Military Investment Series Part 4: The I Fund

Lets talk about home country bias here. Although you may seem diversified in terms of owning 99.9% of every publicly traded American company you are actually in the one basket of your home country. Don’t feel like an idiot because the Japanese, Koreans, and Chinese are all invested in their respective domestic counterparts for their retirement. Davey Nelson did an interesting write up on how if I was born in Japan in the 1980s I would of actually lost over 50% in value doing the indexing in Japan due to home country bias.

We talked about C and S Fund which spreads out your money over the S&P 500 and the Dow Jones Total Stock Market US Completion Index respectively. The I Fund attempts to fix this home country bias by following the MSCI EAFE (Morgan Stanley Capital International Europe Australasia, Far East) Index.

According the TSP’s own PDF, the countries represented are:

  • Austria
  • Belgium
  • Denmark
  • Finland
  • France
  • Germany
  • Ireland
  • Italy
  • Netherlands
  • Norway
  • Portugal
  • Spain
  • Sweden
  • Switzerland
  • United Kingdom
  • Australia
  • Hong Kong
  • Israel
  • Japan
  • New Zealand
  • Singapore

Looks like a model UN of countries here, but Meb Faber and Davey Nelson Argue that these countries are all well developed and overvalued. It’s hard to get upside in an economy full of old rich people especially when no one is having any more children and soon enough the population will be in decline. Investing in these countries may seem wise, but isn’t it much like investing in every American company? What about the “Small Cap” countries listed here?

If we invest in CSI Funds we are trapped in just repeating our portfolio of over valued large cap stocks again? The next Google or Apple is not sitting in this index. Davey gave me a fascinating article regarding Airports in Mexico. This country had no air infrastructure till recently, and it has become privatized. The industry has a return of 16% annualized over the last year. Now think about bringing a water system in Chad or cell phone networks in Vietnam. These are the real upside opportunities, but this I fund ignores all of that, not saying it is a bad investment, but make sure you know what your getting yourself into.

Next up the F and G Funds.


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