Five Best Investments for Military Families

Five Best Investments for Military Families in 2006

Most military personnel don't have the time to pay attention to their finances. They are simply too busy, with families, friends and jobs. When servicemembers do have to make a financial decision, they don't always feel secure. There's too much to choose from - too many stocks, mutual funds and retirement plans, let alone all those mortgages and insurance products. It's hard to determine what's best and it's easy to potentially overlook a good investment.

In order to eliminate some of the guesswork, here are five of the best investments servicemembers should look into:

1. Invest in your education. Servicemembers who reduce their military pay by $100 a month can get up to 36 months of education when they leave the military. That's the best return on $1,200 you'll ever get.

2. Invest in your debt, by reducing it. You probably don't think of this as an investment, but it is. Every payment you make on a debt gives you a cash return on your money equal to the debt's interest rate. For example, say you pay an extra $100 on 16 percent credit-card balance. You've immediately earned 16 percent, guaranteed. (Why so? Because not paying 16 percent in the future means that you have an extra 16 percent in your pocket.) If you're being charged a penalty interest rate of 24 percent, because you were late on a couple of payments, paying an extra $100 earns you a 24 percent return. This is another investment that's hard to beat.

3. Invest in the Federal Thrift Savings Plan. It's a great deal. You can have money withdrawn from your paycheck automatically and invested in low-cost mutual funds, for long-term, tax-deferred growth. What's best in the Thrift Savings Plan? A Lifecycle Fund that spreads your money over a variety of stocks and bonds, appropriate to your age. It's the only fund you need.

4. DON'T invest in the mutual funds sold by agents at the base, even if the agents are former military personnel. These fund carry high fees, which means you'll get a poor return. The funds in your low-cost Thrift Savings Plan will do far, far better, over the long run.

5. Invest in U.S. Savings Bonds, with any money you want to keep absolutely safe. You can do it through payroll deduction. Series I bonds, whose interest rate is linked to inflation and changes every six months, is paying 6.73 percent through April. That sure beats a bank account.

Author: Jane Bryant Quinn

TSP will not give you a high rate of return. I've been in it for quite some time, along with other mutual funds of the same type. My TSP (I fund, the most aggressive) only returned 3.5% in the same period that my commercial fund returned 16%! And my commercial one isn't fully aggressive like the TSP I fund is.

TSP's L fund, the Lifecycle fund that changes as you get closer to retirement is good because it changes for you. You don't have to keep tabs on it.

But 3.5% is a pathetic return for a fully aggressive fund. I can do better with a Certificate of Deposit (CD).

As always, investors must keep an eye on their investments. The TSP is a good way for you to get started, if you don't know anything about investing. But, there are better funds out there.

I was not told the TSP charges a fee. The fee is NOT divulged in your quarterly statements. I had to dig in their paperwork to find the fact that there's a fee, and even today I don't know how much that fee is.

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But you forgot to mention:

-TSP is a pre-tax contribution, lowering your tax bill
-The government may match contributions depending on the member's afsc and status. They're also discussing it as a retention tool.
-High rates of return entail high risk
-Lifecycle funds are hands-off balanced funds that adjust the stock and bond mix automatically.
-401K investments can be rolled over from employer to employer and allows for greater overall investment amounts.