Investment 101 for Government Employees

US Government Flag: Investing 101 for Government Employees

Most people recognize the importance of investing to build real wealth and save enough money to fund a secure and comfortable retirement—a retirement that may last decades! But not many people know enough about basic investment principles to be confident they’re making the right investment decisions.

As a government employee, you have access to some exclusive investment opportunities that other investors simply don’t. Therefore, you need more information about investing than what a generic Investing 101 guide can provide.

To help fill this need, we’ve created our own Investing 101 guide to explain basic investing principles that are relevant to you as a government employee.

Investing 101: Your Thrift Savings Plan

Your Thrift Savings Plan (TSP) offers you exclusive access to a small selection of well-diversified equity and bond funds to meet your needs as you experience different stages of life.

But just because there’s a smaller selection of funds doesn’t mean they’re easy to understand. Essentially, you can choose to invest in separate Core Funds or in composite Lifecycle Funds.

1. Core Funds

There are five core funds offered in the TSP. Four of these funds are index funds, which means they hold the same securities as a broad market index (e.g., the S&P 500).

The other core fund (the G Fund) is invested in a special non-marketable Treasury security that is only available to TSP participants. The 5 funds are listed below in order from most conservative to most risky:

  • Government Securities Investment Fund (G Fund)
  • Fixed-Income Investment Index Fund (F Fund)
  • Common Stock Index Investment Fund (C Fund)
  • Small-Capitalization Stock Index Fund (S Fund)
  • International Stock Index Investment Fund (I Fund)

2. Lifecycle Funds

Lifecycle funds (also known as L funds) are composite funds, meaning that they are invested in a combination of the five core funds that reflect an investor’s life stage relative to retirement age.

Lifecycle funds are similar to target-date funds because they are rebalanced periodically as the investor gets closer to retirement. Lifecycle funds can be a good option for investors who are not comfortable making their own asset allocation decisions.

However, sometimes the allocations that are matched to your retirement date are not always appropriate for your specific goals and risk tolerance. It’s best to work with a qualified financial advisor to help you determine the right asset allocation for your TSP.

Investing 101 Beyond Your TSP

Many TSP participants recognize the value and importance of investing outside the TSP to achieve their retirement goals. The funds offered in the TSP are only invested in stocks and bonds.

This isn’t necessarily a bad thing, as stocks and bonds are historically the two best and most common long-term asset classes to invest in. However, investing outside your TSP offers you a chance to achieve greater diversification and flexibility to invest in asset classes that can help you reach your unique goals.

Two other common asset classes are mutual funds and ETFs. We provide definitions and explanations of each below.

Of course, depending on your clearance level and/or the type of information you have access to, you may be subject to restrictions on how you can invest your money outside of the TSP. It’s important to review your options and restrictions carefully to know what opportunities are available to you before making any decisions.

1. Stocks

Stocks represent a portion of ownership in a company. Stock is sold in small units called shares that are of equal value and represent small percentages of ownership in the business.

Only corporations that are registered with the SEC can sell shares to the public. Investing in individual stocks on your own can be risky and typically requires significant research and ongoing evaluation.

2. Bonds

Bonds are loans that can be bought by investors from government entities (federal, state, or local) or from corporations. A bond represents a promise made by the bond issuer to repay the amount of the bond plus interest by a specific date. Bonds are typically assumed to be less risky investments than individual stocks.

3. Mutual Funds

A mutual fund is a package of different investments that is purchased through a single transaction. The investments within a mutual fund—often a mix of stocks and bonds—are similar in some ways.

Some mutual funds contain stocks from a specific industry sector, while other mutual funds are known as index funds that track market indices. A mutual fund is a more diversified investment than individual stocks or bonds.

4. ETFs

Like mutual funds, ETFs contain a combination of investments that might include stocks, bonds, different currencies, or even cash. ETFs can be purchased much like individual stocks.

Instead of carrying high-minimum investment requirements (like many mutual funds), ETFs can often be purchased in smaller shares.

How We Help

We hope this Investing 101 guide has been helpful for you to learn more about your TSP options as well as basic investing principles that every investor should know.

But we understand that you may have many more questions about investing that are specific to your unique situation. We want to help.

At Ferguson Johnson Wealth Management, we assist government employees and their families in making the best decisions with the opportunities available to them to pursue a secure, comfortable, and fulfilling retirement. To see how we can help, reach out to us today at 301-670-0994 or by email