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Should You Take Advantage of the TSP’s G Fund?

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Are you invested in the Thrift Savings Plan (TSP)? If so, did you realize that you have access to an investment vehicle that others can’t access? You do. The humble G Fund is unique and it is only available to those who invest through TSP. Let me explain…

The Treasury Department issues a special bond to TSP. The G Fund buys these short-term U.S. Treasury Bonds. But (and this is the important part) the bonds pays an interest rate based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. The interest rate resets each month and as such, the bonds have zero (yup zero, zip, nada) principal risk. You can’t get this anywhere else (technically…If you do hold a bond to maturity, you can eliminate principal risk… but to guarantee that principal, you will give up some interest, if rates go up. That is not the case with the G Fund). Let me say that one more time. With the TSP G Fund you can earn medium to long-term interest rates with no risk of losing your money, regardless of how long you keep the investment. I’m not aware of anywhere else you can do that.

So, how might one use the G Fund in a Financial Plan? As always, make sure you get competent investment advice or do your own due diligence, but here are a couple of options.

  1. If you can’t stand the thought of losing any money, even if it is only a paper loss, the G Fund will give you returns that you generally cannot get through other “risk-free” investments such as Treasury Bills, Money Market Accounts or Bank Savings Deposit (and maybe even CDs). So if you are very risk-averse, the G Fund might be the answer for you.
  2. As you move towards your retirement another strategy would be to hold one to three years worth of living expenses (those in excess of expenses covered by pensions or social security) in the G Fund and use those funds each year to live on. If your other investments are doing well, then replace the funds in the G Fund you use to live on by selling some of your other investment assets. If you’re having a bad year with your other investments, you can delay cashing them in and use the one to three years worth of living expenses you already have in the G Fund to live on. As the G Fund has no principal risk and it tries to provide a return that beats inflation, you should be able to hang on until the market improves.  Then you can replenish the G Fund.

If you’d like more information on the G Fund, you can find it here.

TSP is a great investment vehicle. There are a lot of good reasons to keep your TSP open even after you leave the military. The G Fund is just one reason why you might want to do so.


Curt Sheldon, EA is a Fee-Only Financial Planner and Enrolled Agent based in Northern Virginia.  He can be contacted at (703)542-4000, (800)928-1820 or Curt@CLSheldon.com

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The information contained in this blog is for general financial education and should not be construed as individual financial advice.  Please consult your own financial, tax or legal advisor prior to applying any principles discussed here to your own financial situation.