The C,F, and I Funds are three of the five funds in the Federal Government’s Thrift Savings Plan (TSP).
BlackRock Institutional Trust Company, N.A., of BlackRock, Inc., the largest money manager in the world with over $4.5 trillion under management, manages the C,F, and I Funds along with the S Fund.
Today, we will focus on the C, F, and I Funds.
The C Fund currently has more than $120 billion in investments and is used as a leading indicator of the economy’s current status.
It tracks the S&P 500, similar to any market-traded S&P 500 index fund. The S&P 500 is made up of large and mid-size companies, many of which you are probably familiar with, such as Apple, AT&T, and Bed Bath & Beyond.
Like all index funds, the C Fund is not actively managed. Each dollar you invest is apportioned into each of the S&P’s 500 companies based on current value of the individual company’s total freely-traded stock. This means the more valuable companies are more heavily represented in the C Fund.
Freely-traded stock is different than outstanding stock. Large blocks of outstanding stock may be owned by controlling shareholders, their families, company officers, or other companies. These blocks are not included in the calculation.
The S&P 500 makes up 75% of the total market capitalization of U.S. publicly-traded stocks. Therefore, the value of your investment is closely tied to the rise and fall of the U.S. stock market. Be aware this means the stock market will effect your TSP.
The success of the fund is measured on how closely its performance resembles the actual performance of the S&P 500 itself, not on its level of performance against the other funds. The cost to administer this fund is $.29 for every $1,000 invested.
The F Fund is designed to track the Barclays Capital U.S. Aggregate Bond Index, which represents 43% of the total U.S. bond market.
This index includes:
- investments in U.S. Treasuries
- government issues
- corporate bonds
- Federal Government mortgage-backed passthroughs
- consumer asset-backed securities (ABS)
- commercial mortgage-backed securities (CMBS)
This index itself measures the performance of U.S. fixed income investment grade securities.
The securities included in the index must be at the middle or above investment grade, based on Moody’s, the S&P, and Fitch. If only two ratings are available one can be at the middle, but the other must be higher.
The par value of the securities outstanding must be at least $250 million with possible exceptions for ABS, ERISA-eligible CMBS, and ARM securities.
Lastly, the securities must have maturities of at least one year. Another important feature of this index is that all securities must be US dollar denominated and fully taxable.
Income generated by the F Fund is tax deferred until you start taking out distributions. Its price can be impacted by the movement of interest rates, risk of default on maturing bonds, interest payments, prepayment, and inflation.
It has a relatively low default risk (though still higher than the G Fund), and can be used to reduce the volatility of a portfolio that is invested heavily in the TSP stock funds. At the end of 2013, there were over $23 billion invested in the F Fund. Administrative fees were $.39 per $1,000 invested.
The I Fund tracks the Morgan Stanley Capital International EAFE Index. This is the oldest international index and is made up of international companies in 21 developed countries of Europe, Australasia, and the Far East, with 66.8% invested Europe and 33.2% invested in Australasia and the Far East.
The index does not include companies within China, India, and Brazil, all of which are now major players in the world economy. Of the 33.2% allocated to the Australasia/Far East sector, 20.9% is in Japan.
In the European sector, it has a 22% allocation in Great Britain, 10% allocation in France and 9.5% in Germany, even though Germany is the world’s fourth-largest economy, France the fifth, and Great Britain the sixth. There are no allocations for Russia or Canada.
Like the S&P 500 index, the individual company allocation is based on the market value of the free-floating outstanding stock issue. It excludes shares that are subject to foreign ownership limitations imposed by governments or the companies themselves.
The I Fund is subject to both market and currency risk. In fact, a major factor in the performance of this fund is the relative rise and fall of foreign currencies in which the stock is denominated.
For example, a fall in the dollar relative to the foreign currencies represented in the fund would increase the fund’s return, and effect your TSP. Although there are limitations to the fund’s international allocation, it still provides some partitioning of the market risk that comes with investing outside the U.S.
Currently, the I fund holds $33.3 billion dollars in investment, and net administrative expenses are $.29 per $1,000 invested.
The TSP is a low-cost retirement account aggregator, and the C, F, and I Funds play a major part. The goal is to use your TSP to your best advantage based on your individual goals and where you are at in life. Helping federal employees plan for retirement is our specialty and we’d love the chance to speak with you.
For over 30 years, federal employee retirement planning has been a key focus of Medallion Financial Group. We recognize that FERS retirement benefits have extra layers of complexity, such as the Thrift Savings Plan (TSP), 401K, Pension plan, FEGLI and more. It’s easy to get lost in a sea of bad advice when so few people understand the basics. We help with the basics and beyond to enable our clients to get the education and advice they need to retire with confidence.
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