The TSP I Fund is an international index fund, which strives to mimic the returns of the Morgan Stanley Capital International Europe, Australasia, and Far East Index, also known as the MSCI EAFE. The EAFE index measures the performance of more than 1,000 stocks in 21 countries: 16 countries in Europe and 5 in the Pacific Rim.
The chart above is the perfect reference for the I Fund because it is the chart of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index. Now while the I Fund strives to mimic the Morgan Stanley Capital International EAFE Index, that does not mean it will. As you can see the I Fund has the tendency to go all over the place (in my humble opinion). Of course if you were to measure it from 2009 to now you could definitely state the fund has increased over the previous five years but at no time could you accurately determine which way the fund would move.
What You Need To Know About The I Fund
The I Fund might look like a great performing fund at times, however it is very deceiving and is not a reliable fund to park your money for the long term.
When dealing with international funds you always have to remember that the rules change completely. Different countries have different standards for regulating their companies and their reporting standards. The common thought process in regards to international companies is they are not pegged to the American stock market and can therefore provide true diversity in an individual’s portfolio.
Risks and Potential Rewards of Investing in the I Fund
Every investment you make regarding stocks will be risky and the I Fund is no exception. The I fund draws a lot of attention because of the opportunity to experience large gains from companies that operate outside the United States. It is generally regarded as a smart move because you are not only diversifying outside the U.S. but positioning a portion of your TSP Portfolio for massive gains.
However, your main risk in the I Fund is going to be the constant volatility. Additionally international stocks require a fundamental analysis approach in order to truly understand them and profit consistently. This is a very cyclical index fund with many boom and bust cycles that do not necessarily trend due to the fact that the fund includes multiple stocks spanning across multiple markets in different countries. For example when Russia invaded Ukraine the Russian stock market experienced a massive sell off. Take a look!
As you can see, since Russia invaded in February 2014 the Russian stock market has lost almost 50% of it’s value.
* Russia is not part of the Morgan Stanley Capital International EAFE index, this is an example of how foreign markets can be impacted by outside occurrences.
The only benefit of investing in the I Fund is if you enter after an extreme bear market. However, trying to time this on a consistent basis is literally impossible.
How Do We Use The I Fund In Our TSP Account?
General and conventional stock market rhetoric tells you that stocks outpace the majority of other investment opportunities. Therefore you should construct a portfolio will ensure the growth of your investment capital. The allocation for this portfolio would consist of positions in the C Fund, S Fund, and I Fund which would give you plenty diversification and room to grow. There is some validity to this theory but our TSP Newsletter has done much better.
We personally steer clear of the TSP I Fund and have never invested a dollar into this particular fund. It simply comes down to the risk not being worth the reward and quite frankly you can get similar returns by simply investing with the S Fund and have far less risk. For the daredevils who like to see their money increase quickly we would say the I Fund is definitely for you, just remember what happens when you gamble, you can lose it a whole lot faster than you gained it.
Here is an overview of the all the TSP Funds! Additionally we publish a monthly newsletter that utilizes a proven strategy for identifying bullish and bearish markets. We have tailored this strategy towards the Thrift Savings Plan in order to help you increase your TSP portfolio returns significantly over time.