For the third consecutive year, Thrift Savings Plan (TSP) stock funds have delivered robust gains for federal employees, but 2025 brought a new leader to the forefront. As reported by FEDweek, the International Stock Index Investment Fund (I Fund) surged past its domestic counterparts, posting a stellar annual return of 32.45%.
This shift marks a significant moment for TSP participants who have maintained diversified portfolios. After years of U.S. large-cap dominance, the global market has roared back, rewarding those who resisted the urge to abandon international exposure.
📈 By the Numbers: A “Stellar” 2025
While all three equity funds finished the year in positive territory, the gap between international and domestic performance was substantial. Here is the definitive breakdown of the 2025 returns:
- I Fund (International): +32.45% (The year’s top performer)
- C Fund (Large Cap U.S.): +17.85%
- S Fund (Small Cap U.S.): +11.38%
- F Fund (Bonds): +7.21%
- G Fund (Govt. Securities): +4.44%
Sound Data: The Benchmark Boost A critical factor in this performance was the strategic shift in the I Fund’s composition. In 2024, the I Fund transitioned to a new benchmark index—the MSCI All Country World Investable Market Index ex USA ex China ex Hong Kong.
- Broader Exposure: This change expanded the fund from holding roughly 800 large-company stocks in 21 developed countries to over 5,000 stocks across nearly 40 countries, including emerging markets (excluding China and Hong Kong).
- The Payoff: This broader net allowed the I Fund to capture growth in emerging economies and mid-cap international firms that were previously excluded, contributing directly to the 32%+ surge.
🌍 Why the Script Flipped
For years, the C Fund (S&P 500) has been the undisputed king of the TSP. So, what changed in 2025?
- Currency Tailwinds: International returns are often boosted when the U.S. dollar weakens against foreign currencies. As central banks globally began winding down rate-hike cycles, the dollar softened, making foreign earnings worth more in dollar terms.
- Valuation Spreads: Entering 2025, U.S. stocks were trading at near-record valuations (high price-to-earnings ratios), while international markets were historically cheap. Investors seeking value rotated capital overseas, driving up prices in the markets the I Fund tracks.
- Easing Inflation: Global markets benefited significantly from easing inflation pressures, particularly in Europe, which stabilized faster than anticipated.
🛡️ The Danger of “Chasing” Returns
When a fund posts a 32% gain, the natural instinct is to move all your money into it. This is often a mistake. The I Fund’s victory in 2025 highlights the value of diversification, not the need for concentration.
If you were 100% invested in the C Fund last year, you missed out on the I Fund’s rally. Conversely, if you shift everything to the I Fund now, you might be buying at the top just as the U.S. market prepares to take the lead again.
Internal Benefit Advisors specializes in helping you navigate these market rotations without emotional knee-jerk reactions.
How We Help You Optimize Your Allocation:
- Portfolio Rebalancing: After a year like 2025, your portfolio is likely “out of whack.” If your I Fund balance grew by 32%, it now takes up a larger slice of your pie than intended. We help you rebalance to lock in those gains and redistribute them to undervalued assets (buying low).
- Lifecycle Fund Analysis: Did you know the L Funds (Lifecycle) automatically captured these gains? We review your L Fund vintage to ensure it still matches your retirement timeline and risk tolerance.
- Risk Assessment: We help you determine if your exposure to international markets aligns with your retirement date. A 32% gain is great, but international markets come with higher volatility that might not be suitable if you are retiring in 2026.
The I Fund had a banner year. Make sure your strategy is built for the next ten years, not just the last one.
Contact Internal Benefit Advisors today for a comprehensive TSP allocation review.
References
- FEDweek. “I Fund Leads in Third Straight Strong Year for TSP Stock Funds.” January 5, 2026.
- Federal Retirement Thrift Investment Board (FRTIB). Monthly Participant Activity Report, December 2025.
- Thrift Savings Plan (TSP). I Fund Information & Benchmark Index Updates.
- Internal Benefit Advisors. Retrieved from https://internalbenefitadvisors.com
