This post is part of the “Step-by-Step Guide to (Passive) Military Investing” series:
- Maximize your TSP matching
- Eliminate your consumer debts
- Start investing small (1%)
- Buy investments
- Increase your monthly contributions
- Diversify
- Keep buying and holding… don’t panic sell!
The main choice is, do you start investing in the Thrift Savings Plan (TSP) or an Individual Retirement Account (IRA) or Roth IRA? If you are just getting started and are in the military or government service, I’d recommend the TSP. It is probably the easiest way to get started investing. Also, you can contribute much more to TSP($20,500/year) than into an IRA or Roth IRA ($6,000/year.
Step 3A: Thrift Savings Plan (TSP):
To start investing in TSP, the first step is to setup your contributions in MyPay. For instructions on how to get started, follow the instructions in our post entitled, “How to Start Investing in the Thrift Savings Plan (TSP) Part One: Setup MyPay”
Step 3B: Individual Retirement Account (IRA) or Roth IRA
If you are not able to invest into the TSP (e.g. you are a veteran and are not in government civil service), or if you are interested in investing outside of TSP’s 5 funds, then I’d suggest opening an Individual Retirement Account (IRA) or Roth IRA with a low cost investing site. Some options include Charles Schwab and Vanguard, but there are dozens of platforms to choose from. I personally use Schwab; it wasn’t a very well thought out decision, but they have lots of low-cost investing options and I’m generally comfortable with their services. But, do your own research and pick a company with no monthly fees and with access to the investments you want. More on that in the moment.
The process will be different, depending on the company you choose. However, create an account and open either an Individual Retirement Account (IRA) or a Roth IRA.
For more details about the differences between an IRA vs. a Roth IRA, read this post.
Because military members, especially enlisted members, are often in a very low tax bracket, a Roth IRA can make the most sense. If you don’t know which to pick, pick the Roth IRA (if you meet the income limits) for now.
Once you have opened either an IRA or Roth IRA with your chosen company, setup automatic payments to that account every month. To decide what amount, I decide what percent I want to take from my total gross income. To do this, I look at the “Total Entitlements” amount on my LES and multiply. For example, if I wanted to invest 1% of my total income, I would take my Total Entitlements amount (let’s say, $7,500) and multiply by 0.01 (1%). That means I should be investing $75/month.
When you have your automatic payments setup, that’s it! You can wait until your next paycheck, or transfer some money now to get started. Either way, you have just taken a huge step towards investing in your future.
Return to the Step-by-Step Guide to (Passive) Military Investing” series