How Did the Iranian Conflict Affect the TSP, the F Fund, and Your Investments?

If you logged into your TSP account in late March and felt your stomach drop, you weren't imagining it. Almost every fund lost ground that month. For some people, it was a few hundred dollars. For others, it was thousands. Either way, watching a balance you've spent years building move in the wrong direction is unsettling, and you deserve a straight answer about what happened and why.

This isn't about making a big move. It's about understanding what you saw, what it means, and what to do with that information as you head into the rest of 2026.

What Happened, in Plain Terms

In early March 2026, U.S. and Israeli airstrikes escalated the conflict with Iran. Iran responded by restricting the Strait of Hormuz, a narrow waterway that roughly 20 to 30% of the world's oil passes through every day.

When that much oil gets cut off from global supply, prices rise fast. Oil climbed past $117 a barrel. Gas prices followed. Suddenly, inflation, which had been cooling, was back as a real concern.

Markets don't like uncertainty. They especially don't like inflation. And so almost everything dropped.

How Each TSP Fund Performed

Here’s what the March numbers looked like, along with where each fund stood for 2026 as of the end of the month.

Fund

Holds

March 2026

2026 So Far

G Fund

U.S. Government Securities

+0.34%

+1.80%

F Fund

U.S. Bond Index

-1.77%

+0.49%

C Fund

Large U.S. Companies

-4.98%

+9.26%

S Fund

Smaller U.S. Companies

-4.58%

+11.48%

I Fund

International Companies

-9.35%

+14.56%

Sources: GovExec, FedSmith, FedWeek, tsp.gov — May 2026

The Part That’s Easy to Miss: April and May 

March was rough. What came next matters just as much.

April brought a strong recovery across TSP stock funds, one of the best months since 2020. Diplomatic efforts picked up. Oil prices pulled back from their peak. Corporate earnings came in stronger than expected. Markets recovered a significant chunk of what they lost in March.

Then May continued the momentum. Every TSP fund posted a positive return for the month, and by the end of May, the funds that took the biggest hits in March had not just recovered but moved meaningfully higher on the year. The I Fund, which fell the hardest in March, ended up leading all TSP options for 2026 so far.

To put that in perspective: federal employees who moved everything to the G Fund in late March locked in their losses and missed two consecutive months of recovery. That's not a criticism. It's a pattern that plays out over and over, driven by something very human. When things feel scary, doing something feels better than doing nothing. The problem is that in investing, doing something at the wrong moment often costs more than staying put.

Why Did the Bond Fund Drop Too?

This is the question most people ask. The F Fund holds bonds. Bonds are supposed to be the steady, less dramatic option. So why did it lose ground?

When people get worried about inflation, they expect interest rates to stay high or go higher. Higher rates make existing bonds less valuable. Think of it this way: if you bought a bond paying 3% and new bonds are now paying 5%, your bond isn't worth as much to anyone else. The F Fund holds a lot of those bonds. When the Iran conflict pushed inflation fears higher, the F Fund went down.

It didn't fall as far as the stock funds. But it didn't hold steady either, and that surprises a lot of people.

For most F Fund holders, the real risk in a month like March isn't the drop itself — it's the temptation to sell afterward. The chart below shows why that move can quietly cost you.

Here's the trap. When the F Fund falls because rates rose, selling and moving everything to the G Fund locks in that short-term loss. It can feel safe, but it also gives up the higher rate the F Fund's bonds are now earning.

The G Fund looks appealing at around 4.5% today, but that rate isn't locked in — it resets every month. As the Federal Reserve cuts rates, the G Fund drifts back toward its long-run norm of roughly 3%. The bonds already sitting in the F Fund, meanwhile, keep earning their higher rate and compounding as they are held toward maturity.

Run that forward on a $100,000 balance over ten years. In this illustration, if the F Fund's bonds stay near 5% while the G Fund drifts from 4.5% back toward 3%, staying put leaves you with roughly $23,000 more after a decade — and that's before counting any rebound in F Fund prices as the March selloff reverses. The person who sold low didn't just miss the recovery; they traded a higher long-term rate for a lower one.

So, What Should You Actually Do?

That depends on where you are in your career and your retirement timeline. But here are three honest questions worth sitting with right now.

Did March feel worse than it should have? If watching your balance drop made you genuinely anxious, your allocation may be more aggressive than your situation requires. That's not a flaw. It's information. It might be time to rebalance toward something you can stay in through a rough month without wanting to move everything out.

When do you actually need this money? If you're 20 years from retirement, a bad March is noise. If you're 18 months out, it matters more. The closer you are to needing the money, the more your allocation should reflect that reality.

Are you still in the same L Fund you picked at hire? Many federal employees choose a Lifecycle Fund once and never revisit it. If your retirement date has shifted, earlier because of a RIF or later because of financial uncertainty, your L Fund target date may no longer match your actual plan. That's worth a closer look with a financial professional.

The One Thing to Avoid

Don't let a bad month turn into a permanent decision.

Markets go down. Geopolitical events happen. The Strait of Hormuz situation remains unresolved and there may be more volatility ahead. But the federal employees who tend to come out ahead over time aren't the ones who predicted what happened. They're the ones who had an allocation they understood, stayed in it, and didn't confuse a bad month for a broken plan.

If you're not sure your TSP is set up for where you're actually headed, that's the conversation worth having.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. 

Investing involves risk including loss of principal. No strategy assures success or protects against loss. 

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. 

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. 

Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. 

The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.