want to hear something crazy? Ever since I became a federal employee I invested in the
S-Fund in the TSP but actually you know until a couple years ago I didn't fully understand
everything that was in the TSP S-Fund so like shame on me but also if I'm a pretty knowledgeable
federal employee about the TSP and I didn't know what the S-Fund fully invested in then
I'm guessing you might not know what's in there either. So today let's talk about it
let's answer these questions, let's go through it together. And just before I start I think
it's really important that I put in a disclaimer this is not financial advice I'm just a guy
on YouTube and I'm a guy that didn't even fully understand the S-Fund until a little
while ago so like don't like risk your retirement savings based off of something you hear on
YouTube. I started off this video by saying I didn't fully understand what the S-Fund invested
in. The S-Fund as if you go to the TSP website S stands for small cap stock and indeed the S-Fund
does invest in small cap stocks but it also invests in some pretty large stocks so if you
go to the TSP website and see what the largest stocks are there's stuff you definitely heard
of like Zoom is one of its largest holdings or Snap that makes Snapchat and Airbnb those are all
in the TSP S-Fund those are all pretty big companies. So let's talk about how the TSP
defines small cap. If you go to the TSP website they're going to tell you that the S-Fund invests
in the Dow Jones total completion stock market index fund which I'd never heard of and I'm
guessing you haven't either there's not really very many other mutual funds that you can buy
that invest in that so like the C-Fund, Common Stock, S&P 500 there's like a billion mutual
funds you can do that will track that index for you. Dow Jones completion total stock market index
pretty rare so to understand it think about all the stocks that exist in the United States that's
the Dow Jones completion the 500 biggest one of those are in the S&P 500 and then the Dow Jones
stock market total completion index is everything in that total stock market except the 500 biggest
stocks which are in the S&P 500. That's not a very common index a lot of other people that want a
small cap index will invest in something called the Russell 2000 index and the way to think about
that it's a little bit different index than the Dow Jones total stock market they have this thing
called the Russell 3000 which are the 3000 largest stocks which are like 99% the same as the Dow
Jones total completion index there's a little bit of like a little bit of differences on the small
end but you know for like you know most everything they track kind of identically and this Russell
2000 index is the 2000 smallest ones in that index so the S fund is like all stocks except the 500
biggest whereas the Russell 2000 is like all stocks except a thousand biggest so most small
cap indices actually track something that's slightly different because the way these
indices work they buy the stock based off of the market capitalization of how big the stocks are
and so if these 500 biggest stocks in the S fund are actually like quite a bit of the money in the
S fund is in these 500 biggest stocks because they're the biggest and the money spread out like
that so is this good is this bad well for like 2020 2021 the S fund did quite incredible things
and that was because there was a stock you may have heard of it's called Tesla there's this guy
Elon Musk and that stock went nutso in 2020 2021 and it was not in the S&P 500 at that time so even
though it was like one of the biggest stocks in traded in the United States it wasn't an S&P 500
because of I don't know regulations they have to like vote on what was in there I don't know
anyways wasn't in there so it was obviously in that 500 biggest not S&P 500 stocks and that
caused the S fund to have some really incredible returns in 2020 2021 now Tesla's in the C fund
and so it's less of a big deal now let's talk about what kind of diversification the S fund
gets you so if we take a look at the monthly returns for the C fund which is common stocks
in the S fund they're they line up on each other really well so when the C fund goes down most of
the times the S fund goes down when the C fund goes up most of the time the S fund goes up as
well the only difference is that when things go up or down it tends to go a lot more up when it's
going up with the S fund and go down a lot more when it's going down with the S fund so it's adding
variability to your portfolio but you know these waves line up with each other so it's not really
adding any diversity for you so when you're trying to build a portfolio a lot of times you want to
add in a fund that has like some opposite performance like bonds you know those kind
of stay more flat so they have like less variation but you also want to find things that don't line
up with the peaks and troughs to kind of smooth out your portfolio if you need to sell in a time
when things are going down but that's okay the S fund just kind of supercharges your ups and
your downs and that can also help your portfolio kind of grow more during these times of
really big growth like I said 2020-2021 we had kind of huge spikes because of Tesla and that's
something that you want to have if you're only in the C fund. A lot of you who've read my blog or
watched my other videos know I'm a big fan of JL Collins he wrote this book Simple Path to Wealth
and he is a big believer in kind of investing in one fund essentially that's the total stock market
fund so like you know I said like oh yeah the Russell 3000 is the 3000 biggest stock. JL Collins
kind of has this plan one fund and you hold the whole market so the Russell 3000 or the Dow Jones
total stock market index for Vanguard funds that would be VKEY, FAX and if you're on financial
blogs you'll see people write about how awesome that is all the time. Well if you wanted to kind
of follow that JL Collins model and I really recommend you read his book it's excellent I'll
put a link in the description Simple Path to Wealth. If you want to follow JL Collins advice
and you're in the TSP well there's no like VTA, FAX in the TSP. However if you take combine the C
fund and the F fund because I said the F fund is like everything except the 500 biggest stock so
if you put those two together you do get the total market and it's kind of roughly 80% C fund
20% F fund or 70% C fund, 30% F fund, somewhere in there that's going to give you kind of a total
stock market in the appropriate weighted thing and if you want to look at the performance of
the C fund versus the F fund over the past 10 years it kind of ended up at about the same spot
there were some years where the C fund outperformed the F fund and then like I said 2020, 2021 the F
fund kind of went out of really big care so over the past 10 years kind of looking back just over
the last 10 years which you know every 10 year window is going to look different but over the
past 10 years the F fund and C fund have done about the same. They've both done incredibly well. The
2010 to 2020 decade was a good decade for stocks so hopefully you've already been invested in the
C fund and F fund and you haven't had everything stopped away in the D fund. So that's really all
I have to say about the F fund. It can be a really great part of your portfolio and it's important to
know what it does and doesn't invest in so even though it says small cap, it's big, big or small cap
stocks. If you enjoyed the video please like, subscribe, turn on post notifications, all those
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