Times are uncertain right now. Peek in on Wall Street on any given day and you might see wild swings of more than 1,000 points either way. With people out of work, PCS orders on hold, and the general confusion as to when things will “return to normal,” it can seem as if the last thing you want to think about is investing in the future. Yet, this might be the perfect time to sit down and figure out an investment strategy that works for you. Below we look at three areas where even a little investment can go a long way toward securing your future financial stability.
Home
Investment in real estate has long been seen as a reliable, steady way to invest for your future. Keep in mind that unless you plan to hold on to your primary residence for at least 29 years, any return you may see on your home will be minimal (barring inflated rises in real estate). For military families, investing in real estate can be an effective investment tool. Consider purchasing a fixer upper and renovate it for the time you live in it. Then keep it and rent it out after you move on to your next duty station. Not sure how to go about being a long-distance landlord? There are plenty of resources out there, including many offered by MILLIE.
Education
This isn’t necessarily a straightforward monetary return. Of course, we’ve all heard that education is never a waste and that even a little education can go a long way. Military members may receive specialized training and be required to participate in continuing education opportunities to remain current in their military fields of expertise. However, investing in even a year of post-secondary education can lead to a 9% average individual increase in hourly wages in the civilian world, according to a study conducted by Harry A. Patrinos and George Psacharopoulos. That average is even higher for women, close to 10%. This means that once military service has ended and military members are seeking civilian jobs, any education above the secondary level may help secure higher pay. For military dependents, this return can be seen as soon as they enter the work force.
Of course, when we discuss investing in education, many of us are thinking of how to pay for our children’s college educations. There are a few ways to approach saving for future education opportunities:
- 529 plans are state-specific college investment opportunities. If you know what state you child will matriculate in, you can invest in that state’s 529 plan. One benefit is that invested funds are not subject to federal taxes, but in order to use the invested funds your child must attend a college or university in that specific state.
- UTMA and UGMA accounts are basically trust funds, or custodial accounts, set up to fund future college expenses. These consist of a combination of stocks, bonds, annuities, and other investments that will be available to your child for education purposes. While they provide a great way to invest money, keep in mind that colleges will consider these funds when putting together financial aid packages in the future.
- Coverdell Education Savings Account plans are another type of trust designed to pay for tertiary education opportunities. The caveat to these plans is that no more than $2,000 per year may be invested in them.
Retirement
When most of us think of investing, we’re thinking of how to save and grow our money now so we can retire one day and enjoy our golden years. It’s the traditional view of investing and one that is increasingly important. The best advice? Start young and be consistent. The earlier you start investing for your future retirement, the more time your invested money has to work for you. Consistently add what you can afford, making sure to increase that amount as your financial situation improves. Try to invest a proportional amount of money even as your salary increases over time. Here are some simple tips to get you started:
- Find a reputable financial advisor and construct a portfolio that works for you. This is especially helpful if you’re unsure of how to get started or want the voice of experience to help you.
- Invest in IRAs, TSPs, 401(k)s, etc. Everyone knows about Individual Retirement Accounts. Speak to your financial advisor about how they can best help you. Active-duty military members have access to the military version of a 401(k)—the Thrift Savings Plan (TSP). TSP has varied investment opportunities based on how aggressive you wish to be with your investment. Keep in mind that you can only contribute to the TSP while you are active duty. Once you enter the civilian workforce, check in to whether your new employer offers a 401(k) option. If they do, take advantage of it.
- Annuities, or insurance, is a way to invest. With multiple options ranging from term to whole life insurance plans, if you choose to invest money in annuities, it is probably best to talk your options over with your trusted financial advisor.
- Reserve accounts or emergency funds. A basic to investing is first to ensure that you have access to liquid monetary assets to help you in case of emergency. Experts suggest a range of two to three months’ worth of living expenses. Once you have your emergency fund built up, you can move on to adding other investment opportunities such as those mentioned above.
However you decide to invest, remember that investing for your future is a long-term objective. Don’t hyperventilate if the stock market takes a plunge this year if you’re not retiring or looking to use those investments for decades. It’s all just paper money until we need it. For now, find the investment opportunities that interest you. Whatever you decide, investing in your future is the smart thing to do.