A New Year and A New Benchmark Index for the TSP I Fund

What is the new benchmark index for the TSP’s I Fund all about?

Ringing in the new year for your retirement savings? The Thrift Savings Plan (TSP) has some good news: the International Stock Index Investment Fund, also known as the I Fund, is getting a makeover! Starting in 2024, it will track a brand new benchmark index, expanding your investment horizons and potentially boosting your long-term returns.

What’s the I Fund and this new index all about?

The I Fund is one of five core investment options within the TSP, providing exposure to international stocks. Its current benchmark, the MSCI Europe, Australasia and Far East (EAFE) Index, focuses on developed markets. The new benchmark, the MSCI All Country World ex USA ex China ex Hong Kong Investable Market Index (MSCI ACWI IMI ex USA, ex China ex Hong Kong), opens the door to a wider world, including:

Emerging markets 

The current I Fund does not allow any investments in Emerging Markets. The new index adds this ability. It can now add one of the biggest trading partners of the United States, Mexico.

Emerging Market
BrazilChileColombiaCzech RepublicEgypt
GreeceHungaryIndiaIndonesiaS. Korea
PolandQatarSaudi ArabiaSouth AfricaTaiwan

Stocks in 21 Developed Markets

The new I Fund benchmark index also expands the existing exposure to developed markets. It does remove exposure to Hong Kong but adds Canada, the third biggest trading partner of the US.

Developed Markets
ItalyJapanNetherlandsNew ZealandNorway

Greater stock diversification

From tech giants to healthcare innovators, the index encompasses a broader range of industries and invests in 5,627 companies across the 21 developed markets and 12 emerging markets above.

But Why Change the I Fund?

The Federal Retirement Thrift Investment Board (FRTIB) has had plans to update the I Fund since 2009. The initial plans were approved to use an index that excluded the United States. However, the Trump administration raised concerns about exposure to China, and implementation was halted. 

In 2023, the FRTIB approved the use of a different index that excluded China and Hong Kong. Several factors played a role:

  • Growth potential: Emerging markets offer promising growth opportunities, potentially enhancing your overall portfolio performance.
  • Diversification benefits: A wider range of investments helps spread risk and protect against downturns in any single market.
  • Evolving global economy: The international market landscape is changing, and the new index better reflects this reality.

What does this mean for you, the TSP participant?

  • Broader exposure: Your I Fund investments will now be spread across a larger, more diverse pool of companies, potentially improving long-term returns.
  • Reduced risk: Diversification across developed and emerging markets can help hedge against any region’s volatility.
  • Stay informed: Follow TSP communications and educational resources to learn more about the new index and its implications for your portfolio.

This move aligns with the broader market trend of increased exposure to emerging markets and international diversification.

Many mutual funds already offer similar options, and the TSP is adapting to keep pace with investor needs and the evolving global economy.

As we progress into 2024, remember that your TSP investments are also on the move. The TSP Investment Board will gradually change to the new index. The I Fund has over $78 billion invested, so changing in a single day will cause major market fluctuations.

David Fei is the co-owner of PlanWell Financial. He specializes in helping federal employees understand their benefits and make the best decisions for their unique situations. Based in the Washington, DC area, PlanWell regularly offers federal retirement planning webinars and one-on-one guidance.

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