The TSP I Fund Will Track a New Index in 2024

The TSP I Fund Will Track a New Index in 2024

December 16, 2023

The Federal Retirement Thrift Investment Board (FRTIB), which administers the TSP, recently announced a major change to the I Fund, the fund that invests in foreign stocks. Sometime in 2024, the Index used to determine which stocks are purchased by the fund will change from the MSCI EAFE Index (current index) to the MSCI ACWI IMI ex USA ex China ex Hong Kong Index (replacement or new index).

Here is an explanation of the acronyms:

  • MSCI stands for Morgan Stanley Capital International, the company that designs these two funds.
  • EAFE stands for Europe, Australasia and the Far East.
  • ACWI stands for All Country World Index.
  • IMI stands for Investable Market Index.
  • “ex USA ex China ex Hong Kong” means stocks of companies based in the USA, China and Hong Kong will not be purchased.

The acronyms are confusing but the differences between the Indexes are not. The replacement Index will:

  • Invest in a greater number of countries and stocks.
  • Continue to exclude stocks of Chinese companies and will now exclude stocks of Hong Kong companies.

The MSCI EAFE (current I Fund Index) is narrowly focused by design. It only invests in developed countries and only the stocks of large companies. It excludes Canada, which is odd. I don't know about you but the last time I looked, Canada was definitely a developed country.

The MSCI ACWI IMI ex USA ex China ex Hong Kong (replacement index) is broadly focused by design. It invests in twice as many countries and seven times as many companies. It includes stocks from Emerging Market countries, not just developed. It includes 90% of non-U.S. stocks compared to only 55% in the current Index.

Performance, Performance, Performance

The major concern with the I Fund has been the perception of mediocre performance compared to the two U.S. stock Funds (C and S). That raises these questions:

  • Has the I Fund (with the current Index) significantly underperformed the U.S. stock funds?
  • Should we expect the new Index to make a significant difference in I Fund performance?

As shown in the table below, the I Fund underperformed --

  • The C Fund year-to-date and over the last 1, 3, 5, 10 and 15 years.
  • The S Fund year-to-date over the last five, ten and fifteen years.

For example, a TSP participant who only invested in the I Fund at the beginning of 2000 and then made no further changes would have ended up with 46% to 50% less compared to someone who only invested in C or only invested in S.

Unfortunately, the historical performance of the replacement index is not much greater than the current index. Because foreign stocks lagged U.S. stocks over most of the last twenty years, the new index would have also underperformed the U.S. stock funds by approximately the same amount.

A report prepared for the FRTIB provided 20 years of returns for the current and future Indexes. Over that period, the average annual rate of return would have been 9.3% for the new Index, compared to the current index's 8.4%.

Is the difference in rates of return for the two Indexes significant? One way to compare the performance is to look at a hypothetical investment of $100,000 in each of the Indexes over a 20-year period. Note that you cannot invest directly into an index; only into a fund, like the I Fund, based upon the index.

According to the performance figures in the FRTIB Benchmark study, the replacement Index would have produced higher returns. But even after 20 years, the difference in investment value of the replacement Index was only 13.5% higher than the current Index. That is a small difference over such a long time period.


The I Fund's impending changes may represent a positive step forward for the TSP but it is a minor step for investors. There is not much difference in the rates of return of the two Indexes. Both Indexes underperformed the US stock funds over longer time periods.

TSP investors deciding whether to adjust their investment allocations in response to the change need to decide whether foreign stocks will continue to underperform and how important it is to diversify investments into foreign stocks. They should also consider their financial goals, risk tolerance, and the broader economic landscape. Consulting with a financial professional can help you make informed decisions. As the financial world continues to evolve, staying informed and proactively managing investments remains a key to financial success in retirement.


This is for educational purposes only. To learn more about the topics mentioned and if they are suitable for you, consult an appropriate professional. Tax laws can change at any time.

Any information provided in this presentation has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.

Arthur Stein and Arthur Stein Financial, LLC are not authorized to give legal or tax advice.  For information on your specific situation, please consult your tax advisor regarding any tax implications and your attorney for legal implications. As required by the US Treasury Regulations, you should be aware that this presentation is not intended to be used and it cannot be used for the purposes of avoiding penalties under federal tax laws.

Keep in mind that:

  • Past performance is no guarantee of future performance;
  • Investments involve the risk of loss of principal and earnings;
  • ETFs, mutual funds, money market funds, etc. are not guaranteed by the US Government, the FDIC, a bank or anyone else.
  • “Average annual return” evens out variations in the actual year-to-year returns.
  • ETFs, mutual funds and individual stocks and bonds fluctuate in value and there will always be times when they lose value.
  • None of the information provided is necessarily relevant to anyone’s personal situation. Circumstances differ among individuals and you should not assume that these generalizations or information apply to you.
  • Investments mentioned may not be suitable for all investors.
  • An investment cannot be made directly into an index.