Military Investment Series Part 2: The C Fund

Learn how to turn $100 into $1,477 with this one weird trick!

That one weird trick is to not be: a fool with money, a greedy asshole, and a spaz that reacts to every market dip. Lets say you took the $100 you got when you were a kid in 1988 from grandma for your birthday and put it into a nice S&P 500 index fund. Today you would have 14 times as much money if you never touched it in an index fund. That means waiting out a down cycle, and not liquidating even when you have lost over half your portfolio value!

Sadly the truth is you took that money out 5 years later in 1993 to buy an Ace of Base Album, a couple T-shirts and some slap bracelets. You never got to see this return because you wanted stuff that didn’t matter. Or somehow you never got this return because you also fell for investing in a very expensive hot stock or mutual fund which was equivalent of the S&P marketed as “Growth” or “Large Cap”. You were hoping to get even greater return than your peers because you were greedy. Worse yet is during the 2001 and 2008 crisis you panicked and sold everything at the bottom of the market for your end of world prep kit instead of buying up more shares of the index fund.

Warren Buffet has a famous bet going on between 2008 and 2018 where he is going head to head with a group of hedge funds. He picked one mutual fund, the Vanguard 500 Index Fund (VFINX). He has earned 68% v.s. the 20% the hedge funds are getting in the same time. From the article:

At the annual meeting, Buffett said the results demonstrate the value of being “slothful,” i.e., patient, as opposed to hyperactive. Trading costs money, and moreover, investors who churn their portfolios are likely to trade in and out at ill-advised moments. Perhaps a very few can trade with skill but, as we’ve observed, a group of 100 or more hedge funds will not have that skill

Be like the old man! So getting back to what the C fund is, it is what Warren Buffett has his money in for the bet. It is a weighted index of the largest 500 companies that make up the market indicator known as the Standard and Poor’s 500 or S&P 500. A great overview of all funds here on bogleheads. This makes up for 80% of the market in terms of market capitalization.

You can buy up (by ratio of market capitalization) all 500 companies with C fund. Here is the kicker, good old Warren is paying 0.16% on his fund (VFINX), but through TSP (C Fund) you only pay 0.029% for fees. In terms of a thousand bucks, Warren pays $1.60 where you only pay $0.29. The $1.31 savings gets to stay invested in your account to compound for future earnings. So that is an extra $1,310 per million dollars invested, per year! You could out preform Warren Buffet on his own bet!

I had an earlier post of what companies are in the index. Do not continue buying up these single companies as you will not be diversified in your investments. You would be paying $7 to buy more of what you have, and another $7 to sell it. If your are not maximizing your TSP, but want in on the market, then you are certainly being extraordinarily ignorant. Over and over again, I see people forgoing TSP, and instead buying up $1,000 worth of Apple, Facebook, Amazon, Netflix, and Google (the FANG companies) at $7 a trade, and sell it for another $7. This $14 trade is a cost of 1.40% which is almost 50 times as much as TSP C fund! Apple makes up for 3.5% of the index by weight, where it is only 1 in 500 (0.2%) of the index. If you plan on owning more Apple than 3% of your total portfolio, then check out Robinhood. Otherwise TSP is a good way to own some of it. A good evaluation of the C Fund comes right from TSP here.

Next in the series, the S fund!


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