TSP I Fund: Quick Guide

The I Fund provides international equity exposure by tracking the MSCI EAFE Index, investing in large companies from 21 developed markets in Europe, Asia, and the Far East. It offers geographic diversification beyond U.S. markets, potential currency benefits, and access to global growth opportunities, though with additional risks including currency fluctuations and geopolitical factors.

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Table of Contents

• Introduction

• TSP S Fund Key Features

• Historical Performance

• Risk Profile

• Ideal Investor Profile

• Advantages and Limitations

• Strategic Considerations

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Introduction

The I Fund (International Stock Index Investment Fund) gives federal employees exposure to international developed markets outside the United States. By tracking the MSCI EAFE (Europe, Australasia, Far East) Index, it invests in approximately 900 large companies in 21 developed countries, providing global diversification to complement domestic stock holdings.

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TSP I Fund Key Features

Feature	Description
Investment Type	International developed market stocks tracking the MSCI EAFE Index
Risk Level	Moderate to high
Volatility	Moderate to high (Can exceed C Fund volatility)
Inflation Protection	Moderate to strong over long periods
Income Generation	Dividend income (often higher yields than U.S. markets) plus capital appreciation
Principal Protection	None (Subject to market and currency fluctuations)
Minimum Investment	None (Can allocate any percentage of TSP balance)
Management Expense Ratio	0.055% (2023) - Significantly lower than comparable international index funds

Historical Performance

Time Period	Average Annual Return
1-Year (2023)	16.18%
3-Year (2021-2023)	3.53%
5-Year (2019-2023)	8.28%
10-Year (2014-2023)	5.27%
Since Inception (2001)	Approximately 5.6%

Source: TSP Fund Performance

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Risk Profile

The I Fund carries several types of risk:

• Market risk: Subject to international stock market fluctuations

• Currency risk: Returns affected by changes in exchange rates between the U.S. dollar and foreign currencies

• Geopolitical risk: Vulnerable to political events, regulatory changes, and international conflicts

• Country-specific risk: Concentrated in developed markets, particularly Japan and European countries

• Economic cycle divergence: International markets may experience different economic cycles than the U.S.

The I Fund can experience periods of both higher volatility and lower correlation with U.S. markets, potentially enhancing overall portfolio diversification.

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Ideal Investor Profile

The I Fund may be appropriate for:

• Globally-minded investors: Those seeking exposure beyond U.S. markets

• Long-term investors: Those with 7+ years until they need the money

• Diversification seekers: Investors looking to reduce overall portfolio volatility

• Value-oriented investors: Those attracted to typically lower valuations in international markets

• Income-focused growth investors: Those seeking higher dividend yields than typical U.S. stocks

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Advantages and Limitations

Advantages

• Geographic diversification: Reduces dependency on U.S. market performance

• Currency diversification: Can provide a hedge against U.S. dollar weakness

• Valuation opportunities: International markets often trade at lower valuations than U.S. markets

• Higher dividend yields: Typically offers higher income than U.S. equity markets

• Global economic exposure: Benefits from growth in diverse developed economies

Limitations

• Currency risk: Dollar strength can reduce returns for U.S. investors

• Geopolitical exposure: Vulnerable to international political and economic events

• Geographic concentration: Heavily weighted toward Japan and Western Europe

• Emerging market exclusion: Does not include faster-growing emerging economies

• Historical underperformance: Has lagged U.S. markets for extended periods

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Strategic Considerations

Consider these strategic approaches for incorporating the I Fund in your TSP allocation:

1. Global allocation: Typical recommendations suggest 20-40% of equity exposure in international stocks

2. Correlation benefits: Include to potentially reduce overall portfolio volatility

3. Dollar cycle positioning: Consider increasing allocation during periods of anticipated dollar weakness

4. Valuation-based adjustment: Consider increasing allocation when international valuations are particularly attractive relative to U.S. markets

5. Dividend enhancement: Use to boost overall portfolio income

For more information about the MSCI EAFE Index composition and methodology, visit MSCI.

In 2022, the TSP announced plans to transition to a broader international index that would include emerging markets, though implementation timing remains uncertain. Check the TSP website for updates.

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This guide is intended for educational purposes only and does not constitute financial, legal, or tax advice. Federal employees should consult with qualified professionals regarding their specific circumstances.