[URL="https://www.tsptalk.com/mb/longer-term-strategies/42219-c-fund-vs-s-fund.html"]You can find an extended discussion of this topic here[/URL]
The C Fund and S Fund are the two primary options for TSP investors seeking exposure to the U.S. stock market. Both funds are popular among the TSP Talk community. Among the 700+ non-premium members in the TSP Talk AutoTracker, the average allocation to the C Fund is 27.4%, while the average S Fund allocation is 26.6%. Combined, they make up 54.0% of allocations among free members.
Why would a TSP investor choose one over the other? And why are they nearly evenly distributed among our community, even though the C Fund is up 12.9% while the S Fund is up 3.3% for 2024?
Let’s take a closer look at what it means to hold the C Fund and S Fund:
C Fund
The objective of the C Fund is to match the performance of the Standard & Poor’s 500 (S&P 500) Index. This index consists of around 500 of the largest companies in the U.S., considered large-cap firms.
At first glance, the C Fund appears to be a well-diversified fund of well-established companies. However, these 500+ companies do not hold equal weight in the S&P 500 Index. Instead, the larger a company, the more weight it holds in the index.
For example, the top 5 companies in the S&P 500 represent 26% of the index’s performance, while the bottom 300 companies account for around 15%. Thus, the C Fund is less diversified than it seems, with significant investments in giants like Microsoft, Nvidia, Apple, Amazon, and Meta Platforms (Facebook).
This concentration of technology giants has been advantageous amid the current AI boom (or bubble?).

This is the daily S&P 500 chart through 2024. The C-fund climbed 14.8% from its low on January 4th to its recent high established June 5th.
S Fund
The objective of the S Fund is to match the performance of the Dow Jones U.S. Completion Total Stock Market Index. This index includes companies not in the S&P 500, representing mid-cap and small-cap stocks, providing exposure to a broader market spectrum.

This is the daily Dow Jones U.S. Completion Total Stock Market Index chart through 2024. It climbed 11.6% from its low on January 17th to its high on March 28th.
Difference in Risk
The S Fund is considered to have a higher risk level than the C Fund because smaller companies tend to be more volatile and susceptible to economic shifts. However, this volatility comes with the potential for higher growth during economic booms, as smaller companies have more growth potential than their larger, more established counterparts. This was true in the pandemic boom of 2020 where the C-fund ended the year with a gain of 18.3% while the S-fund ended the year with a gain of 31.9%.
Recently, the AI boom has benefitted companies like Nvidia and Microsoft, boosting the C Fund. However, there is potential for this AI growth to extend to mid and small-cap industries as they adopt this technology.
In 2024, investors in the C Fund have reaped the benefits of AI growth, but this doesn't guarantee that the C Fund will outperform in the second half of the year. If the Fed cuts rates, small companies in the S Fund, previously hindered by higher borrowing costs, may find it easier to invest in expansion.
Conclusion
When deciding whether to invest in the C Fund or S Fund, consider your risk tolerance, investment goals, and market outlook. The C Fund has provided steady growth with moderate risk, while the S Fund offers higher volatility with the potential for significant growth. A balanced approach, incorporating both funds, could be a strategic choice to meet your specific investment needs.
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Thomas Crowley
(TommyIV)
www.tsptalk.com
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The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.