Marcus pulled up his TSP statement at his kitchen table last spring and frowned. He's 47, a GS-13 with a little over $380,000 in the plan, and he had a spreadsheet open. The I Fund column looked like a rounding error next to the C Fund. Ten years of results, and the international slice had trailed the S&P 500 by a wide margin.

"Why am I paying attention to this fund at all?" he asked a coworker. "Just move it all to C."

It's a fair question. It's also one that tends to get asked right after a long stretch in which the answer looks obvious. That timing deserves some suspicion.

What you actually own in the I Fund

The I Fund tracks the MSCI EAFE index, which covers large and mid-sized companies in developed markets outside the United States and Canada. Think Japan, the United Kingdom, France, Germany, Switzerland, Australia. You get household names in pharmaceuticals, banking, luxury goods, and industrial manufacturing.

Two gaps matter. First, there are no emerging markets, so no China, India, Brazil, or Taiwan. Second, there are no small companies to speak of. This is a developed-world, large-company fund, and that's all it is.

You also take on currency exposure. If the dollar weakens against the euro, yen, and pound, your foreign holdings are worth more when converted back to dollars. If the dollar strengthens, the opposite happens. Over short stretches, currency can swing results as much as the stocks do.

Fees are not the issue. The I Fund's expense ratio is very low, and it changes slightly from year to year, so check tsp.gov for the current figure.

The case against: it has lagged, and not by a little

Since the 2008 financial crisis, U.S. stocks have beaten developed international stocks most of the time. Tech giants drove a large share of that gap, and the EAFE index simply doesn't have companies like them. A strong dollar for much of the period made it worse for American holders of foreign shares.

There's another argument skeptics make, and it has some weight. The S&P 500 is already global. Many of its biggest companies earn a substantial share of their revenue overseas, often a third or more. So holding the C Fund isn't the same as betting only on the American economy.

That's true, but it's incomplete. Revenue exposure isn't the same as ownership of different markets. A U.S. company selling in Europe still trades on U.S. valuations, under U.S. investor sentiment, and in dollars. A European company trades on its own terms.

The case for: it's about what you can't predict

Here's the uncomfortable fact. Leadership between U.S. and international stocks rotates, and nobody can reliably say when.

In the 2000s, the U.S. market went through what people called a lost decade. The S&P 500 finished the period roughly flat, while international developed markets and emerging markets did considerably better. In the 1980s, Japan looked unstoppable and the U.S. looked tired. Then the 1990s reversed it. Each era's winner felt permanent while it lasted.

Holding the I Fund isn't a forecast that international will win. It's an admission that you don't know. If you put every stock dollar into one country, you're making a concentrated bet on that country's economy, politics, currency, and valuations holding up for decades. For a 47-year-old with 15 to 20 years until retirement and potentially 30 more after, that's a large bet.

Valuations offer a mild argument, too. International developed stocks have generally traded at lower price-to-earnings ratios than U.S. stocks in recent years. Cheaper doesn't guarantee better returns, and there are reasons for some of the discount. But it's one more reason not to extrapolate the last decade forward.

What it looks like in dollars

Say Marcus holds 15% of his $380,000 in the I Fund. That's $57,000.

If international stocks trail U.S. stocks by five percentage points in a given year, that costs him about $2,850 relative to being all in C. It stings, but it's not a retirement-altering event.

Now flip it. Suppose a decade like the 2000s repeats, and the all-U.S. portfolio goes sideways while international gains meaningfully. The same 15% could be the part of his portfolio doing the work. The cost of diversification is a bit of drag in some years. The benefit is protection against the long stretch where your one big bet goes cold.

How much is reasonable?

There's no single right answer, and anyone who gives you one with great confidence is selling something. A few reference points help.

  • Lifecycle funds. The TSP's L Funds hold a meaningful slice of international stock, and you can see the current mix on tsp.gov. That's a decent sanity check on what a professionally designed glide path considers sensible.
  • Market weight. Non-U.S. stocks make up roughly 35 to 40 percent of the global stock market by value. Some investors go close to that. Many land lower, between 15 and 30 percent of their stock holdings, partly because of the C Fund's overseas revenue.
  • Your tolerance for regret. This matters more than people admit. If you'll abandon the I Fund after two bad years, a smaller allocation you'll actually hold beats a larger one you'll dump at the bottom.

Where your IRA comes in

If you have an IRA alongside your TSP, you can fill in what the I Fund leaves out. A total international index fund in an IRA typically includes emerging markets and smaller companies. Pairing a broad international fund there with the TSP's C and S Funds can give you a more complete global mix than the TSP alone.

Fund menus and contribution limits for IRAs change, so check irs.gov for current numbers.

Back to Marcus

He didn't move everything to the C Fund. He kept about 15 percent in the I Fund, set a calendar reminder to rebalance once a year, and stopped looking at the ten-year column every month. Rebalancing inside the TSP creates no tax bill, which makes the discipline easy.

That's the real answer to "is it worth holding?" The I Fund isn't there to win. It's there so that your retirement doesn't depend on one country continuing to be the best place to invest for the next thirty years. Whether that's worth a small, sometimes uncomfortable drag is a call only you can make. But make it on purpose, not because last decade's chart looked lopsided.