The S-Fund is one of three stock funds in the Thrift Savings Plan (TSP). Read how it works to boost your retirement savings.
The S-Fund was not one of the original 3 TSP funds that began in the late ‘80s. Officially, its inception date was May 1, 2001. Along with the I-Fund, it was added to the TSP to provide more options in the retirement plan that included stocks. Before, the C-fund was the only TSP investment that included stocks. While the C-Fund invests in companies that are included in the S&P 500, the S-fund includes smaller companies than those that would be found in the C-fund. The “S” in S-fund stands for “small company stocks” but includes companies with market capitalizations that are considered medium-sized and large. Tracking the Dow Jones U.S. Completion Total Stock Market Index, the S-fund includes stocks from the whole stock market, excluding the S&P 500.
In the private sector’s 401(k) plans and for individual investment accounts, similar mutual funds and exchange-traded funds (ETFs) exist that also have investment portfolios that track the wide range of companies in the stock index. One of the most historically touted aspects of the TSP is the low cost, and while it remains on the less expensive side of the spectrum, the expense ratios are not as competitive as they once were.
The Risks and Potential Growth
According to the TSP website, the S-Fund contains market risk and possible inflation risk. Because the value of what a participant has invested in the S-Fund is dependent on the stock prices of the companies included in the market index mentioned above, there is an inherent risk that the prices could drop and incur a loss. Or, if not a loss, the prices may not grow enough to outpace inflation, hence some inflationary risk.
The TSP website also points out that having a diverse portfolio that includes the C Fund along with one or both of the other two stock funds (S and I) has the potential of thinning out the market risk. Adding the non-equity funds (G and F) to a TSP portfolio as well is noted as a strategy that could make a TSP participant’s investment allocation less susceptible to volatile changes in value – both positive and negative.
For help with your own TSP investments, meet with a Chartered Federal Employee Benefit Consultant (ChFEBC) to review your Federal Benefits.
Until Next Time,
**Written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.
***The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you’re eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.***
****The Dow Jones U.S. Completion Total Stock Market Index is a subindex of the Dow Jones U.S. Total Stock Market Index that excludes components of the S&P 500. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.****