Editor's note: This is the third installment of New Year, New You, a weeklong look at your financial health headed into 2025.
As a military member, you have a unique opportunity to build financial security early in life. With health care and housing expenses covered (or mostly covered), your steady paycheck lets you set aside money to improve your future. Now junior enlisted service members in particular are even better situated to do so, thanks to this year's 14.5% pay raise for those in the E-1 to E-4 paygrades. By investing wisely, you can grow your wealth and achieve your long-term goals.
If you have a lot to learn about investing, however, be aware that some of the information out there is not so good. Where should you start, and where should you turn for guidance?
Why Start Investing Now?
You should start investing when you're young for two main reasons. The first reason is compound interest -- the process of earning returns on both your original investment and the returns it generates. Over time, this compounding effect can significantly grow your wealth. For example, investing $100 a month at an 8% annual return could grow to more than $150,000 in 30 years. Starting early also gives you more time to ride out any ups and downs in your investments, making growth more likely. If you wait until you're older to start investing, short downturns can have a larger impact on your outcome.
You have a wide variety of investment options available to you.
Thrift Savings Plan
The military offers a low-cost, tax-advantage option via the Thrift Savings Plan (TSP). The TSP is a retirement savings plan available to federal employees, including military members, and is similar to a civilian 401(k).
TSP contributions are made via payroll deduction and can be set up via your online myPay account. If you are in the Blended Retirement System (BRS), you want to contribute at least 5% of your base pay to receive the full government matching funds. These matching funds are put into your TSP account by the government. They're basically free money!
Contributions are made on a pre-tax (traditional) or after-tax (Roth) basis, depending on your tax preferences.
TSP is the container, but within that container, you'll need to choose your investments. The TSP includes five core funds and target-date Lifecycle (L) funds. Which fund or funds you want to be in will depend on your long-term investment goals. You may also invest outside funds in TSP, but watch the fees on those accounts. While the regular TSP funds are very low cost, investing outside of TSP through your TSP account comes with hefty costs.
Individual Retirement Accounts
Individual retirement accounts (IRAs) are another type of tax-advantaged retirement account. You'll set this up outside of the military, with a brokerage house or other IRA provider. It's easy to fund with automatic transfers or allotments.
Like TSP, you can choose whether to pay the taxes now (Roth) or later (traditional). The Roth IRA is particularly appealing for junior service members in lower tax brackets, as it allows you to pay taxes now while you are in a low tax bracket. You'll then enjoy tax-free growth and distributions.
Also like TSP, you control the investments within your IRA. Be sure you don't just put the money in there and then forget to invest it in something specific. IRAs will have a wide range of investment choices, depending on which company you use to maintain your IRA.
Brokerage Accounts
A taxable brokerage account allows you to invest in stocks, bonds, mutual funds, exchange-traded funds (ETFs) and more. While these accounts lack the tax advantages of retirement accounts, they offer greater flexibility for non-retirement goals, such as buying a home or saving for education. Just be sure that your investment timeline is long enough. It's generally not recommended to put short- or medium-term money into stocks or bonds, because they go up and down, and not always on your schedule.
Education Savings Plans
If you have children or plan to have them in the future, a 529 college savings plan can help you save for their education. Contributions grow tax free, and withdrawals are tax free when used for qualified educational expenses. A limited amount of 529 money can also be converted into a Roth IRA if not used for education.
Staying Informed and Avoiding Scams
Investing can be complex, but many reputable resources can help you make informed decisions. Check out a book from the library or explore the internet. Some places to start include:
- Investor.gov by the U.S. Securities and Exchange Commission
- FINRA.org, the Financial Industry Regulatory Authority
- finred.usalearning.gov by the the Department of Defense Office of Financial Readiness
- militaryonesource.mil, Military OneSource
While exploring these resources, be cautious of scams and misleading advice. Blogs, social media platforms and the real world are rife with salespeople and unregulated "influencers" promoting inappropriate, risky or fraudulent investments. Common red flags include promises of guaranteed returns, pressure to invest quickly, and requests for personal or financial information. Stick to established financial institutions and consult fiduciary financial professionals if you're unsure.
Tips for Successful Investing
You can use several tactics to increase the chances of becoming a successful investor.
1. Set clear goals. Define what you're investing for -- retirement, a home or college savings -- and choose investments that align with your timeline and risk tolerance.
2. Start small and automate. Begin with small, consistent contributions. Automating your investments ensures regularity and reduces the temptation to spend instead.
3. Stay the course. Market fluctuations are normal. Resist the urge to panic-sell during downturns and stick to your long-term plan. If market fluctuations are too much for you, then maybe you're not invested in the right investments for your timeline and risk tolerance.
4. Educate yourself. Continuously learn about investing through books, courses and reputable online resources.
Your installation's personal financial professional can help you learn more about investing but can't give you investment advice. You can find them at your family support center.
Start Small for Big Results
Investing may seem intimidating at first, but starting early and taking advantage of the resources available to you can set the stage for long-term success. Begin with small, manageable steps, and remember that time is your greatest asset. By making informed decisions and staying disciplined, you'll be well on your way to achieving financial independence and security.
Previous parts in this series:
Part 1: 2025 Guide to Pay and Allowances for Military Service Members, Veterans and Retirees
Part 2: What to Look for on Your January Leave and Earnings Statement
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