The new year has started on a high note for federal investors. As reported by FEDweek, the Thrift Savings Plan (TSP) posted positive returns across all funds in January 2026, but the headline story remains the aggressive resurgence of international markets.
For the first time in over a decade, the I Fund (International) is not just participating in the rally—it is leading it. With a nearly 6% gain in January alone, international equities are significantly outpacing the domestic C and S Funds, rewarding participants who maintained a diversified portfolio despite the U.S.-centric bull market of the 2020s.
📈 The Numbers: A Strong Start to 2026
January’s performance data highlights a distinct rotation in market leadership. While the U.S. market (C Fund) remains steady, the momentum has clearly shifted overseas.
Sound Data: January 2026 Returns & 12-Month Trailing
- I Fund (International): +5.94% (Jan) | +35.33% (12-Month)
- S Fund (Small/Mid Cap): +2.41% (Jan) | +8.64% (12-Month)
- C Fund (Large Cap): +1.45% (Jan) | +16.32% (12-Month)
- G Fund (Govt Securities): +0.37% (Jan) | +4.42% (12-Month)
- F Fund (Bonds): +0.20% (Jan) | +6.88% (12-Month)
The “Drift” Alert: If you started 2025 with a balanced allocation, your portfolio has likely “drifted” significantly. Because the I Fund has gained over 35% in the last year while the S Fund gained only 8%, your international exposure is now much higher than you originally planned. This “accidental” aggression increases risk if global markets cool off.
🌍 Context: Why the Script Flipped
Why is the I Fund suddenly beating the C Fund?
- Valuation Gap: U.S. stocks entered 2026 with historically high price-to-earnings (P/E) ratios, while international markets were trading at a discount. Investors are hunting for value, and they are finding it in Europe and emerging markets (excluding China/HK).
- Currency Tailwinds: A softening U.S. dollar makes foreign assets more valuable when converted back to your TSP balance.
- The “Net Outflow” Warning: Despite these gains, data shows a $19 billion net outflow from the TSP in 2025. This means many participants are withdrawing funds (loans or distributions) rather than letting this compound growth work for them. Don’t be the investor who sells low and misses the recovery.
🔄 New for 2026: The “Roth” lever is Live
January didn’t just bring gains; it brought a massive feature update. As of late January, the In-Plan Roth Conversion is officially live.
- The Power: You can now move Traditional (pre-tax) money to Roth (after-tax) inside your TSP account.
- The Trap: This is a taxable event. Converting $50,000 of I Fund gains to Roth adds $50,000 to your 2026 taxable income. Without careful planning, this could push you into a higher tax bracket or trigger IRMAA surcharges.
🛡️ Strategy: Rebalance and Optimize
When a single fund gains 6% in one month, the smartest move is often the hardest: Sell high. Rebalancing now allows you to lock in those I Fund profits and redistribute them to lagging sectors (like the S or F Funds), restoring your risk profile.
Internal Benefit Advisors helps you manage this volatility with precision.
How We Help You Capitalize on 2026:
- Portfolio Rebalancing: We calculate exactly how much I Fund you need to sell to return to your target allocation, ensuring you “bank” your winnings.
- Roth Conversion Analysis: We run the tax projections to see if a Roth conversion makes sense for you this year, helping you use the new tool without triggering a tax bill you can’t afford.
- Cash Flow Discipline: We help you structure your budget so you aren’t forced to take loans or withdrawals during a bull market, avoiding the “net outflow” trap.
The I Fund is leading the pack. Make sure your plan is leading you to a secure retirement.
Contact Internal Benefit Advisors today for a portfolio rebalancing and Roth strategy review.
References
- FEDweek. “TSP Funds Start 2026 with Continued Gains, Led by I Fund.” February 3, 2026.
- Federal Retirement Thrift Investment Board (FRTIB). Monthly Participant Activity Report, January 2026.
- DailyFED. TSP Performance Update: January 2026.
Internal Benefit Advisors. Retrieved from https://internalbenefitadvisors.com
