Understanding the S Fund’s Nosedive — and Its Rebound
TSP 101: Quick Refresher
The Thrift Savings Plan (TSP) is the federal government’s version of a 401(k). It offers five core investment funds:
- G Fund: Government securities (very low risk)
- F Fund: Bonds
- C Fund: Large U.S. companies (S&P 500)
- S Fund: Small & mid-size U.S. companies outside the S&P 500
- I Fund: International stocks
The S Fund represents the “rest of the U.S. stock market” beyond the largest 500 companies. It carries more growth potential—but also more volatility.
Why the S Fund Declined (Shutdown or No Shutdown)
The S Fund doesn’t drop because of anything “wrong” with the fund itself. Its performance reflects small- and mid-cap stocks, which tend to react more sharply to economic shifts.
Typical factors that push the S Fund down include:
- Slowing outlook for smaller companies
- Higher interest rates (smaller firms rely more on borrowing)
- Investor fear and uncertainty
- Sector-specific weakness
- Broader market pullbacks
What about the government shutdown?
TSP stays fully operational during shutdowns.
However, shutdowns increase uncertainty—leading some investors to shift toward safer assets. That can temporarily pressure small-cap stocks.
Shutdowns rarely cause the decline by themselves, but they can add volatility.
2025 S Fund Performance Snapshot
Here’s how the S Fund has moved this year:
- Through September: up 11.18% YTD
- October: slowed to 1.16% growth
- November: markets turned cautious as they absorbed shutdown effects, rate trends, inflation signals, and global events
These movements are well within the normal range for a small/mid-cap-heavy fund.
Why the S Fund Is Rebounding
Despite recent declines, the S Fund has begun recovering consistently with its historical behavior.
Drivers of the rebound:
- Small and mid-caps often rally strongly after downturns
- Improving market sentiment (cooler inflation, more stable rates)
- Positive performance across most TSP funds
- Rebalancing and renewed investor interest in equities
- Long-term market trend: downturns often precede rebounds
Important: With the S Fund, larger gains typically come with larger swings.
Risk & Vulnerability Indicators
Below is a snapshot of select fund performance periods that highlight volatility across different market environments:
| G | F | C | S | I | |
| 1-Year Return as of 12/16/2022 | 2.82% | -10.78% | -17.89% | -26.01% | -14.58% |
| 1-Year Return as of 4/9/2025 | 4.50% | 4.70% | 6.10% | -2.90% | -1.80% |
| 1-Year Return as of 8/07/2025 | 4.40% | 3.40% | 22.70% | 20.20% | 21.20% |
| 1-Year Return as of 9/5/2025 | 4.40% | 2.90% | 19.30% | 21.40% | 16.10% |
| 1-Year Return as of 10/24/2025 | 4.50% | 6.40% | 18.40% | 17.40% | 22.70% |
| 1-Year Return as of 11/21/2025 | 4.50% | 6.80% | 12.40% | 1.40% | 23.20% |
Among the most volatile of the TSP Funds, the S Fund, can make the most return, and lost the greatest return. Please refer to the 12/16/2022 chart above.
