Thrift Savings Plan to Change I Fund Index

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Thrift Savings Plan to Change I Fund Index

Post by Barry Barnitz » Thu Dec 07, 2017 5:52 am

Hi:

News release: TSP to Change I Fund Index, Leave Others as Is, December 6, 2017, Fedweek
The TSP’s governing board has decided to replace the current index used in its international stock I fund, [moving from] the MSCI Europe, Australasia, Far East benchmark of large company stocks in about two dozen countries [to the} MSCI All Country World Index, which covers non-U.S. developed markets, smaller companies and emerging markets. Among other things, that means that the index will reflect stocks of Canada, the fourth-largest stock market in the world.

The transition to the new index likely will take a year or more, however.
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Re: Thrift Savings Plan to Change I Fund Index

Post by BrianMc » Thu Dec 07, 2017 9:01 am

Terrific news for those of us who tried to replicate the MSCI All Country World via the I Fund and other mutual funds and/or ETFs. Good move by the Board!

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Re: Thrift Savings Plan to Change I Fund Index

Post by stan1 » Thu Dec 07, 2017 9:17 am

Good news for diversified investors, hopefully it will take Congress and lobbyists a long time to figure out TSP will be investing in companies based in China, Russia, UAE, Qatar, Egypt, Turkey, and Pakistan plus whatever counties over time that get added to the index. TSP will be investing federal employee and military member retirement funds in companies domiciled in a country the US has economic sanctions against (that's a fact not a political statement). FRTIB has done a great job for over 30 years keeping TSP away from politics and lobbyists but I'm afraid this change will make it harder going forward.

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Re: Thrift Savings Plan to Change I Fund Index

Post by Engineer250 » Thu Dec 07, 2017 12:03 pm

Thanks I would have missed this news otherwise and it is good news. My IRA and Roth and 401k are more complicated than I would like since I have to hold emerging and international small to balance out my I Fund. Looking forward to when they make the transition and I can go back to holding Total US and Total International everywhere else. Also makes my plan to get my tIRA into the TSP (rather than 401k) seem like a good decision long term.
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Re: Thrift Savings Plan to Change I Fund Index

Post by MnD » Sat Dec 09, 2017 10:36 am

stan1 wrote:
Thu Dec 07, 2017 9:17 am
TSP will be investing federal employee and military member retirement funds in companies domiciled in a country the US has economic sanctions against (that's a fact not a political statement). FRTIB has done a great job for over 30 years keeping TSP away from politics and lobbyists but I'm afraid this change will make it harder going forward.
Adding the I fund originally faced opposition from some members of congress who stated it was unpatriotic/wrong but that argument got no-where. Improving the plan by using broader indices requires no such approval and is completely in line with current best investment practices.

There is no simple list of "countries sanctioned" but rather specific programs to further various policy goals.
https://www.treasury.gov/resource-cente ... grams.aspx

Compliance with sanctions is one of many factors in index construction and maintenance and Blackrock MSCI ACWI ex USA IMI has that covered.
Specifically see page 103 of the index methodology report
https://www.msci.com/eqb/methodology/me ... dology.pdf
Countries subject to economic sanctions: MSCI does not cover certain countries for which
significant economic sanctions are applied. Examples of such countries as of May 2017 are
Cuba, Democratic Republic of the Congo, Libya, North Korea, Iran, Iraq, Somalia, Sudan and
Syria. Companies that are classified to and/or incorporated in such countries are not eligible for
inclusion in the MSCI Global Investable Market Indexes. MSCI regularly assesses eligibility of
new markets and communicates their potential inclusion in the MSCI GIMI in advance of
implementation.

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Re: Thrift Savings Plan to Change I Fund Index

Post by stan1 » Sat Dec 09, 2017 10:44 am

MnD wrote:
Sat Dec 09, 2017 10:36 am
stan1 wrote:
Thu Dec 07, 2017 9:17 am
TSP will be investing federal employee and military member retirement funds in companies domiciled in a country the US has economic sanctions against (that's a fact not a political statement). FRTIB has done a great job for over 30 years keeping TSP away from politics and lobbyists but I'm afraid this change will make it harder going forward.
Adding the I fund originally faced opposition from some members of congress who stated it was unpatriotic/wrong but that argument got no-where. Improving the plan by using broader indices requires no such approval and is completely in line with current best investment practices.

There is no simple list of "countries sanctioned" but rather specific programs to further various policy goals.
https://www.treasury.gov/resource-cente ... grams.aspx

Compliance with sanctions is one of many factors in index construction and maintenance and Blackrock MSCI ACWI ex USA IMI has that covered.
Specifically see page 103 of the index methodology report
https://www.msci.com/eqb/methodology/me ... dology.pdf
Countries subject to economic sanctions: MSCI does not cover certain countries for which
significant economic sanctions are applied. Examples of such countries as of May 2017 are
Cuba, Democratic Republic of the Congo, Libya, North Korea, Iran, Iraq, Somalia, Sudan and
Syria. Companies that are classified to and/or incorporated in such countries are not eligible for
inclusion in the MSCI Global Investable Market Indexes. MSCI regularly assesses eligibility of
new markets and communicates their potential inclusion in the MSCI GIMI in advance of
implementation.
You are using logic but there's a lot of emotion in politics. We'll have to see how it goes.

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Re: Thrift Savings Plan to Change I Fund Index

Post by Iorek » Sat Dec 09, 2017 10:50 am

That is good news. For a while I tried to complete my TSP investment with an emerging markets fund but quickly decided that was not for me ;)

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Re: Thrift Savings Plan to Change I Fund Index

Post by mouth » Sun Dec 10, 2017 12:56 pm

So I know they say in the announcement they exclude US ... but the info for the ACWI at MSCI's web page indicates it includes the US ... as the name implies, ALL WORLD COUNTRIES

https://www.msci.com/acwi

What am I missing?

UPDATE: Clearly I'm missing the AWCX vs AWCI indexes. Never mind.

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Re: Thrift Savings Plan to Change I Fund Index

Post by stan1 » Wed Jan 24, 2018 9:35 pm

Adding to this. The FRTIB posted their November meeting minutes this week so I'll take that as an official statement.

https://www.frtib.gov/MeetingMinutes/2017/2017Nov.pdf
AON recommended the Agency replace the current I Fund benchmark,
the MSCI EAFE Index, with the MSCI All Country World ex-U.S. lnvestable Market
Index. Mr. lnvlnjack noted that the MSCI indices remained the most popular indices for
U.S. based institutional investors investing in overseas equity markets. He also noted
that MSCI All Country World ex-U.S. lnvestable Market Index would provide liquidity
and long term benefits to TSP participants. The new index would include Canada, the
fourth largest non-U.S. market, emerging markets, and the small-cap equities in those
markets. The expansion of the I Fund would improve long term returns relative to risk.
Mr. Ryan explained that long-term returns for non-U.S. equity markets appeared more
favorable compared to the U.S. equity market.

Member Jones noted that the primary concern with the MSCI All Country
World ex-U.S. lnvestable Market Index in the past was the lack of maturation of some of
the emerging markets. Mr. Ryan responded that industry had evolved and liquidity
would not be an issue.

Mr. McCaffrey concluded by indicating that the Office of Investments
was recommending replacing the MSCI EAFE Index with the MSCI All Country World ex
U.S. lnvestable Market Index. The target date for the change would be some time in
2019.

The Board members made, seconded, and adopted the following motion without
objection:
MOTION: That the indices for the C, S, and F Funds be unchanged from
the S&P 500 Index, the Dow Jones U.S. Completion Total Stock Market
Index, and the Bloomberg Barclays U.S. Aggregate Index respectively,
and that the I Fund index change from the MSCI EAFA Index to the MSCI
All Country World ex-U.S. lnvestable Marker Index and be executed by
the single investment manager chosen with the next re-compete of the
investment manager.

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Re: Thrift Savings Plan to Change I Fund Index

Post by finite_difference » Wed Jan 24, 2018 10:04 pm

The switch to MSCI AWCI ex-US IMI looks great.

Here’s a nice thread detailing the differences between intl indices including VTIAX: viewtopic.php?t=202729

To quote “selters” from that thread:viewtopic.php?t=202729#p3107755
Post Sun Nov 06, 2016 3:05 pm

MSCI ACWI ex US index comprises the top 85% of global market cap outside the US.

MSCI ACWI IMI comprises the top 99% of global market market cap outside the US.

Vanguard Total International Stock Market Index Fund has large, mid and small caps (but not micro caps).
I think MSCI AWCI ex-US IMI should be very close to the VTIAX index (FTSE Global All Cap ex U.S. Index).
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Re: Thrift Savings Plan to Change I Fund Index

Post by Engineer250 » Wed Jan 24, 2018 10:23 pm

stan1 wrote:
Wed Jan 24, 2018 9:35 pm
Adding to this. The FRTIB posted their November meeting minutes this week so I'll take that as an official statement.

https://www.frtib.gov/MeetingMinutes/2017/2017Nov.pdf
The target date for the change would be some time in
2019.
Thanks for posting!

But doesn't the FRTIB know I'm too excited/impatient to wait until 2019? Okay I'm kidding. But I'm looking forward to not having to balance out all my other accounts with emerging and international small cap. It's going to be nice to be 2 and 3 funds everywhere.
Where the tides of fortune take us, no man can know.

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Re: Thrift Savings Plan to Change I Fund Index

Post by stan1 » Wed Jan 24, 2018 10:38 pm

The minutes state that the index change will occur following the recompete for the TSP's separate account investment manager contract so I'd guess that's part of the reason for the 2019 date. When Vanguard has switched indexes they've done it over a period up to 1 year. Blackrock is the incumbent. My recollection is that no one other than Blackrock and their predecessors through acquisitions, Wells Fargo and Barclays, has ever held a TSP investment manager contract and they often (always?) get a single bid when they recompete.

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Re: Thrift Savings Plan to Change I Fund Index

Post by MnD » Tue Feb 06, 2018 2:42 pm

stan1 wrote:
Wed Jan 24, 2018 10:38 pm
The minutes state that the index change will occur following the recompete for the TSP's separate account investment manager contract so I'd guess that's part of the reason for the 2019 date. When Vanguard has switched indexes they've done it over a period up to 1 year. Blackrock is the incumbent. My recollection is that no one other than Blackrock and their predecessors through acquisitions, Wells Fargo and Barclays, has ever held a TSP investment manager contract and they often (always?) get a single bid when they recompete.
With EAFE covering only 61% of international, this is going to mean a lot of changes to our accounts. As a global market cap equity investor, ~20% of our entire equity positions are in small cap international and emerging markets funds in various other accounts. It will be nice to dump those positions and have things both simplified and more balanced. I have one account that is like 75% Emerging markets and 25% Small cap international. My Schwab guy must think I'm nuts. Hopefully the TSP provides a more detailed schedule for the transition than "2019 sometime" so the total international replicators can unwind their EM and SC-Int positions in a timely manner.

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Re: Thrift Savings Plan to Change I Fund Index

Post by fortyofforty » Thu Feb 08, 2018 7:39 pm

I am looking forward to this change. I want to simplify my investing life by obtaining just about every investable stock in one place. Now, if the TSP would offer a total domestic portfolio, instead of just the S and C, I'd be even happier.
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Re: Thrift Savings Plan to Change I Fund Index

Post by baw703916 » Thu Feb 08, 2018 8:17 pm

I'd somehow missed this when it was first posted.

Great news! Good job, FRTIB. :happy
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Re: Thrift Savings Plan to Change I Fund Index

Post by 02nz » Sun Jun 24, 2018 11:02 am

One thing I hadn't noticed until now was the TSP I fund's significantly lower expense ratio compared to, say, VTIAX (Vanguard Total Int'l Stock Index Fund Admiral Shares). TSP I fund is 0.032%, VTIAX 0.11%. While VTIAX is still quite low, it's a much bigger gap than between, say, the C Fund and the Vanguard 500, which have nearly the same ER.

I don't currently have any in TSP I fund, but this got me thinking about whether I should use the I fund instead of VTIAX once TSP switches the benchmark next year. For the balance I have in VTIAX, it would be a savings in ER of maybe $130 a year. But it would seem to be a wash in my case, as I'd lose out on the foreign tax credits I get from holding VTIAX in taxable, which come to around the same amount.

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Re: Thrift Savings Plan to Change I Fund Index

Post by grabiner » Sun Jun 24, 2018 10:35 pm

02nz wrote:
Sun Jun 24, 2018 11:02 am
I don't currently have any in TSP I fund, but this got me thinking about whether I should use the I fund instead of VTIAX once TSP switches the benchmark next year. For the balance I have in VTIAX, it would be a savings in ER of maybe $130 a year. But it would seem to be a wash in my case, as I'd lose out on the foreign tax credits I get from holding VTIAX in taxable, which come to around the same amount.
Are you actually getting a tax benefit? Total International has fewer qualified dividends than the US stock indexes, and a higher dividend yield, so the tax cost may be higher, particularly if you are in a high-tax state and thus pay state taxes on those dividends.

Regardless, you shouldn't sell your existing holdings in Total International for a capital gain, as that would wipe out any tax benefit from switching. You might direct new investments to Total Stock Market Index if you decide to switch.
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Re: Thrift Savings Plan to Change I Fund Index

Post by 02nz » Mon Jun 25, 2018 10:22 am

Thanks. CG won't be a significant issue in my case, but it does look like Total International has a higher overall tax cost than Total U.S., even when accounting for the foreign tax credit.

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Re: Thrift Savings Plan to Change I Fund Index

Post by Engineer250 » Mon Jun 25, 2018 11:40 am

Darn. Was hoping a bump of this thread meant more details on when the I Fund changeover will happen besides "late 2018-ish".

Also looking forward to the withdrawal changes (due late 2019-ish). As a separated fed I should be able to get my Roth out of the TSP next year. Will be extremely nice to get all that sorted next two years. Of course I have time and don't need either change today, just impatient. 8-)
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Re: Thrift Savings Plan to Change I Fund Index

Post by 02nz » Mon Jun 25, 2018 12:00 pm

Engineer250 wrote:
Mon Jun 25, 2018 11:40 am
Darn. Was hoping a bump of this thread meant more details on when the I Fund changeover will happen besides "late 2018-ish".
The first post here viewtopic.php?t=233534 has as much detail on the timing of the switchover as I've seen.

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Re: Thrift Savings Plan to Change I Fund Index

Post by MnD » Mon Jun 25, 2018 1:49 pm

Engineer250 wrote:
Mon Jun 25, 2018 11:40 am
Darn. Was hoping a bump of this thread meant more details on when the I Fund changeover will happen besides "late 2018-ish".
They will rebid the I-fund management in the 3rd quarter of 2018 and expect to list the new requirements in that bid. They report the actual change is looking like 1st and 2nd quarters of 2019. They aren't going to sell $19 billion of EAFE and buy $19 billion or so of emerging markets, small cap international and Canada overnight (which is roughly what the transition requires). It will be a gradual process via a transition index for months.

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Re: Thrift Savings Plan to Change I Fund Index

Post by Engineer250 » Mon Jun 25, 2018 4:29 pm

MnD wrote:
Mon Jun 25, 2018 1:49 pm
Engineer250 wrote:
Mon Jun 25, 2018 11:40 am
Darn. Was hoping a bump of this thread meant more details on when the I Fund changeover will happen besides "late 2018-ish".
They will rebid the I-fund management in the 3rd quarter of 2018 and expect to list the new requirements in that bid. They report the actual change is looking like 1st and 2nd quarters of 2019. They aren't going to sell $19 billion of EAFE and buy $19 billion or so of emerging markets, small cap international and Canada overnight (which is roughly what the transition requires). It will be a gradual process via a transition index for months.
Thanks. And I have no excuse for my impatience. Do they mean third quarter 2018 or third fiscal quarter for the government (which would be now)?
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Re: Thrift Savings Plan to Change I Fund Index

Post by bayview » Mon Jun 25, 2018 6:31 pm

Engineer250 wrote:
Mon Jun 25, 2018 4:29 pm
MnD wrote:
Mon Jun 25, 2018 1:49 pm
Engineer250 wrote:
Mon Jun 25, 2018 11:40 am
Darn. Was hoping a bump of this thread meant more details on when the I Fund changeover will happen besides "late 2018-ish".
They will rebid the I-fund management in the 3rd quarter of 2018 and expect to list the new requirements in that bid. They report the actual change is looking like 1st and 2nd quarters of 2019. They aren't going to sell $19 billion of EAFE and buy $19 billion or so of emerging markets, small cap international and Canada overnight (which is roughly what the transition requires). It will be a gradual process via a transition index for months.
Thanks. And I have no excuse for my impatience. Do they mean third quarter 2018 or third fiscal quarter for the government (which would be now)?
I was just thinking that as well.

Surely it would have to be FY 2018 Q3, beginning July 1, if they hope to implement the changes in late 2018/ early 2019, right? This is our bosses we’re talking about. :wink:
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Re: Thrift Savings Plan to Change I Fund Index

Post by MnD » Mon Jun 25, 2018 8:34 pm

02nz wrote:
Mon Jun 25, 2018 12:00 pm
Engineer250 wrote:
Mon Jun 25, 2018 11:40 am
Darn. Was hoping a bump of this thread meant more details on when the I Fund changeover will happen besides "late 2018-ish".
The first post here viewtopic.php?t=233534 has as much detail on the timing of the switchover as I've seen.
If you dig into this link it's 3QCY18 for the rebid and CY19 no later than end of 2nd quarter for the transition.

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Re: Thrift Savings Plan to Change I Fund Index

Post by autolycus » Tue Jun 26, 2018 8:00 am

bayview wrote:
Mon Jun 25, 2018 6:31 pm
Surely it would have to be FY 2018 Q3, beginning July 1, if they hope to implement the changes in late 2018/ early 2019, right? This is our bosses we’re talking about. :wink:
Nit picking: July 1 is the beginning of FY18 Q4, not Q3.

Federal fiscal quarters:
Q1: 10/1-12/31
Q2: 1/1-3/30
Q3: 4/1-6/30
Q4: 7/1-9/30

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Re: Thrift Savings Plan to Change I Fund Index

Post by bayview » Tue Jun 26, 2018 10:39 am

autolycus wrote:
Tue Jun 26, 2018 8:00 am
bayview wrote:
Mon Jun 25, 2018 6:31 pm
Surely it would have to be FY 2018 Q3, beginning July 1, if they hope to implement the changes in late 2018/ early 2019, right? This is our bosses we’re talking about. :wink:
Nit picking: July 1 is the beginning of FY18 Q4, not Q3.

Federal fiscal quarters:
Q1: 10/1-12/31
Q2: 1/1-3/30
Q3: 4/1-6/30
Q4: 7/1-9/30
:oops: d'oh!

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Changes to Thrift Savings Plan I Fund

Post by Tdubs » Sat Jun 30, 2018 10:25 am

[Thread merged into here, see below. --admin LadyGeek]

I've reduced my share in the TSP's I Fund this year because I found my international funds outside TSP routinely did better. TSPs indexing to the Japan-Europe heavy EAFE has been criticized, and it will soon be switching from the EAFE Index to the more global non-U.S. Morgan Stanley ACWI Ex-US IMI.

https://federalnewsradio.com/commentary ... he-i-fund/

I am considering giving the new I Fund a try once it switches, but I am also moving my IRAs to Vanguard and have not explored their international options.

Anyone have insights on this new index or what they plan on doing?

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Re: Changes to Thrift Savings Plan I Fund

Post by pkcrafter » Sat Jun 30, 2018 12:45 pm

The new fund is much more diversified, and I would recommend you include it. The suggested percent is 20-40% of equity. Here's some information. The fund would be similar, but not quite the same, as Vanguard's Total International fund, because the two funds use different benchmarks. FTSE for Vanguard, MSCI for the I fund.

https://federalnewsradio.com/commentary ... he-i-fund/

http://www.advisor.ca/news/etfs/msci-vs ... ndex-93115

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Re: Changes to Thrift Savings Plan I Fund

Post by stan1 » Sat Jun 30, 2018 1:24 pm

There's already a thread on the change:
viewtopic.php?f=10&t=233929

Sometimes the the FRTIB meeting minutes have information in them before announcements on the TSP site. You can subscribe to notifications about updates. You can also be pretty well assured someone will post on Bogleheads within minutes of any substantial new information being made available to the public through any method.
https://www.frtib.gov/MeetingMinutes/index.html

Once the change is made the I Fund will be very similar to Vanguard Total International Stock Market and performance should be close. They would be considered equivalent in a portfolio but someone who is a detail oriented optimizer might find a reason to slightly prefer one over the other.

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Re: Changes to Thrift Savings Plan I Fund

Post by ruralavalon » Sat Jun 30, 2018 1:38 pm

Once the change in the I Fund is made in 2019, it will be very similar to Vanguard Total International Stock Index Fund (VTIAX, VGTSX, or VXUS). I would then count the I Fund and Vanguard Total International Stock Index Fund as equivalent.
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Re: Changes to Thrift Savings Plan I Fund

Post by LadyGeek » Sat Jun 30, 2018 2:07 pm

stan1 wrote:
Sat Jun 30, 2018 1:24 pm
...There's already a thread on the change:
viewtopic.php?f=10&t=233929
Got it. I merged Tdubs' thread into here. The combined thread is in the Investing - Theory, News & General forum (news).

(Thanks to the member who reported the post. One of the reasons is "Duplicate thread".)
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Re: Thrift Savings Plan to Change I Fund Index

Post by Tdubs » Sat Jun 30, 2018 3:51 pm

Thanks!

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Re: Changes to Thrift Savings Plan I Fund

Post by 02nz » Sat Jun 30, 2018 3:55 pm

Tdubs wrote:
Sat Jun 30, 2018 10:25 am
[Thread merged into here, see below. --admin LadyGeek]

I've reduced my share in the TSP's I Fund this year because I found my international funds outside TSP routinely did better. TSPs indexing to the Japan-Europe heavy EAFE has been criticized, and it will soon be switching from the EAFE Index to the more global non-U.S. Morgan Stanley ACWI Ex-US IMI.

https://federalnewsradio.com/commentary ... he-i-fund/

I am considering giving the new I Fund a try once it switches, but I am also moving my IRAs to Vanguard and have not explored their international options.

Anyone have insights on this new index or what they plan on doing?
You probably found int'l funds outside TSP performing better than TSP I Fund because of emerging markets' outperformance in the last few years (although EM has taken a beating in recent weeks). If you want to approximate Vanguard Total International before the index switch next year, you can do so with a 4:1 ratio of TSP I fund to Vanguard Emerging Markets Index (VEMAX), as I'm planning to do. As noted in an earlier post, the TSP I Fund has a significant advantage in expense ratio (0.032% vs 0.11% for Total International Admiral).

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Re: Changes to Thrift Savings Plan I Fund

Post by Engineer250 » Sat Jun 30, 2018 5:09 pm

02nz wrote:
Sat Jun 30, 2018 3:55 pm
Tdubs wrote:
Sat Jun 30, 2018 10:25 am
[Thread merged into here, see below. --admin LadyGeek]

I've reduced my share in the TSP's I Fund this year because I found my international funds outside TSP routinely did better. TSPs indexing to the Japan-Europe heavy EAFE has been criticized, and it will soon be switching from the EAFE Index to the more global non-U.S. Morgan Stanley ACWI Ex-US IMI.

https://federalnewsradio.com/commentary ... he-i-fund/

I am considering giving the new I Fund a try once it switches, but I am also moving my IRAs to Vanguard and have not explored their international options.

Anyone have insights on this new index or what they plan on doing?
You probably found int'l funds outside TSP performing better than TSP I Fund because of emerging markets' outperformance in the last few years (although EM has taken a beating in recent weeks). If you want to approximate Vanguard Total International before the index switch next year, you can do so with a 4:1 ratio of TSP I fund to Vanguard Emerging Markets Index (VEMAX), as I'm planning to do. As noted in an earlier post, the TSP I Fund has a significant advantage in expense ratio (0.032% vs 0.11% for Total International Admiral).
There are also these guidelines that include info for TSP holders:
https://www.bogleheads.org/wiki/Approxi ... ock_market
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Re: Thrift Savings Plan to Change I Fund Index

Post by MnD » Sat Jun 30, 2018 6:34 pm

I have pockets of emerging market and small cap international stock funds stuffed into virtually every other account we have (including taxable) for many years in order to emulate Total International across all accounts due to TSP I being EAFE. It's going to be quite a chore to unwind that mess! My wife is like "How come there's all this weird crap in my rollover IRA? :annoyed " First world problem I guess....... :mrgreen:

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