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Here’s The Problem With TSP Lifecycle Funds
When I first joined the military, in 2008, I chose to set up my TSP account as quickly as I could. Like many folks, I looked at the various funds available to me (without really understanding what any of them were) and chose the Lifecycle Fund that most closely mirrored my age, and expected retirement date. I set up my automatic draft, and promptly forgot about TSP altogether for the next year and a half.
Then, in 2010, I took Dave Ramsey’s Financial Peace University series of classes, and heard him recommend the 60/20/20 C/S/I strategy that I’ve talked about here before. So, I began to look more closely at TSP, and try to figure out why he would recommend that strategy versus the much simpler, much more hands-off, Lifecycle Funds. After all, I reasoned, wasn’t Dave all about “set it, and forget it” when it comes to investing? Shouldn’t he be a big proponent of target-date funds in general, and the Lifecycle Funds within TSP specifically?
To understand why a well-known, and generally well-regarded financial advisor like Dave Ramsey would choose to avoid recommending TSP’s Lifecycle Funds, we have to first understand what the Lifecycle Funds, and other target-date funds, are designed to be and do.
According to Investopedia.com, target-date funds (which is what the Lifecycle TSP Funds are) exist to “grow assets in a way…
