Which TSP Funds Could Shine in 2025—and Which Ones Might Drag You Down

Missy E
November 14, 2025

Key Takeaways

Certain TSP funds may be positioned to perform well in 2025 due to ongoing economic trends, interest rates, and global market factors.
Being too conservative or too aggressive with your TSP allocation could cause you to miss important opportunities or take unnecessary risks.

Setting the Stage for TSP Choices in 2025

You are entering a critical period for making decisions about your Thrift Savings Plan (TSP) investments. With economic trends shifting and interest rate policies evolving, 2025 presents both opportunities and pitfalls. Understanding which TSP funds could shine and which ones could lag is key to shaping a stable retirement future.

The Core TSP Funds at a Glance

Before diving into which funds could excel or falter this year, it helps to review what each core TSP fund represents:

G Fund: Government securities with no risk of loss but historically low returns.
F Fund: A bond index fund tied to the Bloomberg U.S. Aggregate Bond Index.
C Fund: Mirrors the S&P 500, reflecting large-cap U.S. stock performance.
S Fund: Tracks small- and mid-sized U.S. companies via the Dow Jones U.S. Completion Index.
I Fund: Invests in international developed markets.
L Funds: Lifecycle funds that automatically adjust risk based on your planned retirement timeline.

Each fund behaves differently depending on market conditions, interest rates, inflation, and economic growth patterns.

TSP Funds That Could Shine in 2025

C Fund: Positioned for Strength

The C Fund, tracking the S&P 500, may continue to perform well through 2025. Factors supporting this include:

Moderate economic growth: The U.S. economy is projected to maintain a stable, if slower, growth rate.
Potential interest rate cuts: If the Federal Reserve begins easing rates during the second half of 2025, equities could gain momentum.
Corporate profitability: Many U.S. companies show resilience with strong earnings reports into early 2025.

The C Fund offers exposure to large, well-established companies, many of which benefit during times of moderate inflation and stable interest rates.

S Fund: Selective Growth Opportunities

The S Fund could also present growth potential, though with higher volatility compared to the C Fund. Conditions favoring the S Fund include:

Expansion among mid-sized firms: Sectors like technology, renewable energy, and healthcare are seeing robust mid-cap performance.
Increased domestic investment: Government incentives and private-sector expansion are supporting smaller U.S. companies.

However, you should remain mindful that the S Fund’s higher potential returns come with more significant fluctuations.

L 2045 and L 2050 Funds: A Well-Rounded Bet

Lifecycle funds like L 2045 and L 2050 blend the major TSP funds into a diversified allocation. These funds automatically become more conservative as you approach retirement. In 2025, they strike a good balance between seeking growth through equities and providing some protection with bonds and the G Fund.

If your retirement is more than 20 years away, these funds align with a “set it and monitor it” approach while still capturing market upside.

TSP Funds That Might Drag You Down in 2025

G Fund: Safety at a High Opportunity Cost

While the G Fund offers principal protection, it may lag behind other investment options this year because:

Low returns relative to inflation: Even with recent interest rate hikes, G Fund returns are not likely to outpace long-term inflation.
Opportunity cost: Allocating too heavily to the G Fund may mean missing out on growth during a period when stocks could rebound.

G Fund remains valuable for short-term needs or very near-term retirees but can significantly underperform for those with longer timelines.

F Fund: Potential Interest Rate Volatility

The F Fund, based on the broader bond market, faces challenges in 2025, including:

Interest rate uncertainty: While rate cuts could boost bond prices, continued inflationary pressures could force the Federal Reserve to maintain higher rates.
Credit risks: Certain corporate bonds included in the index could face downgrades if economic conditions tighten.

Thus, while the F Fund may stabilize a portfolio, you must be cautious about assuming it will provide significant gains.

I Fund: International Headwinds Remain

Although diversification is often a smart strategy, the I Fund may struggle in 2025 due to:

Weak economic growth in Europe and Japan: Several developed economies face recession risks and slower recovery.
Currency fluctuations: A strong dollar against other major currencies can reduce returns for U.S. investors.

If international markets do not show strong recovery momentum, the I Fund may underperform relative to U.S.-focused funds like the C and S Funds.

Factors Shaping TSP Fund Performance in 2025

Several larger trends will influence how each TSP fund performs during 2025. Being aware of them can help you make smarter allocation decisions:

Federal Reserve Policies: Rate cuts, if implemented, would likely favor equities over bonds.
Inflation Rates: Persistent inflation could erode fixed-income returns and tilt the advantage toward stock funds.
Global Events: Geopolitical tensions, trade shifts, or policy changes could impact international funds significantly.
Economic Growth Patterns: A mild recession or continued slow growth would favor stable large-cap companies (C Fund) over riskier bets.

How to Approach Your TSP Allocation in 2025

You have several strategies to optimize your TSP allocation for the current environment:

Diversify Thoughtfully

While diversification remains a core principle, not all diversification is beneficial. Overweighting in lagging sectors (like struggling international markets) could dilute returns unnecessarily.

Reassess Your Time Horizon

Your age and retirement goals should heavily influence your TSP choices:

More than 20 years to retirement: Greater exposure to the C, S, and L 2045 or L 2050 Funds could be beneficial.
10-20 years to retirement: A more balanced mix, including some F Fund or G Fund allocations alongside C and S Funds, may offer better risk management.
Less than 10 years to retirement: Gradual shifts toward safety (more G Fund and F Fund exposure) become more important, though total G Fund reliance should still be avoided unless necessary.

Periodically Review and Adjust

Setting your allocation once and forgetting it rarely works well over the long term. You should review your TSP account at least twice a year to ensure your investments remain aligned with:

Current market conditions
Changes in your risk tolerance
Updates to your personal retirement goals

Common Mistakes to Avoid with TSP Investments in 2025

Avoiding common pitfalls can significantly improve your outcomes this year and beyond:

Overreacting to short-term news: Making frequent allocation changes based on headlines often leads to underperformance.
Ignoring inflation risks: Even modest inflation over time can erode your retirement purchasing power.
Going too conservative too soon: Especially if you have 10+ years until retirement, abandoning equities prematurely could lower your retirement income later.
Failing to adjust after major life events: Marriage, divorce, career changes, or health shifts should all trigger a reassessment of your TSP strategy.

Smart Moves to Make With Your TSP Now

Taking proactive steps today can better position you for a strong financial future:

Increase contributions if possible: With annual TSP contribution limits rising, taking full advantage can boost your nest egg.
Consider Roth TSP options: If you anticipate higher tax rates in retirement, Roth TSP contributions in 2025 could be a smart move.
Use Lifecycle Funds strategically: Even if you prefer self-managing your TSP, L Funds can serve as benchmarks for risk-appropriate allocation.

Preparing for a Resilient Retirement Future

Making wise TSP decisions in 2025 is about balancing opportunity and caution. Certain funds like the C Fund, S Fund, and Lifecycle Funds with longer horizons may offer strong potential, while leaning too heavily on the G, F, or I Funds could limit your growth. Staying proactive with your reviews and reallocations, tied to your personal goals and timeline, is your best strategy.

If you need personalized help deciding your next steps, consider getting in touch with a licensed professional listed on this website. Expert guidance can make all the difference when managing your TSP to meet your retirement goals.