005. Data from 2006 (the first full year of returns) through 2014 show that the L 2040 fund, the most aggressive of the Lifecycle funds, has produced an average annual return of 8.24%. The C fund has an average return of 10% in those same 9 years.

To read more about these funds, see Is a Lifecycle Fund the Best Choice for Your Thrift Savings Plan?.

About the Author

Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce.