Q&A: How to Get an Early Investing Start

Mutual Funds

Q&A: How to Get an Early Investing Start

Kim Lankford recommends a simple investing plan for one young soldier stationed in Iraq.

Q: My son is in the Army in Iraq. He has no investments to speak of and is single. He wants to put much of his income into some form of investment, most likely a mutual fund. Do you have any advice for him for selecting a fund?


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The easiest way for him to get started is to invest in the Thrift Savings Plan, and he can open an account even while he is deployed.

All he has to do is sign up to have a percentage of each paycheck go directly into the TSP. Troops can generally contribute up to $16,500 to the Thrift Savings Plan in 2009. But your son can also contribute all of his tax-exempt combatzone pay, as long as his total contributions for the year don't exceed $49,000.

He can start very small -- the minimum contribution is just 1% of basic pay each period -- but you should encourage him to set aside as much as he can.


The simplest investment choice is a lifecycle fund (the L Fund in the TSP). Lifecycle funds -- sometimes called target-date funds -- invest in a portfolio of other funds based on an investing time frame.

They start out with more money invested in stock funds -- when you have many years before you plan to touch the money -- then gradually become more conservative as your goals get closer.

The lifecycle fund automatically adjusts the investments every quarter, so you don't need to make any changes yourself. You should pick the lifecycle fund with a target date closest to when you plan to withdraw the money.

If your son is in his twenties and doesn't plan on tapping the account until he's in his fifties, then he'd pick the L 2040 fund. This fund starts with most of its money invested in an S&P 500 index fund (large U.S. companies), followed by an allocation to the international fund and small-company index fund, and just 15% of the money in the fixed-income fund.

The allocation gradually changes through time, with most money invested in the government securities fund by 2040. Visit the L Funds page at www.tsp.gov to see how the allocation becomes more conservative as time passes.