How to invest at every stage of your military career


Jeff Hinrichs is VP Financial Consultant at Charles Schwab, and a military reservist with over 29 years of service.

Whether you are on active duty, in the Reserve, or in the National Guard, managing your finances on a daily basis can present unique challenges. However, with smart investment, a financially secure future is achievable.

Given the high degree of uncertainty that comes with being in the military, the steps to achieving big financial goals in life differ from those of the average person. Training, permanent job changes (PCS), mobilizations and deployments can complicate family planning, saving for higher education, home ownership and retirement. Investing wisely at every stage of your career until retirement can help keep you on track to achieve your goals.

Before you even consider investing, you need to have an emergency fund. Charles Schwab’s 2020 Military Financial Literacy Survey found 46% of military personnel said an unexpected expense of as little as $ 500 would cause financial hardship if they had to pay it off in full within 30 days. . As a general rule of thumb, aim to save three to six months of essential living expenses that you can access quickly in an emergency, and save more if you anticipate a major change in your life next year.

Once you’ve set aside an emergency fund and are ready to invest, it’s critical to understand that investing is different from saving. If you don’t save, you can’t invest. In other words, if you save $ 0, you will have $ 0 to invest. While saving involves setting aside and placing your money in a safe and accessible account with no significant opportunity for growth, investing can involve more risk but offers the possibility of creating and developing wealth.

Invest as soon as you can

When it comes to investing, getting started is the most important step. The sooner you start, the better, thanks to what is called compound growth. By investing small amounts of money regularly over time, you’ll be on your way to financial independence.

You can do this by taking advantage of workplace retirement benefits with the Savings Plan, which is part of the blended pension system and includes a traditional pension if you retire from the military. The TSP offers several investment options to choose from, including target date or “life cycle” funds depending on your age. The US government will pay up to 5% of your base salary contribution to the TSP under the BRS. If you can, contribute more. A good goal would be to aim for a total of 10-15% of your salary.

You don’t have to be rich to be an investor, and getting started doesn’t have to be difficult. As a new investor, it’s important to understand these three general types of investing and how they can help you strike a balance between risk and return.

  • Cash investments offer lower returns, but they are smart for short-term goals, daily expenses, and emergency funds. They include checking and savings accounts, which are good for everyday purchases and an emergency reserve; short-term certificates of deposit (CD); and US Treasuries, which tend to pay a bit more interest but generally must be held for periods of three to 12 months. Money market funds, ultra-short bond funds and stable value funds are also options to consider.
  • Obligations are investments that provide a predictable income stream. This is a loan that you give to a government, municipality, or business that in return promises to pay you a specified interest rate and repay the face value after a certain period of time unless you default. of payment. Bonds generally pay interest to holders twice a year and are useful for preserving capital. As with any investment, bonds carry risk but tend to be less volatile than stocks.
  • Actions are investments that represent the ownership of a business. Stocks are relatively risky because stock prices can go down and there is no guarantee that you will receive dividends. However, as a shareholder, you can earn returns if the stock price rises and you sell at a profit, and the company distributes a portion of its profits to shareholders as dividends.

You can also choose to combine different types of investments depending on your risk tolerance, time horizon and personal preferences, and using individual securities, fractional stocks, mutual funds or negotiated funds. on the stock market (FNB).

Stay invested throughout your military career

If you’ve been investing for a while, you may be considering shorter-term financial goals, like buying your first home or starting a family. However, a military career comes with some unique challenges, such as relocating from time to time with PCS orders. Continuing to invest will help you reach your financial goals sooner despite the interruptions due to the unique challenges you face in the military.

The best way to do this is to diversify your investments so that you don’t put all your eggs in one basket. For the uncertainty that comes with a military career, diversification – while not a guarantee against loss – allows you to weather the ups and downs of the market and stay in the fight. You can diversify your options to reduce your risk by allocating your money between and within different asset classes, such as stocks, bonds, and cash.

As your rank and salary increase, so should your savings. For those who receive bonuses for re-enrolling or extending their service, investing is a great opportunity to put that money to good use. One way to do this is to invest in your future retirement. While retirement may seem far away, the earlier you start, the better prepared you will be.

Opening an individual retirement account, be it a Roth IRA or a traditional IRA, and contributing monthly is an added cushion that can prepare you for retirement or extend your money into retirement.

Keep investing after military service

For those leaving the military, keep in mind that while your service comes to an end, your investments shouldn’t. Whether you’re pursuing a new career path or starting to retire, investing can continue to help you reach your new goals.

Your investment strategy should be tailored to the life path you choose to follow after leaving the military. Talking with a financial advisor about your individual needs can help you determine your options for maximizing your money in the next chapter of your life. New subscription-based financial planning services are making access to personalized investment management and financial advice more affordable and accessible.

If you are starting a second career, you will discover different benefits and options, such as a 401 (k) plan. If your business offers 401 (k) and employer matching in investments, registering and setting up automatic deductions from your paychecks is an easy way to help with retirement. If you are able, consider contributing at least up to the employer’s level in order to take advantage of the benefit offered by the company.

Whatever your next step in life, transitioning out of the military comes with new opportunities. Keep learning and keep investing.

With smart investments, you can live comfortably and prepare for a financially secure future. Visit Schwab Moneywise to learn more about financial planning and how Schwab can help you achieve financial security.

The information here is for general information purposes only and should not be construed as an individualized recommendation or personalized investment advice. The type of securities and investment strategies mentioned may not be suitable for everyone. Each investor should consider a corporate action for their own particular situation.

All expressions of opinion are subject to change without notice in reaction to changing market conditions.

Investing involves risks, including loss of capital.

Diversification strategies do not guarantee a profit and do not protect against losses in falling markets.

Brokerage products: not FDIC insured • No bank guarantee • May lose value

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