For many Thrift Savings Plan (TSP) investors, the C Fund has become the default choice. It mirrors the S&P 500, captures the largest U.S. companies, and carries a long history of strong performance — attributes that make heavy allocations feel logical, even prudent.
That familiarity can blur risk. The C Fund feels safe until it stops behaving that way. High starting valuations reduce flexibility and magnify the cost of bad timing, especially in portfolios built around a single fund. At that point, C Fund risk and overvaluation become structural problems, not market opinions.
What the C Fund Is — and What it Isn’t
The C Fund owns large-cap U.S. stocks and closely tracks the S&P 500. It reflects the performance of established companies that dominate U.S. equity markets and financial headlines.
That is all it does. The C Fund does not include small or mid-sized companies. It does not include bonds. It does not include non-U.S. markets. On its own, it represents one segment of the market, not a complete portfolio.
Takeaway: treat the C Fund as one component of a broader TSP strategy, not the entire structure.
Valuation Matters for 10-Year Expectations
Markets have a long memory. When investors buy in at elevated prices, future returns tend to arrive more slowly and with more frustration.
For TSP investors, a richly priced S&P 500 means planning for a wider range of results. Assuming a steady 10% annual return from the C Fund no longer fits the starting conditions.
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Risks of an “All C Fund” Portfolio
An all-C Fund allocation concentrates risk in ways that matter most near retirement.
The first issue is timing. If the market struggles during the first three to five years after withdrawals begin, the damage often becomes permanent. Withdrawals draw from a reduced balance, and later gains do not close the gap.
The second issue is behavior. C Fund exposure typically rises after markets perform well and falls after markets decline. That timing works against the plan.
Both problems show up when the plan has the least ability to recover.
A Better Core: Balance C with Stabilizers and Diversifiers
Use the C Fund for growth, but do not rely on it alone. The G and F Funds give the portfolio room to handle spending needs and market volatility. The S and I Funds diversify equity exposure beyond large U.S. companies.
This is TSP diversification beyond the C Fund in practice. The mix should reflect how long the money needs to last and how soon withdrawals begin.
Right-Sizing the C Fund Without Forecasts
Long horizons of 10 years or more can support the C Fund as a core growth sleeve when paired with complementary holdings.
For a five- to 10-year window, many investors hold more in G or F to reduce the impact of a prolonged market downturn. That choice limits how much a bad stretch in stocks can affect the overall plan.
At or near retirement, many investors keep upcoming withdrawals in the G or F Funds to avoid selling stocks during downturns. The reserve covers spending needs, not performance goals.
This structure reinforces TSP diversification beyond the C Fund without relying on predictions.
A More Durable Way to Use the C Fund
The C Fund still has a place in a TSP portfolio. Relying on it as the primary driver of a TSP portfolio increases risk when markets struggle. Use it deliberately, not as a default.
If you want help evaluating your current TSP allocation or pressure-testing your retirement strategy, reach out to the team at Serving Those Who Serve at [email protected].
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 Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
TSP: 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.
S&P 500: This index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. It consists of 400 industrial, 40 utility, 20 transportation, and 40 financial companies listed on U.S. market exchanges. This is a capitalization-weighted calculated on a total return basis with dividends reinvested. The S&P represents about 75% of the NYSE market capitalization.
