My mother had never invested a dime in her life. As a single mother and high school math teacher, we always lived paycheck to paycheck. I never really wanted for much. But, we were never swimming in luxury either.
I remember asking her one time about investing for retirement, and she just laughed. She didn’t know how to invest, and she never thought that she had enough money to even give it a try.
Times are different now. It is incredibly easy, thanks to smartphone apps, the internet, and an incredible breadth of knowledge available right at our fingertips.
Now, it’s easy to start investing even if you only have a little bit of money. You don’t need much money to begin investing. Technology makes it ridiculously easy to invest.
Here are a few simple ways that you can start investing while serving in the military, even if you don’t have a lot of money to get started.
Getting Started with the Thrift Savings Plan
It’s incredibly easy to get started with the Thrift Savings Plan (TSP), the federal government’s version of a 401k retirement plan or for its civilian and military employees. If you are a member of the military, you can sign up to make a monthly contribution to your TSP account.
You can complete a Form TSP-U-1 or use myPay through DFAS to start your contributions. Most services have transitioned to solely using myPay now.
You have to contribute at least 1% of your base pay to start contributing to TSP. For an O-1 with less than two years of service, you’re talking about $30 per month or $15 every paycheck that you can contribute to TSP. Of course, there are limits, too.
You may be thinking, “What is $30 per month or $15 per paycheck going to do for me?”
It’s a start! And, that’s all you need – a foot in the door.
Then, I like to boost my investments in my TSP account 1% every January after I receive my yearly cost of living pay raise. It’s been an easy way to increase my annual contributions without even realizing it.
You’ve already factored in your current paycheck into your budget. Any pay raise or promotion that you receive is like free money. Adding that new money will never impact your budget, adding it to your retirement investing. Your budget will never realize it’s missing it.
This brings up an important concept – Dollar Cost Averaging.
What Is Dollar-Cost Averaging?
Quite simply, dollar cost averaging is when you invest a regular amount of money, at regular intervals. Many people choose to invest a set amount of money each month. An excellent example of this is automatic investing through your Thrift Savings Plan, 401k, Roth IRA, or other allotments.
So in the example above, the $15 per paycheck would be investing through dollar-cost averaging.
Every month, you invest that $30 and you purchase as many shares as your money will buy on the day the order goes through. So, if the share price goes up to $15 a share, you will buy two shares.
However, if the price falls to $10 a share, your investment will purchase three shares. The benefit is that you aren’t buying as many shares when the price is high, and you are buying more shares when the price is lower (remember, the goal is to buy low, sell high).
Dollar-Cost Averaging helps you invest consistently with whatever amount of money you can afford to invest with. And since you are investing consistently, you can take advantage of any opportunities when the prices drop.
Buying Shares in Mutual Funds and Index Funds
Another good way to start investing is to buy shares in mutual funds and index funds.
Mutual funds are pools of investments that professionals manage. Investors purchase shares of a fund, which then buys and sells shares of stocks and bonds for the group instead of the individual investor.
Index funds are portfolios that purchase shares of stock in the same weight and manner to mirror a stock market. For example, an S&P 500 index fund would own shares of the 500 companies that comprise the S&P 500 index.
Index funds take the guesswork out of a mutual fund manager’s hands since they can only own the stocks and weight the fund just like the index in most cases.
You can typically purchase shares of mutual funds and index funds through a discount broker like Ally Invest, TD Ameritrade, and a host of others. You may also be able to purchase mutual funds and index funds through your bank.
Many banks have an investment arm that you can quickly move money for investments. You can also buy shares of funds directly from the mutual fund companies, such as Vanguard or Fidelity. Many mutual funds and brokerage firms require a $500 initial deposit to begin investing.
If you’re a brand new investor, those minimums amounts may be out of reach. But, some mutual funds and index funds waive the account minimums if you set up automatic monthly investments. Many have small monthly recurring payment options, as low as $25 to $50 a month in many cases.
Where to Get Started for Almost Nothing
There are other options to help you start investing if you’re particularly nervous about doing it on your own. You may like Robo Advisors such as Betterment or Wealthfront that help make it easy for you to get started investing with minimal cost and take most of the decisions out of your hands.
Betterment and Wealthfront are good examples of cheap and ethical companies that can help you pick your first stock or mutual fund if you feel intimidated.
Both are companies that use computer models and algorithms to find the best investment mix for you based on your age, goals, income, and taxes. They provide recommendations and help you invest your money.
There are also several smartphone apps like Stash or Acorns, that can help you start investing with small amounts of money. Both smartphone apps allow you to begin investing with as little as $5.
Stash gives you a broad range of choices for mutual funds to invest, and they target millennials by pooling funds and stocks into fun categories like social media companies like include companies like Snap and Twitter. Stash helps you invest in partial shares of stocks with your small investments.
The Acorns app lets you save your spare change from regular purchases. When your balance gets to $5 or more, the Acorns app invests your spare change into a diversified investment portfolio of stocks and bonds.
Don’t forget the new Blended Retirement System, which goes into effect in 2018 if you’re eligible to opt-in or join in 2018 or later. The Department of Defense will automatically contribute 1% of your basic pay to your Thrift Savings Plan if you’re in the blended retirement system.
The 1% automatic contribution takes effect after 60 days of service, and the DOD will also contribute up to 4% of additional matching contributions after you complete two years of service.
Start Investing Today
You don’t need much money to start investing. Smartphone apps and online discount brokerages have reduced the barrier to entry for even the most brand new, novice investor. And, if you don’t feel like you’re capable of investing your funds, then there is help for that too.
The worst thing that you can do is let the thought of investing paralyze you. You need to start investing for your retirement.
And, now it is so easy to start investing. The world of Wall Street today isn’t the same one that scared our parents into not investing. You don’t need much money to begin investing. So get going!
What’s holding you back from investing for your retirement? Are you worried about making a mistake? Do you still think that you can’t afford to invest?
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