The International Stock Index Investment Fund, or simply put, an I fund. Sounds a little complex, right?

It is a retirement investment option designed to track international stock market performance. It invests in large, mid, and small-cap companies across developed and emerging markets except for China and Hong Kong, as of now. 

But why the sudden hype?

The answer to this lies in its performance last year. In 2025, it was able to deliver over 32.45% return, outperforming C (17.85%) and S (11.38%) Funds significantly. 

So, let’s delve deeper into I funds and how you can use them to better your portfolio. 

Understanding the Basics of the I Fund

The TSP I Fund is designed for retirement diversification, investing in large, midsize, and small companies across developed and emerging markets outside the US, China, and Hong Kong. It aims for long-term growth through international exposure, with returns driven by stock prices and foreign currency fluctuations. 

What the I Fund Actually Invests In

The Thrift Savings Plan (TSP) I Fund invests in a broad, diversified portfolio of international stocks across developed and emerging markets. It tracks the MSCI ACWI IMI ex USA, ex China, ex Hong Kong Index. This includes over 5,000 large, mid-sized, and small-cap stocks from 44 countries, excluding the US, China, and Hong Kong. 

The fund began with holding companies in Europe, Japan, and other developed markets, along with emerging market exposure. However, their focus right now is on a wider array of smaller, faster-growing companies internationally. 

How It Fits Into a Diversified Portfolio

The I Fund acts as a growth-oriented, non-US component in a diversified portfolio, tracking international, developed, and emerging markets. It reduces reliance on the US economy, like C and S funds, and when paired with bonds (E Fund), helps manage overall portfolio volatility. Thus, it is a popular suggestion among various financial investment advisors in Puerto Rico.

What’s Driving the Recent Surge?

The recent surge in the TSP I funds is driven by various factors, including a powerful mix of strong overseas corporate earnings, weakening US dollars, a diversified index, and much more. 

Global Market Recovery and Economic Shifts

I Funds experienced a significant breakout in 2025, returning over 32.45% and outperforming both C and S Funds as international markets benefited from easing inflation, solid earnings, and a shift toward higher growth overseas. This recovery, continuing into early 2026, was driven by a 2024 benchmark shift to a broader index that increased exposure to emerging markets and 44 countries. 

Currency Exchange Advantage

These funds provide a significant currency exchange advantage primarily through its exposure to foreign currencies, which can act as a hedge against a declining US dollar and enhance returns during periods of dollar weakness. 

Sector Performance Across Global Markets

As of 2026, the TSP I Funds have undergone a significant transformation. Evolving from a developed-markets-only fund to a broader international index tracking developed and emerging markets, it has come a long way, delivering remarkable returns. 

Why This Matters for Federal Employees and Long-Term Investors

The exceptional growth of the TSP I Fund is critical for federal employees and long-term investors because it offers crucial international diversification, tapping into non-US markets for higher growth potential. With strong recent performance, it helps long-term investors maximize retirement savings, combat inflation, and boost overall portfolio returns outside the domestic market.  

Should You Increase Your Allocation to the I Fund?

The decision of increasing your allocation to the I Fund depends upon whether you are a long-term investor seeking to increase diversification beyond the US market. However, let’s explore the factors that influence this decision. 

Evaluating Your Current Portfolio

Evaluating your current portfolio before increasing your allocation to the TSP I Fund is crucial to: 

  • Ensure your investments remain properly diversified 
  • Remain aligned with your risk tolerance
  • Consistent with your long-term goals

While evaluating your current portfolio, make sure 

  • You avoid over-concentration and united risk by conducting an overlap check, sector imbalance, and aligning risk tolerance. 
  • Understanding the evolving nature of the TSP I Fund.
  • Maintaining proper asset allocation

Risk vs Reward Considerations

Assessing the benefits of increasing your TSP I Fund allocation is extremely important since international investments have good upside potential but also carry different types of risks. These include fluctuating currencies and unstable governments, which could result in large, rapid losses. The I Fund has also undergone a lot of structural change in 2026, which has provided the fund with greater diversity and therefore has increased its risk vs return characteristics.

Common Mistakes Investors Make During Market Surges

Investors often make significant, emotional mistakes during stock market surges, usually driven by greed or the fear of missing out. These errors frequently lead to buying high and selling low, as investors overconfidently jump into trending stocks at market peaks. Here are some of the most common mistakes that investors often make:

  • Ignoring Asset Allocation: Abandoning a diversified plan to pile money into a single booming sector like tech or crypto and failing to maintain a balanced portfolio. 
  • Waiting for the dip that never comes: Holding too much in cash, staying on the sidelines waiting for lower valuations, and thus, missing out on significant gains. 
  • Not Rebalancing: Failing to sell winning investments to reinvest in underperforming assets, which leaves the portfolio overexposed to risk if the market turns.
  • Relying on Unverified Advice: Following social media stock tips, influencers, or relatives without performing independent research or verifying is a detrimental yet common mistake. If you need proper advice, consult an authentic investment advisor instead. 
Read Also: Should I Keep FEGLI Option B After The Age of 65?

Comparing the I Fund With Other TSP Options

The I Fund is distinct within the TSP as the only core fund providing exposure to developed international markets, tracking the MSCI ACWI IMI ex USA ex China ex Hong Kong Index. Unlike the US-focused C and S Funds, it offers non-dollar currency exposure and international diversification, generally bringing higher risk and volatility, but has immense potential for higher long-term returns. 

The I Fund is usually used for diversification in a portfolio that also includes US stock funds like C and S to reduce market risk by not relying solely on the US economy. Including G and F funds in the portfolio is also a viable option as it offers security and steady income, reducing overall volatility. 

You can divide your contributions by percentage, such as a mix of I, C, and S for growth, combined with F or G for fixed income safety. You can also go for Lifecycle (L) Funds, which are pre-mixed portfolios that already hold varying percentages of all five individual funds, including G, F, and I. 

Strategic Ways to Use the I Fund in Your Plan

There are various ways you can strategically use your I Funds. These generally depend upon what stage of investment you are in. Here is how you can approach your I Fund investments based on the stage you are in. 

For Early-Career Investors

For those who have just established their careers, it is a powerful tool for long-term growth and diversification, especially following its expansion in 2024 to include over 5,000 companies across developed and emerging markets. 

For Mid-Career Professionals

For mid-career professionals, it serves as a critical high-growth vehicle for diversifying portfolio risk away from solely US-based equities. Mid-career is often the peak earning period, requiring a balance between aggressive growth and risk management. While younger investors might focus heavily on the C Fund, mid-career is the perfect time to integrate the I Fund to avoid over-concentration in US markets. 

You can consider a 15-20% allocation to the I Fund as part of a diversified growth strategy. 

For Pre-Retirees

For pre-retirees the I fund acts as a critical tool for diversification, but it carries higher volatility and currency risk than US based funds. It is best to pair I Funds with more conservative funds like G or F rather than only other equity funds. This allows for growth opportunities in developed international markets while the fixed-income portion protects you from severe downfalls. Utilizing your savings in L Funds for automatic de-risking is also a viable option. 

The Bigger Picture: Global Investing and Long-Term Growth

In late 2025 and early 2026, the TSP I Fund changed the way it tracks international stocks by becoming an attractive, high-growth investment option. Although the I Fund is still designed to track the MSCI ACWI IMI ex USA ex China ex Hong Kong Index, which includes more than 5,000 stocks of large, mid, and small-sized companies across 44 developed and developing countries, its performance has far exceeded that of domestically invested funds.

When to Rebalance and What to Watch Next

You should consider adjusting your TSP I Fund allocation when your: 

  • Risk tolerance changes
  • You have new goals, like buying a house
  • The fund drifts more than 5% from your target allocation 
  • You are within 2-3 years of retirement
  • Your strategy has shifted to long-term passive investing; it might be a good time to re-evaluate your allocation. 

Future Outlook for International Markets

As of early 2026, the international markets of the TSP I Fund present some cautiously optimistic signs of growth, including a broader global diversification of investments and better performance recently (late 2025/early 2026). The I Fund has delivered a total return in 2025 of 32.45%, and we are seeing renewed attention to the I Fund as it outperformed the C Fund during early 2026.

Read Also: TSPs: Should You Rollover With The Funds After You Retire?

Conclusion

In the past two years, I Funds have proven to be an exceptional tool if you wish to maximize your funds. But it is also important to remember that with I Funds, the highs can be too high and the lows can be equally low, so you need to invest strategically to get the maximum out of these funds. 

You can consider consulting JLA Financial Planning for a strategic roadmap that will help you navigate not only I Funds but every TSP Fund. Our financial planning in Puerto Rico has a personalized approach that tailors all plans to your benefit.