Many of our Feds build retirement portfolios heavily around U.S. stocks, often through the Thrift Savings Plan (TSP) C Fund. That approach has worked well, but it creates concentration risk. One country. One currency. One set of economic outcomes.
We talk with thousands of Feds every year at Serving Those Who Serve, and this remains one of the most common questions: Should I look beyond U.S. stocks as I get closer to or enter retirement?
What International Diversification Actually Does
International diversification means owning companies outside the United States. That includes developed markets like Europe and Japan, and in some cases, emerging markets.
Global markets do not move in lockstep. When U.S. stocks slow, international markets may behave differently. Over time, that can help smooth portfolio performance.
For many federal retirees, international diversification is not about chasing the top-performing market each year. The goal is to build a portfolio that can generate income over the long term.
What the Thrift Savings Plan I Fund Is
The I Fund, or International Stock Index Investment Fund, gives TSP investors access to non-U.S. stocks. It works best as an international growth sleeve, not a complete portfolio on its own.
In September 2024, the TSP updated the benchmark index used by the I Fund. This change expanded the index and improved diversification across developed international markets.
The update improved diversification, but it does not fully capture the global market. The I Fund still excludes China and Hong Kong, which represent a meaningful share of the global economy. That exclusion reflects policy decisions rather than market composition.
When It Might Be Time to Look Beyond U.S. Stocks
Some Feds start looking outside U.S. stocks when everything feels too concentrated in one place. If most of your growth sits in the C Fund, you are tied closely to how the U.S. market performs. That works until it doesn’t.
You are not trying to pick the best-performing market each year. You are trying to build something that can hold up over a long stretch of withdrawals.
The I Fund’s strong 2025 return put it back on people’s radar. Different parts of the market take turns leading. But past performance does not guarantee future returns, and chasing whichever fund just had a good year rarely ends well.
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Practical Ways Retirees Use the I Fund
Most Feds do not make an all-or-nothing move. Instead, they layer in the I Fund alongside existing holdings.
When considering I Fund vs. C Fund allocation, most Feds are deciding how much to allocate to each.
- C Fundfor U.S. large-cap exposure
- S Fundfor U.S. small- and mid-cap exposure
- I Fundfor international diversification
- G Fundand F Fund for stability and income
In this structure, the I Fund offsets a portion of U.S. market risk rather than replacing it.
If you want a deeper breakdown of how these pieces fit together, our Serving Those Who Serve team walks through real allocation strategies in our TSP planning webinar.
The Tradeoffs and Common Mistakes
International exposure helps, but it is not always comfortable.
You will feel the differences. Currency swings can move returns in ways unrelated to company performance. There will be stretches where U.S. stocks clearly lead, and the I Fund looks like dead weight in comparison.
Then the cycle flips.
That is where many investors struggle. Not the strategy, but sticking with it when it is not working in the moment.
Investors often add international after a strong run, then pull back when it lags. That pattern usually leads to buying high and backing off at the wrong time.
How to Decide on an Allocation
Start with a simple question: How much risk do you actually need to take at this stage?
That comes down to how much growth your plan requires versus how much stability you need.
If you have zero exposure outside the U.S., it may make sense to ease into it rather than make a big shift.
From there, the real work is staying consistent. Set a rebalancing schedule and follow it. The moment you start adjusting based on recent performance, you are no longer following a strategy. You are reacting.
Building a Portfolio That Is Not Tied to One Outcome
The I Fund will not eliminate risk. No investment does. But it can reduce reliance on a single market and position your portfolio for a wider range of economic outcomes.
That broader exposure can play a meaningful role in long-term planning. It comes down to sizing it correctly, understanding the tradeoffs, and sticking to a disciplined rebalancing approach.
If you want help evaluating how international diversification fits into your plan, reach out to the team at Serving Those Who Serve at [email protected].
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
