Most Federal Employees Think They’re Diversified.

When federal employees look at their TSP, many assume they’re diversified simply because they’ve spread money across several funds.

“I’ve got some in the G Fund, some in the C Fund, and I even tossed some into an L Fund. I’m good, right?”

Not quite.

🔍 The Illusion of Diversification

Let’s get clear on something most TSP investors never hear from HR briefings:

And here’s the problem:

The C, S, and I Funds are all heavily correlated. 

They rise and fall together more often than not — which means if the market drops, you’re not protected just because you split things up across “different” stock funds.

Even Lifecycle (L) Funds — which sound like “one and done” solutions — are just auto-mixes of the same ingredients: G, F, C, S, and I.

It’s better than nothing, but if those ingredients are out of balance, so is your portfolio.

📉 A Quick Breakdown of What You Really Own

Here’s what’s inside each fund:

• C Fund: Large-cap U.S. stocks (think S&P 500 — Microsoft, Apple, Amazon)

• S Fund: Small-to-mid U.S. companies — but not actually that small, and still closely tied to the C Fund’s performance

• I Fund: International stocks — mostly developed markets, and heavily weighted toward Europe and Japan

• G Fund: Government securities (no market risk, but no growth either)

• F Fund: Bonds — with their own risks if interest rates rise

Notice anything missing?

• Real estate

• Commodities

• Emerging markets

• Inflation-protected securities

• Private equity or alternatives

You can’t access those inside TSP.

That doesn’t mean you’re doomed — but it does mean that you can’t count on TSP alone to carry your entire retirement portfolio across all market conditions.

💡 What to Do Instead

1) Look at Correlation, Not Just Allocation

Use tools like Morningstar’s “X-Ray” feature (for external accounts) or DIY spreadsheets to understand how closely your TSP funds move together.

2) Simplify Your Core Strategy

For some, this means focusing on 2–3 funds that serve distinct roles (e.g., C Fund for growth, G Fund for ballast, F Fund with caution). Lifecycle funds can be useful, but know what’s under the hood.

3) Consider Diversifying Outside of TSP

If you have IRAs, spousal accounts, or brokerage accounts, use those to access asset classes the TSP doesn’t offer. You don’t have to stretch within TSP — just be intentional across your total portfolio.

4) Stop Equating “More Funds” with “More Safety”

If C, S, and I all drop together, holding all three doesn’t protect you. It just gives you three versions of the same fall.

✅ Bottom Line:

Diversification is what protects you when everything else fails.

It’s not about owning five funds — it’s about how those funds interact.

If your TSP looks diverse but acts like a single bet, it’s time to rethink the mix.

Best,
Federal Wealth Retirement

P.S. Do You Know The #1 Threat to Your Retirement No TSP Strategy Can Fix?