Thrift Savings Plan Fund Deep Dive – The C Fund
There are only five investments available in the Thrift Savings Plan (TSP), so let’s take a detailed look at them one at a time. First, we’ll cover the C Fund, which would probably be the fund you would pick if you were only allowed to pick one.
Inception Date
29 JAN 1988
Fund Management
The Federal Retirement Thrift Investment Board currently contracts BlackRock Institutional Trust Company, N.A. (BlackRock) to manage the C Fund assets. The C Fund remains invested regardless of the performance of the securities markets or the overall economy.
Investment Strategy
The C Fund is invested in a stock index fund that fully replicates the Standard and Poor’s 500 (S&P 500) Index, a broad market index made up of the stocks of 500 large to medium-sized U.S. companies. The C Fund’s objective is to match the performance of the S&P 500. Also, some of the money in the C Fund is temporarily invested in the G Fund and earns the G Fund return.
The C Fund is a passively managed fund that remains invested according to its indexed investment strategy regardless of stock market movements or general economic conditions.
What is the Risk?
Your investment in the C Fund is subject to market risk because the prices of the stocks in the S&P 500 Index rise and fall. You are also exposed to inflation risk, meaning your C Fund investment may not grow enough to offset inflation.
What is the Benefit?
Historically, this increased risk has been rewarded with an increased return. It offers the opportunity to experience gains from equity ownership of large and mid-sized U.S. company stocks. Here is all the performance data as of 25 SEP 2019:
Types of Earnings
The C Fund changes in value as the market price of its stocks change. In addition, the C Fund makes money for its investors when those stocks pay dividends. Unlike a traditional mutual fund, though, income from dividends is included in the share price calculation. It is not paid directly to participants’ accounts.
It also makes some money on interest on short-term investments and securities lending income.
BlackRock credits interest and dividend income each business day. This income is then reflected in the TSP share prices.
Share Price Calculations
The value of your account is determined each business day based on the daily share price and the number of shares you hold. At the end of each business day, after the stock and bond markets have closed, the total value of the funds’ holdings (net of accrued administrative expenses) is divided by the total number of shares outstanding to determine the share price for that day. The daily change in TSP share prices reflects all investment income (interest on short-term investments, dividends, capital gains or losses, and securities lending income) net of TSP administrative expenses.
Expenses
The net expenses paid by investors is 0.041% or 4.1 basis points, which like all the TSP funds is ridiculously low and is a major benefit of the TSP. It cost $0.41 for each $1,000 invested.
How Should I Use the C Fund in my TSP Account?
The C Fund can be useful in a portfolio that also contains stock funds that track other indexes such as the S Fund (which tracks an index of small US company stocks) and the I Fund (which tracks an index of international stocks). The C, S, and I Funds track different segments of the overall stock market without overlapping. This is important because the prices of stocks in each market segment don’t always move in the same direction or by the same amount at the same time. By investing in all segments of the stock market (as opposed to just one), you reduce your exposure to market risk.
The C Fund can also be useful in a portfolio that contains bonds. Again, it is because the prices of stocks and bonds don’t always move in the same direction or by the same amount at the same time. So a retirement portfolio that contains a bond fund like the F Fund, along with other stock funds, like the S and I Funds, will tend to be less volatile than one that contains stock funds alone.
Advice from My Favorite Short Investing Book
Here is what my favorite investing book, The Elements of Investing: Easy Lessons for Every Investor, says about S&P 500 index funds like the C Fund:
The best-known of the broad stock market mutual funds and Exchange Traded Funds (ETFs) in the US track the S&P 500 index of the largest stocks. We prefer using a broader index that includes more smaller-company stocks…Funds that track these broader indexes are often referred to as ‘total stock market’ index funds. More than 80 years of stock market history confirm that portfolios of smaller stocks have produced a higher rate of return than the return of the S&P 500 large-company index. While smaller companies are undoubtedly less stable and riskier that large firms, they are likely – on average – to produce somewhat higher future returns. Total stock market index funds are the better way for investors to benefit from the long-run growth of economic activity.
If you want to follow their advice, you just combine the C Fund with the S Fund in a 3:1 ratio. To see how I use the C Fund, read the Crush the TSP series.
Finance Friday Articles
Here are this week’s articles:
5 Major Things To Look For In a Real Estate Fund
A Timely Reminder – Past Performance is No Guarantee of Future Results
End Game – The Downsides of Estimated Life Expectancy for Retirement Planning
Highly Functioning Teams as the Way to Wellness & Professional Fulfillment
How One Man Built A 6-Figure Online Business In Less Than 2 Years
I’ve Turned Into An Investment Collector, and I Love It
Practical Investing Advice for Doctors: The Pareto Principle
Since Market Timing is a Waste of Time, Why are you Still Trying?
Straight Talk – The Basics of Personal Finance
The Financial Advantages of Emergency Physicians
The New Attending Financial Planning Checklist
Vanguard to Offer a New Robo-Advisor with Vanguard Digital Advisory Service
Throwback Thursday Classic Post – FY17 CAPT Board Convening Order Deconstructed
(Because the convening orders change very little from year to year, this post is still relevant today. Enjoy.)
The FY17 Staff Corps O6 Board Convening Order was released after conclusion of the board. The best news was that the promotion opportunity for Medical Corps was 70%, up from 50% last year, which was an all-time low. Aside from that, though, if you read through the convening order, it basically tells you how to get promoted to Captain. I’ve read through it and pulled out quotes that you can turn into actionable items. Enjoy:
“Their personal and professional attributes include…physical fitness…”
ACTION ITEM: Workout and never allow yourself to fail a PFA.
“…successful performance and leadership in combat conditions demonstrate exceptional promotion potential and should be given special consideration.”
“The board may give favorable consideration to those officers who have displayed superior performance while serving in IA (Individual Augmentee)/GSA (Global Support Agreement)/OCO (Overseas Contingency Operations)/APH (Afghanistan-Pakistan Hands) assignments that are extraordinarily arduous or which involve significantly heightened personal risk.”
“Success in these assignments [joint duty assignment billets] should be given special consideration…”
“Navy Medicine needs leaders with knowledge and experience in a variety of settings including operational medicine, joint medical operations, and current peacetime health care delivery initiatives.”
“Navy Medicine greatly values joint experience…”
“You must ensure that Navy Medicine’s future leaders possess the broad knowledge necessary to support the operating forces and are acknowledged leaders within their operational…specialties.”
“The officers selected must have demonstrated exceptional managerial skill and professional competence in executive and staff roles both in support of the fleet and Marine Corps and within the naval shore establishment.”
“…you should select those officers who have served in a broad spectrum of assignments requiring expertise in diverse functional areas.”
“…those you select will be placed almost assuredly in positions that require broad military and medical perspectives beyond the Department of the Navy.”
“Best and fully qualified officers for the rank of captain, will be those who have demonstrated experience and expertise across the spectrum of military treatment facilities, operational platforms in support of the fleet or the Marine Corps, and the intersection with the strategic and tactical issues in provision of military healthcare through experience in headquarters or other associated DoD agencies.”
ACTION ITEM: Deploy, preferably in a combat or joint environment, if available. PCS when you can, and take a variety of assignments, including senior operational positions and positions with other services.
“The board shall give favorable consideration to those officers with relevant graduate education…and Navy and Joint Professional Military Education (JPME).”
“The Navy values completion of graduate education and development of a subspecialty. Degrees from the Naval Postgraduate School, the Naval War College and equivalent Service institutions, and civilian education programs…are desirable.”
“Navy Medicine greatly values…formal education to include JPME I.”
“The Navy values completion of graduate education and development within and officer’s subspecialty.”
ACTION ITEM: Get a masters degree, do a fellowship, or do JPME I and/or II.
“The Navy values competitive scholarships and fellowships, examples of which include: Olmsted Scholar, Marshall Scholar, Rhodes Scholar, White House Fellowship, SECDEF Corporate Fellowship, and Federal Executive Fellowships (e.g., Politico-Military and Cyber).”
ACTION ITEM: Consider applying for one of these scholarships or fellowships.
“Duty or service in combined or other staff positions at the senior levels of government should also be considered favorably.”
ACTION ITEM: Don’t be afraid to take positions in senior levels of government organizations when they are available.
“You shall give consideration to an officer’s clinical and scientific proficiency as a health professional to at least as great an extent as you give to that officer’s administrative and management skills. Strong consideration should be given to board certification when a board certification exists for the specialty.”
ACTION ITEM: Get and stay board certified.
Family Medicine Chair Position at USUHS
Here is the position announcement:
Despite what it says in the announcement, you don’t send nominations to USUHS directly. They all come through the FM Specialty Leader to CDR Melissa Austin (contact info in the global) at BUMED. They are due to her by 15 OCT 2019.
Global Health Engagement Update
Colleagues,
As summer winds down, I want to take the opportunity to share the Navy Office of Global Health Engagement’s (GHEO) progress on our objectives and the future of Navy GHE.
Our office has been writing about the Core Competencies of Navy GHE in our recent Professional Development Updates (PDU); focusing on the knowledge, skills, and abilities (KSAs) that must be demonstrated to hold the 68M Additional Qualification Designator (AQD). It has been our hope that describing and contextualizing these competencies would help our community members identify their own skills gained while on GHE missions. Underscoring each of the six competencies highlighted in previous PDUs is leadership.
While GHEs present opportunities for us to improve our medical and non-medical skills in unique environments, they also present a chance for the Navy to lead the way forward. By strengthening partnerships and building our allies’ capabilities through GHE, the Navy is leading the way towards a more collaborative, interoperable and safer world. There are a few items from our office that I would like to highlight.
First, we recently sent out announcements for three billets – they are still open -and we will be sending out more announcements shortly.
Second, our office has begun overhauling our communications strategy to better highlight important and impactful work that Navy GHE does around the world. The first post is on our MilSuite page and we’d love for you to read it here:
If you are interested in sharing your own story from an engagement, please email our office.
For those interested in learning more about GHEO, sharing your stories, or connecting with the office, I encourage you to visit our SharePoint page or email the office.
Very Respectfully,
Michael Shusko, MD, MPH, FAAFP, FACOEM
Captain, Medical Corps, US Navy
Director, Office of Global Health Engagement (M96)
Step 6 to Crush the TSP – Rebalance Annually
We’ve talked about steps 1-5 to crush the Thrift Savings Plan (TSP). Now we move on to the final step (unless I think of more), step 6 – rebalance annually.
What is Rebalancing?
Let’s say that your desired TSP asset allocation is 70% stocks and 30% bonds. After the last year, though, stocks earned more than bonds and now you’re sitting at 85% stocks and 15% bonds. In order to rebalance back to your desired asset allocation, you’d sell approximately 15% of your stocks and buy bonds, restoring your desired asset allocation. It’s that simple.
Why Should You Rebalance?
If you don’t, you may be assuming more or less risk than you desire.
Also, by rebalancing you force yourself to sell what has overperformed and buy what has underperformed. Although this seems counter-intuitive because you are selling what has given you the largest return, by doing this you are systematically selling high and buying low. When left to themselves, investors typically buy high and sell low, the opposite of what you want to do. Rebalancing forces you to do it right.
How Often Should You Rebalance?
Vanguard has researched this, and you can read their full report here:
Best Practices for Portfolio Rebalancing
Their conclusion is:
We conclude that for most broadly diversified stock and bond fund portfolios (assuming reasonable expectations regarding return patterns, average returns, and risk), annual or semiannual monitoring, with rebalancing at 5% thresholds, is likely to produce a reasonable balance between risk control and cost minimization for most investors.
In other words, you rebalance annually or semiannually (twice per year) whenever your current asset allocations are off by 5% or more from your desired allocations. If the current and desired allocations are within 5% of each other, you do nothing.
How Do You Rebalance in the TSP?
You just log on and do what they call an “interfund transfer” or IFT. You can read all about it on this page from the TSP website.
Because you are doing it in a tax-advantaged retirement account, there are no expenses, fees, or taxes associated with rebalancing (unlike if you were rebalancing a taxable account).
You can only do it twice per month without restrictions, but since you are smart you are only doing it once per year anyway.
Do You Need to Rebalance With Lifecycle Funds?
No, you don’t. This is one of the major advantages of the L funds. If you are hitting the easy button on your TSP and just using a Lifecycle fund, you don’t need to rebalance…EVER!
That’s It. Crush the TSP!
That’s the final step to crush it in your TSP account. Read the whole series, maximize your TSP contributions, and get rich in the military.
Step 5 to Crush the TSP – Roth vs Traditional
We’ve talked about steps 1-4 to crush the Thrift Savings Plan (TSP). Now we’re on to step 5, deciding between the Roth vs traditional TSP. Let’s take a look at the difference between the two and help you to decide which is the right choice for you.
The Traditional TSP
The traditional TSP is the first of two potential tax treatments for your TSP contributions. If you elect it, you defer paying taxes on your contributions and their earnings until you withdraw them. This is the only option for any money you get as a result of the 5% government match in the new Blended Retirement System (BRS).
If you are in a combat zone making tax-free contributions, your contributions will be tax-free at withdrawal but your earnings will be subject to tax.
The Roth TSP
The Roth TSP is the second of two potential tax treatments for your TSP contributions. If you contribute to it, you pay taxes on your contributions now and your earnings are tax-free at withdrawal.
The Roth TSP is similar to a Roth 401(k) that a civilian would have, not a Roth IRA. There are no income limits for Roth TSP contributions. You can contribute to both your Roth TSP and a Roth IRA without contributions to one affecting how much you can contribute to the other. For example, in 2019 you can contribute the full $19,000 to your Roth TSP and $6,000 to your Roth IRA.
Which One is Best for You?
Here’s a table that compares the two options from the TSP website:
| The Treatment of… | Traditional TSP | Roth TSP |
|---|---|---|
| Contributions | Pre-tax | After-tax1 |
| Your Paycheck | Taxes are deferred*, so less money is taken out of your paycheck. | Taxes are paid up front*, so more money comes out of your paycheck. |
| Transfers In | Transfers allowed from eligible employer plans and traditional IRAs | Transfers allowed from Roth 401(k)s, Roth 403(b)s, and Roth 457(b)s |
| Transfers Out | Transfers allowed to eligible employer plans, traditional IRAs, and Roth IRAs2 | Transfers allowed to Roth 401(k)s, Roth 403(b)s, Roth 457(b)s, and Roth IRAs3 |
| Withdrawals | Taxable when withdrawn | Tax-free earnings if five years have passed since January 1 of the year you made your first Roth contribution, AND you are age 59½ or older, permanently disabled, or deceased |
* If you are a member of the uniformed services receiving tax-exempt pay (i.e., pay that is subject to the combat zone tax exclusion), your contributions from that pay will also be tax-exempt.
1. Roth contributions are subject to Federal (and, where applicable, state and local) income taxes, while traditional contributions are not taxed until withdrawn. However, both Roth contributions and traditional contributions are included in the amount of wages used to calculate payroll taxes (e.g., Social Security taxes).
2. You would have to pay taxes on any pre-tax amount transferred to a Roth IRA.
3. Transfers to a Roth IRA from a Roth TSP are not subject to the income restrictions that apply to Roth IRA contributions.
The issue of whether Roth is a good option for you was discussed in this TSP Highlights called Is Roth For You?
If you are more of a visual learner, you might enjoy this video from the TSP called “Is Roth Right for Me?”
If you like interactive calculators, this one from Betterment is pretty good.
If you don’t trust anything I say and want to read what someone else thinks, I don’t blame you. Here’s a good article from Money.
The decision really boils down to whether you’d like to pay taxes now (Roth) or later (traditional) and how your current tax rate compares to your likely future tax rate during retirement. While predicting the future is not easy, if you are young or early in your career, your earnings and tax rate are likely to rise in the future, so you should probably lean toward the Roth option. If you are in your peak earning years and you expect your tax rate to fall in retirement, you should probably lean toward the traditional and defer taxes to a future date.
If you are not sure which option to choose, many people recommend you diversify your retirement accounts and simply split the Roth and traditional 50/50. That way in the future you’ll have options depending on how future tax rates and your financial situation changes.
What do I do? I can afford the taxes now and want as much tax-free money available to me as I can get, so I put all the money in the Roth TSP that I can. That said, the first part of my career I didn’t have a Roth option, so a large percentage of my TSP balance is in the traditional TSP as well, so I’m about 50/50 split between the two options.
Some Rules to Be Aware Of
The TSP keeps your traditional and Roth money in separate “buckets” in your TSP account.
You cannot convert any portion of your existing traditional TSP balance to a Roth balance.
You can make both traditional and Roth contributions if you want. You can contribute in any percentages or amounts you choose and can change your election at any time.
If you are getting government contributions (perhaps because you are in the Blended Retirement System), they are deposited into your traditional TSP. You can put your portion in the Roth, but the government’s portion must go in the traditional.
The Bottom Line
Use the resources above to decide if you want to invest in the traditional TSP, the Roth TSP, or some combination of the two. If you’re not sure what to do, I’d just split it 50/50 so you have options in the future.
Keep your eye out for the last step to crush the TSP, rebalancing.
Finance Friday Articles
Here are this week’s articles:
4 Unique Side Income Opportunities Using Your Medical Degree
5 Things You Can Do Today to Become Financially Independent
5 ways to get an advanced education while minimizing debt
10 Ways to Pay Off a Mortgage Quickly
All troops will now get free credit monitoring service
Are Side Hustles the Best Kind of Asset Protection?
Educational Debt and Physician Employment
Explaining the Stock Market to Big Cat
Investing: Where to Put Your Money Now
Maximize Your Dead Time For a New Approach To Life
Questions and Answers about Changes to TSP Withdrawal Options
You Need to Know About Present Value
Right Turn – Shopping for Auto Insurance
Saving For College: Understanding 529s and Other Options
Should You Invest In Variable Annuities and Non-Deductible IRAs?
SIX PERCENT IS THE NEW FOUR PERCENT
Tax-smart charitable giving strategies
Throwback Thursday Classic Post – Normal Promotion Timeline and the Jobs/Achievements That Get You There
The typical career progression for a Medical Corps officer if promoted on time (the first time they are in-zone) is:
- 5 years – selected for promotion to LCDR
- 6 years – promoted to LCDR
- 11 years – selected for promotion to CDR
- 12 years – promoted to CDR
- 17 years – selected for promotion to CAPT
- 18 years – promoted to CAPT
For example, I’m a 15 year CDR, so I’ll be in-zone in 2 years at year 17. If I’m selected the first time I’m in-zone, I’ll be promoted to CAPT in year 18. (This just happened!)
There are 5 general career paths in the Navy that lead to promotion, and I firmly believe that all can lead to promotion to CAPT. They are:
- Academic
- Administrative
- Clinical
- Operational
- Research
One of my favorite things about the Navy is that you don’t have to stay within the same career path as you progress in your career. I have happily jumped around and managed to promote to LCDR and CDR on time. During my first tour at USNH Okinawa, I was largely clinical. After that I was academic but transitioned to more of an administrative role, culminating with my time as a Detailer at PERS. In my current role as Commander of a Joint Medical Group and Joint Task Force Surgeon, I’m both administrative and operational. My next tour will return me to an academic setting where I hope to score a major administrative role (I became the Director for Healthcare Business) at the command but once again “be academic.”
As you progress down your chosen career path, one of the major determinants of whether you will promote is whether you get the jobs that will allow you to progress to the next rank. The following lists include many, but certainly not all, of the collateral duties, positions, and achievements you should strive for once you reach each rank. If you can get some of these positions and do well in them, it should allow you to break out on your FITREPs and increase the chances you will promote. Of note, in each rank appropriate list there are positions from all 5 general career paths.
LTs or LCDRs looking to promote should focus on achieving these milestones or positions:
- Getting board certified, which is pretty much a requirement to promote
- Completing a fellowship, but trying to avoid being a fellow in the years right before they are in zone so that the non-observed FITREPs you often get don’t hurt your chances at promotion
- Completing a deployment, but again trying to avoid doing it right before you are in zone due to the small competitive groups you often get on your FITREPs
- Assistant/Associate Residency Director
- Department Head (DH) is a small/medium military treatment facility (MTF)
- Assistant Professor at USUHS, which is very easy to get if you just apply. See my promo prep document for the info on how to do this.
- Publishing professional publications
- Research, preferably defense-related
- Departmental collateral duties
- Hospital committee member or chair
- Executive Committee of the Medical Staff (ECOMS) member
- Civilian leadership positions, like in your specialty society’s state chapter, for example
- Senior Medical Officer (SMO) or Medical Director in your department at a large MTF
CDRs looking to promote should focus on:
- Residency Director
- DH of your department in a large MTF
- Associate Professor at USUHS
- Director position (Director of Medical Services, Director of Clinical Support Services, etc.)
- Officer-in-Charge of a clinic
- Chief Medical Officer
- Major committee chair
- ECOMS member, Vice-President/President-Elect, or President
- Senior operational leadership position
- Division Surgeon
- Group Surgeon
- Wing Surgeon
- Commander, Amphibious Task Force (CATF) Surgeon
- SMO on an amphibious platform
- Staff position at BUMED
- Specialty leader
- Deployment requiring an O-5 or higher
- Detailer
As a LT or LCDR, I was able to get board certified, complete a fellowship at the right time, deploy twice, become an Assistant Professor at USUHS, publish numerous publications, do some research, obtain numerous departmental collateral duties, chair a hospital committee and be an ECOMS member at USNH Okinawa, become a SMO in the Navy’s largest emergency department, be an Associate Director at a large MTF, and hold numerous civilian leadership positions.
As a CDR so far I have promoted to Associate Professor, been a major committee chair and member of ECOMS, and served a tour as a Detailer. Currently I’m a specialty leader and am deployed in a senior operational role that required a CDR or CAPT.
All of this took a lot of work, but made it easy for my leadership to fight for and justify early promote (EP) FITREPs that allowed me to promote to LCDR and CDR on time. Will it work for CAPT? We’ll have to wait on that (it worked), but the more of these things you can achieve, the easier it will be for your leadership to do the same thing for you. You need competitive EPs to promote, and doing these things, giving your leadership the ammunition to justify EP FITREPs, is the path to getting them.
How to Sign Up for AMDOC While Website is Down
For those who want to take or are trying to apply for AMDOC (see the leadership course catalog for FY 20 for dates), the website for application is currently down. To apply, please fill out these forms and send to Ms. Edna Smith (contact info is in the global address book):
Joel Schofer's Career Planning Blog 