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Military Finances 201: Changes to the TSP I Fund Thumbnail

Military Finances 201: Changes to the TSP I Fund

Retirement Funding TSP

TSP isn't only available to military members; it is available to virtually all federal government employees. That means it is big. And big things change slowly (kind of like turning an aircraft carrier I would imagine). Recently TSP did make a pretty major change to one of its investment options. In 2023, the FRTIB (the governing body of TSP) authorized changing the index that the I Fund tracks to the MSCI ACWI IMI ex China ex Hong Kong Index. The change went into full effect recently. What does that mean?

What Actually Changed in the TSP I Fund?

The biggest change to the I Fund is that it now includes exposure to Emerging Markets. Emerging Markets are generally anything that isn't Europe, Australia and the Far East (EAFA). So, we're talking about countries like Brazil, Chile and India. Of note, this fund specifically excludes China and Hong Kong (that's what ex China ex Hong Kong means). Also, since it is an international fund, the US is not included.

Is Including Emerging Markets in the TSP I Fund a Good Idea?

Emerging Markets can be a good diversifier for a portfolio, and they can increase overall investment performance. In fact, in the 20 years ending in 2023, Emerging Markets were the top performing asset class for 4 of those 20 years (20% of the time). Emerging Markets can also be quite risky. Emerging Markets economies tend to be commodities based, so when commodity prices go down the economies in those companies can suffer. As a result, Emerging Markets were the also worst performing asset class in 4 of those same 20 years (also 20%).

The addition of Emerging Markets to the I fund adds the possibility of increased returns with the cost of increased downside potential.

How Much Emerging Markets Exposure is There in the TSP I Fund?

The top funds in the I Fund are still from Developed Markets. Nearly 17.5% of the I Fund is invested in Japan. The next highest country is the United Kingdom with 10.5%. More than 1/4 of I Fund assets are invested in these two countries. Most Emerging Markets country allocations are around 1% of the total portfolio and with exposure to 23 Emerging Market countries, the total exposure to Emerging Markets should be less than 30%. The I Fund invests in a total of approximately 5,000 companies. Again, about a quarter of those are in Japan, the United Kingdom and Canada.

What Else Should I Know About the I Fund?

It is more challenging to invest in Emerging Markets. Stock exchanges are not as efficient and can be more expensive than exchanges in Developed Nations. As a result of that, the expense ratio of the I Fund increased from 0.049% to 0.054% with the new index. This is an increase of $0.05 per $1,000 invested. Not huge money. But it does reduce one of the advantages TSP is known for...low fees.

Military Finances are Different

While government employees also have access to TSP, your other civilian counterparts don't have an exact equal to the TSP. That's not the only way your finances are different from a civilian's finances. That's why we think Active and Retired Senior Military Officers and NCOs should work with a financial planner or advisor that deals with your unique issues each and every day. If you'd like to find out how we work with people like you, use the button below to schedule a free initial consultation.

If you found this article useful, you might like the following blog posts:

Watch Out for this TSP Tax Trap


Retired Military Finances 201: TSP Annuities


Retired Military Finances 201: The New "Extra-Mega-Special-Bonus Catch-up Contribution"





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