How the TSP works: the G, F, C, S, I, and L funds
How the TSP works comes down to a short menu: the Thrift Savings Plan gives you five core funds (G, F, C, S, and I) plus ready-made Lifecycle (L) funds that blend them. Each core fund holds one asset class. Mixing them is how you control the risk you cannot remove inside any single fund.
18 min read · By RetireCiv Editorial · Updated May 29, 2026
How the TSP works: five building blocks and the L funds
An asset class is a category of investment that tends to move on its own rhythm: cash, bonds, U.S. stocks, and international stocks are the major ones. A portfolio's real risk comes from how its pieces move together, not from any single piece.
Hold only one asset class and you are exposed to whatever sinks that one category. Hold a mix and a bad year in one is often cushioned by the others. This is the cheapest protection an investor has, and it is the whole idea behind how the TSP menu is built.
How the TSP works follows directly from that idea. The plan gives you five core funds, and each one holds a single asset class. The G fund is government securities, the F fund is bonds, and the C, S, and I funds are stocks.
You are not picking individual companies. You are choosing how much of each broad category to hold.
The five funds are deliberately simple building blocks. A federal employee can build a diversified portfolio from them without needing to be an investor.
On top of the five core funds, the TSP offers the Lifecycle (L) funds. An L fund is a ready-made mix of all five core funds, set to a target retirement year. It starts stock-heavy when the target is decades away and shifts toward bonds and government securities as the date nears.
Most new federal employees are placed in an L fund automatically. If you have never changed your investment choice, you are almost certainly in one now.
The rest of this lesson walks the menu one fund at a time. First the safe anchor (the G fund), then bonds (the F fund), then the three stock funds (C, S, and I), then the L funds that blend them. Before any of this matters, make sure you are capturing the agency match: allocation is the second decision, not the first. Once the match is locked in, how you spread your balance across these funds is the next lever you control.
You are not picking individual companies. You are choosing how much of each broad asset class to hold.
What are the five TSP core funds, in plain English?
The TSP has five core funds, each holding one broad asset class. The G fund holds government securities. The F fund holds bonds. The C, S, and I funds hold stocks: C is large U.S. companies, S is smaller U.S. companies, and I is international companies. You choose how much of each to hold. The Lifecycle (L) funds blend all five for you and adjust the mix over time.
Which TSP fund should I choose first?
The allocation question comes after the contribution question. First make sure you contribute at least 5 percent of pay so you capture the full agency match. The match is a guaranteed return no fund can offer. Once it is locked in, your fund choice controls how your balance grows. New employees are auto-enrolled in a Lifecycle fund, which is a reasonable default while you learn the menu.
Why does the TSP keep the menu so short?
A short, curated menu is a deliberate design choice. Each TSP fund maps to one broad asset class and tracks a low-cost index, so a federal employee can build a diversified portfolio from a handful of clear options. A longer menu of overlapping funds tends to confuse savers and invite expensive mistakes. The TSP trades breadth for clarity, and the low fees that come with index investing are part of the same bargain.
Are TSP fees really that low?
The TSP's core funds are among the lowest-cost retirement investments available, charging a small fraction of typical private-sector rates. Low fees matter because they compound: a fee gap that looks tiny in one year becomes tens of thousands of dollars over a 30-year career. We do not list a specific expense ratio here because the figure changes year to year. The lesson on FERS vs. CSRS vs. a private 401(k) shows how the fee gap compounds.
The G fund: the one that never loses principal
The G fund is the TSP's safe anchor. It is invested in U.S. Treasury securities specially issued to the TSP, with both principal and interest guaranteed by the federal government.
That guarantee is the G fund's defining feature. Its share price does not fall, so in any given year the G fund earns interest and never posts a loss. No other TSP fund, and almost no private-sector investment, offers that.
The trade-off for that safety is modest growth. The G fund pays an interest rate tied to medium and long-term Treasury yields, which usually runs a bit above short-term cash rates. Over a long career it tends to grow more slowly than the stock funds.
The G fund protects your dollars from market drops, but it does not protect them from inflation. If prices rise faster than the G fund earns, your money loses purchasing power even though the balance never falls.
That makes the G fund a tool, not a whole plan. It shines as the stable portion of a mix, especially for money you will need soon. A retiree drawing income often holds several years of withdrawals in the G fund so a market drop does not force them to sell stocks at a loss. A younger employee with decades to go usually holds little G, because the bigger long-run risk is growing too slowly, not a bad year.
Think of the G fund as the floor under your TSP. It cannot fall, which makes it the calm center of a portfolio. It also cannot do the heavy lifting of long-term growth on its own. The skill is using it for what it is good at: protecting the part of your balance you cannot afford to see drop, while letting the stock funds carry the growth over the decades you are still working.
Is the G fund really risk-free?
The G fund is free of one kind of risk: it never loses principal, because the securities are guaranteed by the federal government. It is not free of every risk. Its biggest exposure is inflation. If prices rise faster than the G fund earns, your dollars buy less over time even though the balance never falls. So the G fund is safe from market drops but not from a slow loss of purchasing power.
What return does the G fund pay?
The G fund pays interest based on the average yield of medium and long-term U.S. Treasury securities, so the rate moves with the broader Treasury market. It typically earns a little more than short-term cash while never risking principal. We do not quote a specific rate here because it changes constantly. The point to remember is the shape: steady, positive, and modest, never a loss and never a large gain.
Who holds a lot of the G fund?
Federal employees close to or in retirement tend to hold more of the G fund. It is a natural home for money you will spend soon, because a market drop cannot shrink it. Many retirees keep a few years of planned withdrawals in the G fund so they are not forced to sell stocks during a downturn. Employees decades from retirement usually hold little, since their bigger risk is slow growth.
Can the G fund lose money?
The G fund cannot lose principal in dollar terms. Its share price does not fall, and it has never posted a negative year. The only way it "loses" is to inflation: if the cost of living rises faster than the G fund earns, the same balance buys less. That is a real risk over a long retirement, which is why most planners pair the G fund with stock funds rather than relying on it alone.
The F fund: bonds, and why they are not the G fund
The F fund holds bonds. It tracks the Bloomberg U.S. Aggregate Bond Index, a broad basket of U.S. government, corporate, and mortgage-backed bonds. When you own the F fund, you are effectively lending money to those borrowers in exchange for interest.
The F fund pays more interest over time than the G fund, on average. In return, it carries a risk the G fund does not: its value can fall.
The key to the F fund is the seesaw between interest rates and bond prices. When market interest rates rise, the price of existing bonds falls, because newer bonds pay more and older ones look less attractive. When rates fall, existing bond prices rise.
So the F fund can post a losing year, especially when rates climb quickly. This is the single most important thing to understand about it: the F fund is safer than stocks, but it is not the G fund, and it can drop.
Over long stretches the F fund has tended to grow, with the interest it pays outweighing the price swings. It moves differently from stocks, which is what makes it useful in a mix. In many market downturns, high-quality bonds hold up better than stocks, so the F fund can cushion a portfolio when the stock funds fall. That diversification benefit, not raw return, is the main reason to hold it.
Put the G and F funds side by side and the difference is clear. The G fund never falls but grows slowly. The F fund grows a bit faster on average but can lose value in a bad year for bonds.
Neither is "better." They are different tools. The G fund is a guarantee; the F fund is a diversifier that adds bond-market exposure your stock funds do not give you.
When interest rates rise, bond prices fall. That seesaw is why the F fund can post a losing year and the G fund cannot.
Can I lose money in the F fund?
Yes. Unlike the G fund, the F fund can lose value in a given year, most often when interest rates rise quickly. Rising rates push down the price of the bonds the fund holds. The losses are usually much smaller than a stock-market drop, and the interest the fund pays works in the other direction over time. But the F fund is not a guaranteed account, and it is a mistake to treat it like the G fund.
Why do bond prices fall when interest rates rise?
A bond pays a fixed interest rate. When new bonds start paying higher rates, an older bond paying less becomes worth less, because buyers can get a better deal elsewhere. So its market price drops until the yield matches. The F fund holds many bonds, so its share price reflects this. When rates fall, the reverse happens and bond prices rise. This rate-and-price seesaw drives most of the F fund's year-to-year movement.
How is the F fund different from the G fund?
The G fund never loses principal but grows slowly. The F fund grows faster on average but can fall in a bad year for bonds. The G fund holds Treasury securities issued only to the TSP; the F fund holds a broad index of government, corporate, and mortgage bonds. The G fund is a guarantee. The F fund is a diversifier that adds real bond-market exposure, with the price swings that come with it.
Why hold the F fund at all if it can drop?
The F fund earns the role of a diversifier. It moves differently from stocks, so in many downturns it holds up better than the C, S, and I funds and softens the overall fall. Over long periods it has tended to grow. Holding some bonds alongside stocks reduces the swings of the whole portfolio. The reason to own the F fund is balance, not the chase for the highest possible return.
The C, S, and I funds: the stock side of the TSP
The C, S, and I funds are the TSP's stock funds, and they are where most long-term growth comes from. Each one tracks a different slice of the stock market.
The C fund tracks the S&P 500, the 500 largest U.S. companies. The S fund tracks the Dow Jones U.S. Completion index, the small and mid-sized U.S. companies left out of the S&P 500. The I fund tracks an international index of companies outside the United States.
Together, the C and S funds cover the entire U.S. stock market. The C fund is the large, household-name companies, and the S fund is everything smaller. To mirror the whole U.S. market, you hold them roughly by size, which means mostly C with a smaller slice of S.
The I fund then adds companies based overseas, so a portfolio with all three is not betting on any single country. That global spread is itself a form of diversification.
Stocks carry the most year-to-year risk on the TSP menu, and the most long-term growth potential. A stock fund can fall sharply in a bad year. Over decades, though, stocks have outgrown bonds and cash by a wide margin.
That is the core trade: more short-term swing in exchange for more long-run growth. For an employee with a long time horizon, the swings matter less than the growth, which is why younger savers usually hold mostly stock funds.
The three stock funds also differ from each other. Small companies (the S fund) tend to swing more than large ones (the C fund). International stocks (the I fund) move with foreign economies and currencies, so they do not always rise and fall in step with U.S. stocks.
Holding all three smooths the ride compared with betting on one. None is "best." Each adds a different piece of the global stock market to your mix.
How the three stock funds divide the global market
- C fund (large U.S.)50%
- S fund (smaller U.S.)13%
- I fund (international)37%
What is the difference between the C, S, and I funds?
All three are stock funds, but they hold different companies. The C fund holds the 500 largest U.S. companies (the S&P 500). The S fund holds the smaller and mid-sized U.S. companies left out of the S&P 500. The I fund holds companies based outside the United States. C plus S covers the entire U.S. stock market; the I fund adds international exposure. Together they spread your stock holdings across the globe.
Do I need all three stock funds?
You do not have to hold all three, but together they diversify your stock exposure. The C and S funds combined give you the full U.S. market rather than just the biggest companies. The I fund adds countries whose markets do not always move with the U.S. Spreading across all three reduces the chance that one weak slice drags down your whole stock allocation. The Lifecycle funds hold all three automatically.
Which TSP stock fund grows the most?
No single stock fund reliably grows the most. Over different decades, large U.S., small U.S., and international stocks have each taken turns leading. Small companies (the S fund) tend to swing more, with higher highs and lower lows. International (the I fund) depends on foreign economies and currencies. Because the leader changes and cannot be predicted, holding all three is more dependable than trying to pick the winner in advance.
Are the stock funds too risky for a new federal employee?
For an employee decades from retirement, the bigger risk is usually too little growth, not a bad year. Stocks swing more in the short term but have outgrown bonds and cash over long periods. A long time horizon is what lets you ride out the drops. That is why Lifecycle funds for distant target dates hold mostly stock funds, and why younger savers often do the same. Risk tolerance and timeline drive the choice.
The Lifecycle (L) funds: the menu assembled for you
A Lifecycle (L) fund is a ready-made mix of all five core funds, built around a target retirement year. Instead of choosing your own blend of G, F, C, S, and I, you pick the L fund closest to when you expect to retire. The TSP then manages the mix for you.
There is an L Income fund for those already drawing down, plus a series of dated funds out past 2070. You hold one fund and own a slice of all five underneath.
The defining feature of an L fund is the glide path. When the target date is far away, the fund holds mostly stocks (C, S, and I) for growth. As the date nears, the TSP automatically shifts the mix every quarter toward bonds and government securities (F and G).
The stock share falls and the safe share rises, gradually, on its own. Between those quarterly shifts, the fund is rebalanced daily to stay on target. You do nothing; the fund grows more conservative as you age.
When an L fund reaches its target year, it merges into the L Income fund, which holds the most conservative mix and does not shift further. This is the same logic behind risk and time horizon: take more stock risk when you have decades to recover, and dial it down as the money gets closer to being spent. The L fund automates a discipline that many investors struggle to follow by hand.
L funds are why most new federal employees are diversified from day one without knowing it. New hires are auto-enrolled into the L fund matched to their age, so their very first contribution buys a spread of all five core funds.
The L fund is a sensible default, not a trap. You can always move to your own mix later if you want more control. For many feds, leaving the money in the age-appropriate L fund is a perfectly reasonable choice.
What is a Lifecycle (L) fund and how does it change over time?
A Lifecycle fund is a ready-made blend of all five core funds set to a target retirement year. It starts stock-heavy for growth and automatically shifts toward bonds and government securities as the target date approaches. The TSP adjusts the target mix every quarter and rebalances daily in between. You hold a single fund; the glide toward a safer mix happens on its own as you get closer to retirement.
Which L fund should I be in?
The usual approach is to pick the L fund with the target year closest to when you expect to retire. That sets a glide path matched to your time horizon. If you want a more aggressive or more conservative ride than your age-based L fund gives, you can choose a different target year or build your own mix of core funds. New federal employees are auto-enrolled in the L fund matched to their age.
What happens when an L fund reaches its target date?
When an L fund reaches its target year, it merges into the L Income fund. The L Income fund holds the most conservative mix on the menu and does not shift further each quarter, though it is still rebalanced daily. In practice your money simply continues in a stable, income-oriented allocation built for someone already drawing on their savings. You do not need to take any action when the merge happens.
Can I hold an L fund and core funds at the same time?
Yes, but it is worth understanding what you are doing. An L fund is already a complete, diversified portfolio. Adding core funds on top tilts your overall mix away from the L fund's glide path. Some employees do this intentionally to lean more aggressive or more conservative. If you are not aiming for a specific tilt, holding a single L fund, or your own core-fund mix, is usually cleaner than blending the two.
Is the auto-enrolled L fund a good default?
The age-based L fund is a reasonable default. It gives a new federal employee a diversified, low-cost, automatically managed portfolio from the first contribution. It is not a trap, and many feds reasonably leave their money there for an entire career. The main things to confirm are that you are contributing enough to capture the full match and that the target year still fits your actual retirement plans.
Putting the TSP funds together
The whole TSP menu reduces to one decision: how much of each asset class to hold. The G fund is your guarantee, the F fund adds bonds, and the C, S, and I funds carry stock-market growth. An L fund makes that decision for you on a glide path; building your own mix of core funds puts your hand on the dial. Either way, the goal is the same: a spread across asset classes that fits how long until you need the money.
That timeline is the single biggest factor. With decades to go, a stock-heavy mix makes sense, because there is time to recover from drops and the bigger risk is slow growth. As retirement nears, shifting toward the G and F funds protects the balance you have built.
This is exactly what the L funds automate, and it is the same logic whether a fund does it for you or you do it by hand. The mix that is right early is rarely the mix that is right late.
Diversification across the funds is the protection you get for free. Because the funds hold different asset classes, they do not all fall at once. A weak year for stocks may coincide with a steady G fund and a resilient F fund.
No mix removes risk entirely, but spreading across asset classes removes the risk of betting everything on one and being wrong. That is the asset-class principle in action, and it is the reason the TSP menu looks the way it does.
To see or change your own allocation, log in at tsp.gov and review your investment choices. Confirm first that you are capturing the full agency match, since that matters more than any fund pick. From there, your mix is yours to set.
A later Mid Career lesson on TSP allocation by age goes deeper on how to shift the mix as you approach retirement. The next lesson, on Traditional versus Roth TSP, covers a different choice: not which funds you hold, but how those contributions are taxed.
How do I pick or change my TSP fund allocation?
Log in to your account at tsp.gov and open your investment choices. You can set what percentage of future contributions goes to each fund, and separately move your existing balance. Changes take effect quickly. Before adjusting funds, confirm you are contributing at least 5 percent of pay to capture the full agency match. The match outweighs any allocation decision, so it comes first.
How should my TSP mix change as I get older?
The common approach is to hold more in stock funds (C, S, I) when retirement is decades away and shift toward the G and F funds as it nears. Stocks offer growth when you have time to ride out drops; the G and F funds protect a balance you will soon spend. The Lifecycle funds do this automatically. A later Mid Career lesson on TSP allocation by age covers how to manage the shift if you build your own mix.
Is it better to use an L fund or build my own mix?
Both are valid. An L fund is simpler: one choice, automatically managed, glided over time. A custom mix of core funds gives you more control but requires you to rebalance and adjust as you age. Neither is universally better. Many federal employees do well in an age-based L fund; others prefer to set their own allocation. The worst choice is usually inattention: a mix that no longer fits your timeline.
What is the one thing to get right about the TSP?
Capture the full agency match first, then hold a diversified mix that fits your timeline. The match is a guaranteed return; the mix controls how your balance grows and how much it swings along the way. You do not need to predict markets or pick winners. You need to contribute enough, spread across asset classes, and let time do the work. The next lesson covers Traditional versus Roth, which decides how your contributions are taxed.