Aggressive investors can look forward to 2050

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Within the next couple of months, the federal 401(k) plan will offer a new option targeted to younger and/or more aggressive investors.

The L 2050 fund will be added to the 10 options already available to the 3 million active and retired federal and military personnel who participate in the Thrift Savings Plan (TSP).

Like many private-sector 401(k) plans, the federal TSP offers investors an array of stock- and bond-indexed funds, as well as the so-called Lifecycle or L funds. The L funds are targeted to the year that investors plan to start spending down their accounts. That date can be much later than the investor plans to retire.

That is especially true of federal workers who qualify for lifetime pensions based on their highest salary average. Those annuities also are indexed to inflation, a perk unknown in private pension packages.

The L 2050 fund will be designed for people planning to start withdrawing money from their TSP accounts between the years 2045 and 2055. It will have investment goals that include a portfolio that is heavily weighted in the higher-risk/higher-reward U.S. and international stock markets.

The 2050 will have only a token investment in the super-safe G Fund of guaranteed U.S. Treasury securities, or the bond market-indexed F Fund.

Over time, the ratio of stocks to bonds and Treasury securities will be adjusted in each of the L funds to make them more conservative. That adjustment is made quarterly and is automatic. It is an excellent way to invest for many people. A growing number of federal and military investors are shifting their account balances into one of the L funds.

Some feds and some financial professionals think the L funds are too conservative. To change that, some people are putting their money into L funds with longer investment time horizons.

The 2010 fund, for instance, has 23 percent of its assets in the G Fund of Treasury securities, 7 percent in the F Fund holding bonds, 27 percent in the C Fund that tracks the S&P 500, 8 percent in the S Fund of small-cap stocks and 15 percent in the I Fund, which tracks an international stock index. The 2040 fund mix is more aggressive.

As of today, the 2050 fund has 5 percent in the G Fund, 10 percent in bonds, 42 percent in the C Fund, 18 percent in the S fund and 25 percent in the high-risk, high-reward international fund.

For feds who want the advantages of professional management and regular adjustments to make the investments more conservative over time, the L funds are worth considering.

Later this year, the board that runs the TSP will be asked to set up several more specialized funds. In the past, members of Congress have pushed for an R fund for real estate investment trusts, another G fund that would invest in gold and other precious metals, and a fund that tracks the dot-com market.

The board traditionally has been reluctant to add funds, but Congress could force the issue.

Whatever happens, the 2050 fund is closer than you think.

• Mike Causey, senior editor at Federal News Radio AM 1050, can be reached at 202/895-5132 or mcausey@federalnewsradio.com.