The TSP C Fund is a U.S. stock index fund invested in common stocks of the 500 companies in the Standard & Poor's 500 (S&P 500) Index. Many of the stocks in the index are household names, such as General Electric, Coca Cola, Exxon Mobil, and Walt Disney. The index contains the stocks of 500 of the largest U.S. companies, spanning many different industries, and accounting for about 75 percent of the U.S. stock market's value. 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 charts below show the historical performance and risk of investing in the TSP C Fund. As of 3/30/2020, the fund has a compound annual growth rate of 9.6%, annualized standard deviation of 18.2%, and Sharpe Ratio of 0.36. An initial investment of $1,000 on 8/31/1990 would today be worth $15,152:
The chart below shows the historical drawdowns for the TSP C Fund. The worst drawdown since inception was -55.2%:
The S&P 500 index is widely followed, and there are many other mutual funds and ETFs that track it. Popular examples include the Vanguard 500 Index Fund (VFINX) and the SPDR S&P 500 ETF (SPY).
Your investment in the TSP C Fund is subject to stock market risk (because the prices of the stocks in the S&P 500 index rise and fall during bull and bear markets). Since the C Fund is passively managed, it remains fully invested during all market cycles and economic conditions. And although stocks have historically proved to be a good hedge against inflation, there's no guarantee that an investment in the C Fund will grow enough to offset inflation in the future.
While investing in stocks is risky (and the C Fund is no exception), it also offers the opportunity to gain from the potential growth of the U.S economy and corporate profits, which is eventually reflected in increasing stock prices and dividends.
In the long run, stocks have outpaced many other types of investments, so an allocation to stocks makes sense for investors interested in growth of investment capital. When held for long periods, small and mid-sized company stocks have historically outperformed large capitalization stocks such as those in the C Fund. So in addition to owning C Fund shares, investors may also want to consider the TSP S Fund, which holds small and mid-cap U.S. stocks, thereby complementing the C Fund and offering investors the opportunity to benefit from this potential excess return. Investors may also want to consider the TSP I Fund, which tracks an international stock index. Owning shares in all three funds results in a more globally diversified stock portfolio. The prices of domestic and international stock markets (and small, mid, and large cap stocks) don't always move in tandem, and by investing in all of them, you reduce your exposure to stock market risk.
In addition to owning stock funds, TSP investors should consider bond funds like the TSP F Fund, since the prices of bonds are often uncorrelated or inversely correlated to stocks, providing a welcome buffer during market downturns, and reducing the overall volatility of an investment portfolio.
In our tactical asset allocation strategies, we dynamically allocate a portion of investable assets to the TSP C Fund, based on the prevailing market conditions.
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