How TSP Performance in 2025 Compares to the Dot.Com Bubble

TSP performance for all funds in October was positive. Is the current market similar to the dot.com stock bubble?

Great TSP Performance in 2025: I Fund Stands Out

The Thrift Savings Plan (TSP) is providing investors with great returns in 2025. The I Fund is leading all other TSP Funds for returns in 2025 with a return of 28.01%.

The strong returns are the result of favorable stock markets (both domestic and international), good structural exposures (especially via the I Fund’s broadened benchmark), and staying invested in a cost-efficient plan during a favorable market cycle.

The TSP funds are very low-cost and are index-style funds. This means the TSP Funds reflect broad movements in stock markets rather than attempting to pick individual winners. That means when markets rise, TSP investors benefit with higher returns.

What is the I Fund, And Why Is It Performing Well?

The I Fund is the International Stock Index Investment Fund. Its objective is to match the performance of the MSCI ACWI IMI ex USA ex China ex Hong Kong Index. It is the international investment option for the TSP as companies in this index are primarily foreign companies. The index covers approximately 99% of the global equity opportunities excluding the US, China & Hong Kong.

Stock markets in the U.S. do not always perform better. The I Fund provides a hedge against stock losses in American stocks, particularly in years when foreign stocks outperform. The TSP investors investing in the C and S Funds have fared well, though. Over the past 10 years, the S&P 500 has averaged 13.8% in annualized returns while global stocks have averaged 4.9%.

The I Fund invests in non-U.S. companies. This Fund invests in developed and emerging markets outside the United States. The I Fund experienced a benchmark change (expanded global exposure), which may be amplifying its returns.

Because the I Fund is more volatile (non-U.S. equities + currency exposure) than some other TSP options, strong returns also mean stronger swings if or when the factors underlying stock returns change.

TSP Performance for TSP Funds for October 2025 and Past 12 Months

As noted, the I Fund is the stand-out Fund for 2025 so far. In October, the C Fund had the highest return with 2.34%. The S Fund returned 1.16% and it is ahead 12.47% so far this year (behind the C Fund with a return of 17.49%).

For the L Funds, the L 2027 Fund achieved a 2025 return of 20.40%, slightly outperforming the aggressive stock portfolios of the L 2055, L 2060, and L 2065.

Does 2025 Compare to the Dot.com Bubble?

The current bull market in stocks is about three years old. A “bull market” is one that has risen ~20% from a recent low and has been sustained.

Historically, the average bull market in the S&P 500 (on which the C Fund is based) has lasted about 1,000 days (~2.7-3 years), but many go longer. Since this market is now at about the average length of many bull markets, some readers are wondering how long the good times will last with a rising stock market.

The dot-com bubble (also known as the Internet bubble) was a period of intense speculation by investors in internet-related companies during the late 1990s and early 2000s, roughly spanning 1995–2000. It was one of the biggest stock market bubbles in U.S. history, driven by excitement over the new business potential of the Internet. It ended in a sharp market crash that wiped out trillions of dollars in wealth. It took years for the S&P 500 index to recover.

During the mid-1990s, investors became convinced that the Internet would revolutionize business. The internet did revolutionize business. Enthusiastic investors overestimated how quickly that transformation would translate into profits for some of these companies, many of which were relatively new companies.

The investment bubble burst in March 2000, when investors began to realize that many of these companies with soaring stock prices would probably never generate a profit.

Between 2000 and 2002, the Nasdaq fell about 80%, from above 5,000 to around 1,100. The composition of the NASDAQ Composite index is heavily weighted towards companies in the information technology sector.

Should TSP investors be worried about another dramatic fall in the stock market?

Similarities to the Dot.com Bubble

In the current stock market, artificial intelligence (AI) is driving positive returns. It is a technology and innovation-driven stock market rally. Investors today are excited about AI, infrastructure, and next-generation computing. This is similar to the late 1990s, when the internet boom drove stock speculation.

Some company valuations are elevated. Some valuation measures are at levels not seen since the dot-com era.

The feeling of “everyone’s in” (or at least worried about missing out) on rapidly rising stocks can now be felt in discussions about the stock market. Bubble-like narratives used around an office or internet sites often stress beliefs to support the stock surge such as “this time is different” or “there is no alternative” to stocks.

What is Different in This Stock Market?

The tech bubble about 25 years ago was largely driven by new, speculative internet companies (many of which had no proven business models). Today’s gains in the stock market are primarily driven by large-cap tech/AI firms, many of which have reported actual earnings. The rally in stock prices also includes services and infrastructure surrounding technology-driven companies.

If there are these differences in the stock market, is it safe to invest even more in the core TSP stock funds?

Here are some of the considerations:

• While similarities exist with other stock market bubbles, this does not mean a crash is imminent. But, anyone investing in stocks should be aware that higher stock valuations and concentration of the rise in similar companies increase the risk of a stock market correction.
• The fact that business fundamentals are stronger today may justify higher valuation multiples than companies were experiencing in 2000. “Stronger” does not mean investments in the stock market are “safe”.
• For TSP plan participants, the key is understanding that when markets rise strongly, staying invested usually helps to achieve successful long-term gains. It is not possible to predict when the stock market will experience a dramatic rise or fall and accurately forecast both ends of a cycle.
• It is also wise to recognize the possibility that a reversal could be more painful than a typical stock market decline. The elevated market valuations and the increase of the risk associated with a rapidly rising stock market also mean it is possible for the market to fall more than it would have when there has not been such a rapid rise in the market.

Conclusion

Investing through the Thrift Savings Plan is a great benefit for federal employees. The risk in index funds is less than investing in individual companies. FedSmith does not provide financial advice, but these observations may help achieve your financial goals and potential financial security in retirement.

Here are some of the advantages you have with the Thrift Savings Plan.

• The TSP has some of the lowest administrative/investment costs of any retirement-plan vehicle.
• It’s backed by the federal retirement system for U.S. federal civilians and uniformed services, which adds institutional strength.
• The TSP offers diversified fund options (stocks, bonds, and government securities), ensuring that investors are not putting their money into a single, risky bet.
• One of the core funds is the G Fund, which invests in special-issue U.S. Treasury securities. It offers principal protection in practical terms, allowing a portion of your TSP to remain very stable.
• The TSP is safer than many other equity accounts if you allocate part of your portfolio into the G Fund.

While the TSP is a valuable employee benefit, and more TSP investors are becoming TSP millionaires, TSP investors are not immune to market fluctuations and can lose money. Consider these caveats that will apply to FedSmith readers:

• Having a “safe” plan structure does not mean you can ignore your asset allocation or risk profile.
• If you are heavily invested in the stock-fund options (e.g., C Fund, S Fund, I Fund) the value can fluctuate significantly with the market.
• If you’re nearing retirement, significant market drops shortly before or after retirement can hurt because you have less time to recover compared to a federal employee who’s either early or mid-career.
• The G Fund is very safe, but its returns are modest, which means inflation risk (your money losing its purchasing power) is a real concern.

Any TSP investor should evaluate his or her personal situation, risk tolerance, and overall financial situation.

• If you still have many years (10+ years) until retirement, you can tolerate more stock exposure and ride out volatility.
• If you’re close to retirement (say 5 years or less), then you may want to reduce exposure to riskier funds and shift toward more stable ones (like the G Fund or F Fund). Many sources recommend this conservative tilt as you approach retirement.
• Ensure your current mix of funds (C, S, I, F, G, and L-Funds) is still aligned with your goals and the level of risk you can tolerate. For example:
  • Younger employees have a longer investment horizon → higher percentage in stock funds (C, S, I)
  • Near-retirement → higher percentage in F (fixed income) / G (government securities) / possibly L-Income fund.
• As the market has risen rapidly in the last several years, you may want to rebalance back toward your ideal target mix of funds to avoid being overly exposed to the potential of a rapidly falling stock market.

If you do not have a financial advisor to help with your decision-making process, it may be beneficial to find and retain their services to receive an objective overview of your situation, objectives, and your future positioning