The I Fund and TSP Investors
How much money do you have in international stock funds? Probably not as much as you should have. Most investors in America do not have much in these funds, and Thrift Savings Plan (TSP) investors are no exception. For the TSP, the relevant Fund is the I Fund.
That investing approach is easy to understand. In 2024, the I Fund had a return of 4.27%. That is not a great return, especially when the C Fund had an annual return of 24.96% and the S Fund returned 16.93% for the year. Generally, it seems like the American stock funds perform better.
As of February 28, 2025, the latest month for TSP data, TSP investors had 3.3% of their assets in the International Stock Fund (the I Fund). According to Fidelity Investments, the average 401(k) fund has 38% of assets in U.S. stocks and 5% in international stocks. TSP investors have put smaller amounts in the I Fund than most 401(k) investors.
What Is the I Fund?
The I Fund is the International Stock Index Investment Fund. Its objective is to match the performance of the MSCI ACWI IMI ex USA ex China ex Hong Kong Index. It is the international investment option for the TSP as companies in this index are primarily foreign companies. The index covers approximately 99% of the global equity opportunities excluding the US, China & Hong Kong.
Stock markets in the U.S. do not always perform better. The I Fund provides a hedge against stock losses in American stocks for years when foreign stocks perform better. The TSP investors investing in the C and S Funds have fared well, though. Over the past 10 years, the S&P 500 has averaged 13.8% in annualized returns while global stocks have averaged 4.9%.
Looking back will certainly make these investors feel better about their choices. Did they know this would happen when they initially decided which TSP Funds to choose? Obviously not. Luck or expert analysis of global economic trends can make a difference.
That is not always the case. Keep in mind, with your TSP you are planning for retirement. Perhaps that is coming up fast for you. Perhaps it is 25 years in the future. Regardless of your situation, you will be watching the market go up and down. 2025 is an exceptional year for market volatility but it is not the first time this has happened.
Most people cannot accurately predict stock trends. There are periods when international stocks will perform better. Outside of America (the rest of the world) accounts for about 80% of the global economy and 60% of the world’s publicly traded stocks. History buffs will know that stock markets in London and Amsterdam existed before our country did.
Stock markets go up and down. Foreign markets may react differently from those in the U.S. Stock prices react, and often react quickly, to short-term events. Stock market investors often react to the up and down action of stock prices. They buy and sell stocks based on the latest results. That is not a sound long-term strategy.
Chances are, your portfolio does not have a large investment in international stocks. Hardly anyone does. As a result, you have more potential gain when US stocks do well, but also more risk when other markets do better.
How Volatile is the Stock Market?
This was true even before this year. This year is a good example of how markets can change quickly. Since January, international stocks have outperformed U.S. stocks by 15%.
Take a look at this chart on how the C, S, and I Funds have performed in 2025 through Tuesday, April 8:
| Funds | Month-to-Date | Year-to-Date |
| C Fund | -11.19% | -14.99% |
| S Fund | -12.69% | -20.49% |
| I Fund | -9.47% | -5.27% |
One day later, this is how these TSP Funds were doing after the market jumped up more in one day than it has since 2008:
| Fund | Month-to-Date | Year-to-Date |
| C Fund | -2.73% | -6.90% |
| S Fund | -3.88% | -12.47% |
| I Fund | -5.09% | -0.68% |
What will the stock market do today or in the next week? No one really knows. While this volatility is very unusual, it does happen. Chasing after the best latest returns can kill the returns in your TSP Fund.
Cycles in investing often change. After a long period when one type of investing has done well, it switches to another scenario. After a long period of outstanding performance by American stocks, that may change.
The American stock market is generating headlines. With a new policy on tariffs, and the unknown outcome of how this change will impact stock markets worldwide, stock prices have tanked, especially in the United States.
Investors do not know if this downward trend in stock prices will continue or not. It may be that the stocks that have been beaten down will shoot up dramatically as the dust settles on tariffs. It is also possible that foreign stocks could soar as a result of tariffs, or they may drop when the tariff controversy has concluded.
Just this week, the market has gone down dramatically and then gone up dramatically as the latest news has emerged about the tariff policy. This statement and decision from President Trump on April 9 drove the market up dramatically in one afternoon:
Based on the lack of respect that China has shown to the World’s Markets, I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately. At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A., and other Countries, is no longer sustainable or acceptable. Conversely, and based on the fact that more than 75 Countries have called Representatives of the United States, including the Departments of Commerce, Treasury, and the USTR, to negotiate a solution to the subjects being discussed relative to Trade, Trade Barriers, Tariffs, Currency Manipulation, and Non Monetary Tariffs, and that these Countries have not, at my strong suggestion, retaliated in any way, shape, or form against the United States, I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately.
As the negotiations on tariffs progress, we can expect more news filling the headlines and driving prices up and down in short segments.
Role of Lifecycle Funds
TSP investors have another option besides the core stock funds. The TSP has a range of lifecycle funds that are designed to provide diversity in investing based on the projected retirement for an individual.
Each of the eleven L Funds is a diversified mix of the five individual funds (G, F, C, S, and I). These were designed to let TSP investors put their entire portfolio in a single L Fund and receive the best expected return for the amount of expected risk that is appropriate for you.
What About Inflation?
Investors in particular and all Americans in general have been concerned about inflation over the past several years. It was in 2023 that the COLA was the highest it had been since 1981.
How does inflation look today?
The inflation rate for March, according to the latest CPI data, decreased 0.1% after rising 0.2% in February. Inflation is still up 2.4% on an annual basis.
For federal retirees and all Social Security recipients, the more important data point is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index increased 2.2% over the last 12 months.
Inflation is still above the Federal Reserve’s goal as the central bank prepares to monitor the impact of tariffs on consumer prices. The recent stock market volatility has reduced the likelihood of rate increases in the near future though.
While we will not know the final COLA for 2026 until mid-October, it is clear that retirees will not be getting a large increase in 2026. While that means the monthly check for retirees will not go up very much, the good news is that the rapid increase in all prices is no longer sending prices skyrocketing every time we visit the grocery store.
Summary
The stock market is volatile, and inflation is going down. Tariffs will be in the news for some time, creating stress for investors. Take a close look at your investment portfolio, take a deep breath, set up an investment strategy unlikely to wipe out your retirement nest egg in volatile swings of the market, and stay tuned to FedSmith.com for the latest news impacting federal employees!
