The TSP C Fund is an index fund, which strives to match the performance of the Standard & Poor’s 500 index, better known as the S&P 500. This index is made up of the 500 largest companies on the NASDAQ and NYSE and accounts for approximately 75 percent of the U.S. stock market’s value. Many of the stocks in the index are names you recognize instantly, such as Coca Cola, Keuring Green Mountain Coffee, Under Armour, and Walt Disney. With an annual expense ratio of 0.025%, the C Fund is a very low cost way to gain diversified exposure to the U.S. stock market.
The chart above is the perfect reference for the C Fund as it is actually a chart of the S&P 500. Now while the C Fund strives to mimic the S&P 500 that does not mean that it will. As you can see the C Fund has steadily increased over the previous five years. This is due in part to the recent stock market crash we had in 2007 and the massive amount of quantitative easing that the U.S. Government has implemented. However, one should not always expect the C Fund to increase steadily over the course of time. There are bull market cycles and there are bear market cycles. The potential for capital gains during bull market cycles is astounding however keep in mind that those capital gains can turn into capital losses during bear market cycles like we saw during the 2007-2008 financial crisis. With the C Fund you won’t run the risk of your money being eroded by inflation the only considerable risk you are taking is having your money invested during bear market cycles.
What You Need To Know About The C Fund
If you don’t take anything else away from this article, please remember that the C Fund is the best fund to track the general market. When you hear news outlets talking about “The Market,” they are referring to this fund. Simply investing in the C Fund exposes you to the U.S. stock market.
There will always be downward trending market cycles and upward trending market cycles, but over time history has shown us that the overall trend for the U.S. stock market is updward.
Benefits & Risks Of Investing in the TSP C Fund
You must always keep in mind that your investment in the TSP C Fund is subject to stock market volatility over time. As I stated above the stock market has natural cycles of bullish (upward) trends and bearish (downwards) trends, but historically the stock market has increased over time.
Your main risk in the C Fund will be losing money during bear markets, although you technically do not accept the loss until you sell your entire position. Conventional investment wisdom addresses this issue by advising you to “Dollar Cost Average” over time, allowing your dollars to buy more during bearish cycles and less during bullish cycles. (I personally do not believe in this method, but that’s an entirely separate post!)
The main benefit of investing in the C Fund is the potential for exponential growth during bullish markets. Since it’s inception the S&P 500 has returned approximately 8.5% a year when adjusted for inflation (not accounting for dividends).
How Do I Use The C Fund In My TSP Account?
Over the longterm, stocks have outpaced many other investment vehicles, therefore if you are looking for growth over a long period of time, the C Fund is a great fund.
My personal opinion of the C Fund is that it is best for individuals in the beginning and middle stages of their career. This will allow them to enjoy the bull market cycles and avoid the bear market cycles. This type of management of your Thrift Savings Plan will vastly out perform your peers over time.
Here is an overview of the all the TSP Funds! Additionally we publish a monthly newsletter that utilizes a proven strategy for identifying bullish and bearish markets. We have tailored this strategy towards the Thrift Savings Plan in order to help you increase your TSP portfolio returns significantly over time.