Skip to main content

By Barbara O’Neill, Ph.D., CFP®

Many young service members learn about investing for the first time when they join the military and enroll in the Thrift Savings Plan (TSP). Unless they took a personal finance course in high school or discussed investing with their parents, Personal Financial Managers (PFMs) are likely to be their first investing instructors.

Last week, we shared the first four key concepts for PFMs to suggest to their clients in group briefings and 1:1 counseling. This week, we finish off with the final four:

  • Create an Investment Portfolio. Explain the key steps to doing this; defining portfolio objectives, determining risk tolerance, determining asset allocation percentages (e.g., stock %, bond %, cash equivalent asset %) and domestic vs. foreign securities percentages, selecting investments that meet outlined specifications, and integrate investments with tax and retirement planning (e.g., investing in tax-deferred investments, like the TSP, for retirement).
  • Minimize Investment Expenses. Take proactive steps to pay the lowest amount of fees possible. For example, the TSP has some of the lowest investment fees available anywhere with expense ratios ranging from 0.043% (G Fund and C Fund) to 0.059% (S Fund), which is 43 cents to 59 cents for every $1,000 invested. An expense ratio is the percentage of an investment’s assets used for administrative and other operating expenses.
  • Understand Investment Indexes. Explain that market indexes measure various aspects of stock market performance and can be used as a benchmark by individual investors. Most frequently used U.S. stock indexes include the Dow Jones Industrial Average (30 large U.S. companies), Standard & Poor’s (S&P) 500 (500 largest U.S. companies), the Russell 1,000 (top 1,000 U.S. companies by market capitalization), the Wilshire 5,000 (a.k.a., total stock market index, comprised of all publicly traded U.S. companies), and the NASDAQ Composite (an index used primarily for tech stocks). A widely used index for foreign securities is the MSCI World Index which includes 23 developed countries.
  • Beware of Investment Fraud. Remind clients that nobody will care about their money as much as they do and that stockbrokers are held to a suitability standard when they sell stocks- not a fiduciary standard that places a client’s interests first. Also, encourage them to practice “investor self-defense”: take time to investigate new investment products, consider their goals and risk tolerance, check the background of investment advisors, keep good financial records, and walk away from any investment (e.g., cryptocurrency and indexed annuities) they don’t fully understand.

In summary, a diversified portfolio will not eliminate investment risk, but it can help reduce it. For additional information about investing, review the Cooperative Extension course Investing for Your Future.

Photo by Burak the Weekender from Pexels