The C-Fund is the most heavily invested fund in the Thrift Savings Plan, excluding the G-Fund.
There are reasons so many federal employees invest in the C-Fund, and it’s not just due to the returns.
In this guide to the C-Fund, we will go through the companies that make up the C-Fund, what stock market index it is most similar to, the type of investor that should have the C-Fund in their portfolio, and a whole lot more.
Also, just so you’re aware, this is a COMPREHENSIVE guide, thus the reason for the name “The Ultimate Guide to the TSP C-Fund.’ This means it will be rather long and consistently updated. Therefore, feel free to bookmark the page and come back to it if you don’t have time to read it all in one sitting.
The Ultimate Guide to the TSP Series
The Ultimate Guide to the Thrift Savings Plan series is my effort to put all of the information TSP Investors need to know in ONE place. On all 5 Funds. Including the L-Funds. In other words, it’s a pretty epic guide.
The information for these guides will have been taken from sources both within the federal government and outside of. Meaning there will be both factual information, as well as opinions from myself and other experts within the field of finance.
The Backstory of the C-Fund
The C-Fund was the second fund to be created right behind the G-Fund and at the same time as the F-Fund.
When created, the TSP Advisory Board was looking for a way to give their TSP Investors an opportunity to participate in the stock market.
You see, previous to the introduction of the TSP, CSRS employees didn’t have a 401-k type of program to invest in. They simply had their paychecks deducted and automatically had contributions added to their pension.
They also didn’t have Social Security.
So basically, CSRS employees just have an enormous pension.
In order to shift more of the responsibility onto the employee, the TSP was created, and to add more options, the C-Fund was introduced.
The C-Fund now is second only to the G-Fund in the number of TSP Investors invested in the fund. In other words, it’s a VERY popular fund, and for good reason. It provides diversification and a chance for market growth all at a good price.
The 30-Second C-Fund Rundown
Description of Investments: Stocks of large and medium-sized U.S. companies
Inception Date: January 29, 1988
Objective of Fund: To match the performance of the Standard & Poor’s 500 (S&P 500) Stock Index
Risk: Market Risk and Inflation Risk
Types of Earnings: Changes in market prices & dividends
Cost of the C-Fund
The C-Fund and just the cost of the TSP, in general, is DIRT CHEAP.
Seriously, you will not find investment funds for cheaper, and if you do, please let me know.
Now, because the TSP is so cheap, you do give up quite a few things that many investors view is essential as I’ve detailed here. But, the TSP does afford you many different opportunities, such as being able to participate in the C-Fund.
And the cost for participating in the C-Fund is just below 0.03% on average.
Those costs make up the administrative expenses; other fees that are associated with securities lending aren’t included in that calculation as is a standard industry practice.
So, what does 0.03% look like in REAL numbers?
Let’s take a look:
As you can see from my little illustration, that compared to an average S&P 500 fund, you’ll be paying a lot less through the TSP. Over 180% less actually.
That’s a pretty big difference, I don’t care who you are!
What Companies Does the C-Fund Comprise of?
We’ve seen what the C-Fund costs, but the cost is rather insignificant until we find out what exactly you receive.
This is where the composition of the fund comes in handy.
Very few federal employees I meet with know what they’re invested in. They may have a vague idea about something they’ve heard on TV, but overall, many are too much in the dark.
That’s not to say I see a reason to know every single company that comprises the C-Fund. But having a general idea of where such a significant amount of your money is going, certainly is something that would be beneficial.
I like to compare it to purchasing a house. Nobody in their right mind would buy a house sight unseen and without an inspection.
So, why would you invest hundreds of thousands of dollars into a fund in which you have hardly a clue what it’s composed of? Your TSP will likely be worth as much or more than the equity you have in your home!
Well, now that my rant is over, I’ll tell you what the C-Fund is made up of. 😂 😂 😂
First off, the C-Fund attempts to mimic the Standard & Poor’s 500, also known as the S&P 500. Now, when I say mimic, I truly mean it.
THE C-FUND IS NOT THE S&P 500
This gets confused by a lot of people, and not just TSP investors. In fact, you can’t really invest DIRECTLY in the S&P 500; mainly just in funds that mirror the S&P 500. This can all be viewed as semantics, but it is something I believe is important to be aware of.
When viewing the C-Fund (C-Fund = S&P 500), it’s pretty clear who the big dogs are in the market. They’re also companies you would expect to be at the top of the food chain.
I’ll just list a few of them off:
Unfortunately, we could not get stock quote AAPL this time.
Unfortunately, we could not get stock quote MSFT this time.
Unfortunately, we could not get stock quote FB this time.
These are companies you’ve all heard of and most likely have had some sort of interaction with some time in your life.
Do you want to hear something that’s kind of interesting?
As of this writing and probably for some time in the future, over 10% of the entire C-Fund is made up of only 5 companies. Apple, Inc, Microsoft Corp, Exxon Mobil Corp, Johnson & Johnson, and Amazon.com Inc.
That means that although you’re highly diversified among 500 U.S companies, 10% of the portfolio weight is actually held by only 5 companies, 3 of which are technology related.
This is the reason you may need even more diversification than just the C-Fund. In my opinion, this isn’t really a problem I see. I rarely see suggestions from people saying that someone should put 100% of their TSP into the C-Fund. Although, I do think that for many, an allocation of 100% C-Fund is better than a portfolio of 100% G-Fund. Not for everyone, but for many.
A few of the other companies that are within the C-Fund that you may not be aware of are:
- Vertex Pharmaceuticals: A Biotechnology Company
- Smith & Wesson: A Firearms Manufacturer
- Caterpillar: A Construction Equipment Company
Sectors within the C-Fund
The C-Fund is a large fund with over 500 companies.
Within the fund, there is just about every sector you could imagine. So, rather than naming them all off, I’ll just detail some of the sectors that hold the most weight.
But, before I list the sectors, I think it’s important to first talk about the state of the American Business Economy. You see, in the not so distant past, America was a nation built largely on manufacturing. Made in the USA was something we were proud of and many of the LARGE companies within the U.S were making physical goods.
Now, although we do have many companies who still manufacture in the U.S, it’s far less than it was. The U.S, in my opinion as well as many others, is no longer a country built on manufacturing, but rather technology and ideas.
When you look at the top companies in the U.S, it becomes quite apparent that technology rules all. Apple, Inc is not producing much, if anything in the US, it’s all off-shore. The same could be said for Microsoft, Amazon.com, Alphabet, Inc (Google) and many of the other companies dominating the C-Fund/S&P 500. This isn’t necessarily a bad thing either, certainly something to keep in mind, though.
The main sectors that make up the C-Fund are:
As you can see in the graph above, Technology makes up over 20% of the C-Fund/S&P 500. That’s a significant percentage dedicated to one sector, no matter how popular and infiltrating technology is in society.
There are also many other sectors as you can see in the graph, which for those focused on diversification is a very positive thing.
This leads me to my next topic, why the C-Fund may not be all that great of an index.
2 Reasons the C-Fund is Not That Great of an Index Fund
1. The C-Fund isn’t necessarily what TSP Investors think it is.
Many think when they contribute to the C-Fund that they’re as diversified as they need to be.
“Hey, I’m invested in 500 different companies, you can’t get much more diversified than that.”
The real problem is when you start to look at the sectors like I’ve shown you. Not to mention, you’re solely investing in the U.S. market. I’m as patriotic as the next guy, but some international diversification can be helpful.
2. Tech Stocks have too much influence.
Many of the largest companies focus on technology and the internet.
The dot-com bubble may have been in 2000, but it’s mostly been forgotten by many investors. The market is much different from what it was. However, it does seem to me like there is too much money chasing similar stocks.
There’s a reason Warren Buffett steers clear of technology stocks.
Reasons the C-Fund is a Great Index Fund
Although I’ve mentioned two reasons I think the C-Fund isn’t a great index, these are mainly just to get you thinking. In all reality, I’m a pretty big fan of the C-Fund and S&P 500.
If for some reason TSP decided they were going to get rid of all but one fund, I would hope the fund they would keep is the C-Fund.
As with anything, there are things I dislike about the C-Fund. There is NO perfect investment. If there is, everybody should be in it; however, there are some really great things about the C-Fund.
1. The S&P 500 is one of the most recommended indexes in the world for investors.
There’s a reason many investing “experts” recommend passive investors to go into an S&P 500 fund.
Arguably the greatest investor of all time, Warren Buffett had this to say regarding the money left to his Wife after his passing in his 2013 Annual Letter to Shareholders:
“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.”
Hmm. Do you know what is one of the lowest-cost S&P 500 Index Funds in the country? You guessed it — the C-Fund.
2. The C-Fund is diversified.
Is the C-Fund as diversified among sectors as it could be? No. I think it’s important for the average investor to include some bonds in addition as well as some international equities if possible. But, overall the C-Fund is diversified.
500 companies is a lot of companies to diversify to no matter how much weight each holds. You also have to remember you’re investing in some of the largest businesses in the world, not just America. These companies can certainly fall (remember 2008), but a company like Johnson & Johnson is going to be much less volatile than some small tech stock not listed on the S&P 500.
3. The C-Fund has good returns.
Unfortunately, many today are seeking a quick return. They would rather go for highest performance, gamble in the market, and try to earn a quick buck than stick it out for the long-term.
Although it’s possible to achieve quick returns, it’s also just as easily possible to achieve sharp declines in your account (not much of an achievement if you ask me.) Those who are hopping in and out of the C-Fund will likely do much worse than the person who buys and holds.
This leads me to my next topic, historical returns of the C-Fund
There are many reasons so many contribute to the C-Fund, but undoubtedly, the funds returns are the biggest draw.
Although the C-Fund isn’t the highest performing fund on a 10-year basis, it is second only to the S-Fund. However, it has been around much longer, and as such has had to weather quite a few more storms and has done so with less volatility than the S-Fund.
If you were to invest $100 on January 29, 1988, it would have grown to $1,477 by the beginning of 2016. This graph from TSP.gov illustrates this concept well:
The funny thing is, many federal employees could have invested in the C-Fund, left it, experienced an average rate of return of 10.09%, and been very well off. Instead, too many try to time the market and end up buying when the market’s high, and selling when it’s low.
I keep seeing it more and more too. Newsletters that tout crazy returns for TSP investors by timing the market. Although they may be doing decent now, that doesn’t mean they will be when the market takes a turn for the worst. Let history be your guide.
If you haven’t been told yet, let me tell you the greatest advice I’ve received regarding investing from my Advanced Investments Course professor in College:
Buy Low, Sell High
Burn that idea into your brain, and you’ll be better off than 90% of investors. There’s a reason Charlie Munger and Warren Buffett sit on cash until the market drops and then start buying up companies.
Compared to the S&P 500 Index (the index the C-Fund tracks,) the C-Fund has actually done somewhat better in overall return.
As you can see, this reiterates my earlier point that the C-Fund is NOT the S&P 500. AND, because it’s not the S&P 500, it’s experienced slightly different results.
However, how happy would you be to have averaged over 10% returns as a TSP Investor?
If you had invested $10,000 at the start of the C-Fund in 1988, you would have $147,700 at the end of 2015.
If you had invested $100,000 at the start of the C-Fund in 1988, you would have $1,477,000 at the end of 2015.
Those numbers can be hard to see if you’re near the end of your career, but for you federal employees with many years ahead of you: LET THIS BE A WAKEUP CALL!
Expert Opinions on the C-Fund
There are many “experts” that have provided their opinion on either the C-Fund or the S&P 500. Rather than listing every single one I could find, I simply searched for experts I follow and believe have the best interest of consumers in mind.
In Berkshire Hathaway’s 2013 Annual Letter to Shareholders, Buffett had this to say:
“Most investors, of course, have not made the study of business prospects a priority in their lives. If wise, they will conclude that they do not know enough about specific businesses to predict their future earning power…I have good news for these non-professionals: The typical investor doesn’t need this skill…In the 20th Century, the Dow Jones Industrials index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st Century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners…but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.”
He went on to say this:
“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund…I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”
In Berkshire Hathaway’s 2016 Annual Letter to Shareholders, Buffett went on to clarify his thoughts on what the average investor should do:
“Both large and small investors should stick with low-cost index funds.”
“Over the years, I’ve often been asked for investment advice, and in the process of answering, I’ve learned a good deal about human behavior. My regular recommendation has been a low-cost S&P 500 index fund. To their credit, my friends who possess only modest means have usually followed my suggestion.”
The lowest cost S&P 500 fund that I’m aware of is the C-Fund. So, as you can see, Warren Buffett, in my opinion, the greatest investor of all time is a HUGE fan of the C-Fund.
John C. Bogle
John Bogle for all intensive purposes is the father if index investing. Nobody has done more to spread the popularity of indexing than Bogle. As such, he recommends people invest in the S&P 500 more than any other fund available. This leads me to believe, he’s also a fan of the C-Fund:
“I’d keep it simple and have my money in the S&P 500 or a broad market index, and the rest in the in a bond index.”
I’d suggest nearly all investors check out Jack’s Book, The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns.
I’ve talked about Dave Ramsey’s opinions on the TSP many times. I certainly would not put him on the pedestal that I would Buffett and Bogle, however, I believe he has helped many people and I appreciate what he’s done.
Here is Dave Ramsey’s recommendation on the TSP:
“We recommend that you put in a ratio of 80-10-10 or 60-20-20. That means put 80% in the C fund (common stock fund), the other 10% in the S fund (small-cap stocks) and 10% in the I fund (international).
In the S and I funds, either put 10% in each or 20% in each and then 80% or 60% in the C fund. Put the vast majority of it in the C fund.”
Ric Edelman is a is a New York Times best-selling author and founder of Edelman Financial Services who hosts a weekly radio show where he gives financial advice to people who call his show, similar to Dave Ramsey
“The G fund is the worst place, or one of the worst places, that you can be choosing in the TSP. I want you to stop that and instead choose C, S and I. I want you to put 100% of your money into these funds; in fact, take the money that’s already in the G and move it over into the C, S, and I funds.”
Edelman then went on to recommend a 40/40/20 split among the C, S, and I funds – 40% into the C fund, 40% into the S fund and 20% into the I fund.
Although Edelman suggests a lower percentage than many other to go into the C-Fund, it’s still farely close to others. I will say that Edelman’s recommendation is more aggressive than some of the other experts I’m quoting, and as such, I don’t believe it’s the right allocation for the general TSP Investor. For the younger investor, maybe, but for those entering retirement, I believe it’s a bit too aggressive.
What’s the full name of the C-Fund?
Common Stock Index Investment (C) Fund
Can you give me a summary of the C-Fund?
The C-Fund is invested in a separate account that is managed by BlackRock and tracks the Standard & Poor’s 500 (S&P 500) Stock Index. This is a market index made up of the stocks of 500 large to medium-sized U.S. companies. It offers you the potential to earn the higher investment returns associated with equity investments.
What’s the risk of investing in the C-Fund?
There is both market risk and inflation risk. Market risk is the risk of a decline in the market value of the stocks or bonds. This risk is present in the F, C, S, and I Funds. Inflation risk is the risk that your investments will not grow enough to offset the effects of inflation. This risk is present in all five funds.
Should I invest in the C-Fund?
If it’s in accordance with your goals, risk tolerance, and you understand and accept the risks, than it’s an option worth researching.
Are there any international companies in the C-Fund?
No, the C-Fund consists of large to medium-sized companies based in the United States only.
What’s the cost of investing in the C-Fund?
On average, slightly below .03%.
What’s the 10-year average annual return of the C-Fund?
Have any questions or details you think I should add regarding the C-Fund? Let me know in the comment section below!
– Cooper Mitchell