The TSP S Fund seeks to match the performance of the Dow Jones U.S. Completion Total Stock Market Index, a broad market index made up of stocks of U.S. companies not included in the S&P 500 Index. In contrast to the large capitalization stocks in the S&P 500, the stocks in this index are small to medium-sized U.S. companies. As of late 2011, there are approximately 3,300 stocks in this index.
The charts below show the historical performance and risk of investing in the TSP S Fund. As of 1/16/2019, the fund has a compound annual growth rate of 10.7%, annualized standard deviation of 19.5%, and Sharpe Ratio of 0.39. An initial investment of $1,000 on 8/31/1990 would today be worth $17,687:
The chart below shows the historical drawdowns for the TSP S Fund. The worst drawdown since inception was -57.4%:
The Dow Jones U.S. Completion Total Stock Market Index is not widely followed. Aside from the TSP S Fund, there are a few other mutual funds that track it, namely: Fidelity Spartan Extended Market Index Fund (FSEMX) and USAA Extended Market Index Fund (USMIX). With an annual expense ratio of 0.024%, the TSP S Fund is a very low cost way to gain exposure to this important cross-section of the U.S. stock market. By contrast, the Fidelity and USAA funds have annual expense ratios of 0.1% and 0.5%, respectively. (In other words, the USAA fund's expense ratio is over 20 times greater than that of the S Fund!)
Your investment in the TSP S Fund is subject to stock market risk (because the Dow Jones U.S. Completion Total Stock Market Index returns will rise and fall during bull and bear markets). As can be seen from the performance charts and statistics above, the S Fund is somewhat more volatile (higher risk) than the C Fund. This is because the S Fund holds smaller company stocks, which historically have been more volatile than large cap stocks. However, small cap stocks have historically also outperformed large cap stocks, so in the long run, investors "got paid" for taking on this extra risk.
Since the S Fund is passively managed, it remains fully invested during all market cycles and economic conditions. Although stocks have historically proved to be a good hedge against inflation, there's no guarantee that an investment in the S Fund will grow enough to offset inflation in the future.
While investing in stocks is risky (and the S 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. For investors who already own C Fund shares, the S Fund provides an excellent way to further diversify U.S. stock holdings. Investors may also want to consider an investment in 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 S Fund, based on the prevailing market conditions.
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