Lifecycle Funds

Investors often ask how much they should be allocating to each of the TSP funds or Vanguard mutual funds. As a baseline we took a look at how the TSP Lifecycle funds and the Vanguard Retirement-date Target funds allocated based on age or years-to-retirement.

We broke out the details below and to gain a full understanding you can read our Lifecycle Fund Guide where we get into the details.  While we discuss the cons of these funds in our guide, we do find they are helpful for developing a plan and explaining how you should be allocating among the funds.

TSP Lifecycle Funds

Several of the key takeaways from our look at these funds are as follows:

  1. As you approach retirement the funds reduce exposure to equities in general as expected.
  2. TSP Lifecycle funds allocate 4 parts to the C fund and 1 part to the S fund to achieve a proper weighting for the total US stock market. Vanguard achieves this by investing in their Total US market fund.
  3. TSP allocates 30% of their equity exposure to the I fund which tracks the MSCI EAFE index.  This index attempts to invest in the largest 80-85% of the developed worlds stock market.  Vanguard’s international equity exposure is in the same ballpark.
  4. Vanguard’s equity exposure in retirement is significantly higher than TSP based on their website’s data – in my opinion their 43.7% exposure is too high.
  5. TSP shifts out of equities and into the TSP G fund as one moves closer to retirement. TSP allocates 6% to the TSP F fund for all Lifecycle funds – one wonders if they are required to hold this much by regulation.

In the next chart, I want to point out that the TSP Lifecycle funds reduce losses in a bear market but they also limit gains in a bull market.  Generally speaking they take the same amount of time to break even after a bear market as the equity funds.  In other words, they reduce volatility to both the up and downside.

TSP Lifecycle Funds

In a perfect world, an investor would shift out of equities during the bear market and reinvest near the bottom of the bear market.  Or at least attempt to capture most of the gains in the stock market while avoiding most of the losses.  Which is what a Seasonally-Modified Buy & Hold strategy does over the full market cycle. And why I like it better than the Lifecycle funds which do not reduce market risk – they merely diversify it.


Avoiding the unfavorable half of the year for stocks is not complicated


Take a look at our Lifecycle Fund Guide and also the best strategy we found for simple-to-execute long-term investing.

Categories: Allocation Strategy, Perspectives, The Smart Bird

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