The TSP L Income Fund is one of the five TSP “Lifecycle” Funds, designed for investors who are currently withdrawing their TSP accounts in monthly payments, or plan to do so in the near future. Like other L Funds, it's an investment mix of the 5 individual TSP funds (G, F, C, S, and I Fund). The L Income Fund is the most conservative of the L Funds, since it focuses on capital preservation. It maintains a small exposure to TSP stock funds (C, S, and I Funds) in other to improve the odds of at least keeping pace with inflation. It's the only L Fund that has a fixed asset allocation: 74% G, 6% F, 12% C, 3% S, and 5% I Fund.
The charts below show the historical performance and risk of investing in the TSP L Income Fund. As of 3/29/2017, the fund has a compound annual growth rate of 4.2%, annualized standard deviation of 3.9%, and Sharpe Ratio of 0.34. An initial investment of $1,000 on 8/1/2005 would be worth $1,613 today:
The chart below shows the historical drawdowns for the TSP L Income Fund. The worst drawdown since inception was -11.0%:
An investment in the L Income Fund is subject to the investment risks associated with the G, F, C, S, and I funds. The L Funds can have periods of gains and losses, just as the individual TSP investment funds do. But because the L Income Fund's allocation to riskier TSP funds is relatively small, this risk is limited.
The L Income Fund is rebalanced to its target allocation every business day. Some investors and financial advisors would consider this to be too frequent, preferring instead to "let their winners ride" and let their allocation drift a little before rebalancing. Rebalancing a portfolio too frequently can lead to slightly inferior investment returns.
By being invested in all five individual TSP funds, the L Income Fund is reasonably diversified. The underlying funds invest in thousands of U.S. and international stocks and bonds, to help spread out risk.
With an extremely low annual expense ratio of 0.025%, the L Income Fund helps to keep more of your money working for you.
The L Income Fund's primary purpose is capital preservation, so it would suit investors with that goal. It's a good option for investors who are currently withdrawing their TSP accounts in monthly payments, or plan to do so in the near future. It's a convenient, low maintenance investment option: no action is required by the TSP investor to rebalance the portfolio. It's all handled automatically by the fund's manager.
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