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 inIraq. He has no investmentsto speak of and issingle. He wants to putmuch of his income intosome form of investment,most likely a mutual fund.Do you have any advice forhim for selecting a fund?
The easiest way for him toget started is to invest inthe Thrift Savings Plan, andhe can open an accounteven while he is deployed.
All he has to do is sign upto have a percentage ofeach paycheck go directlyinto the TSP. Troops cangenerally contribute up to$16,500 to the Thrift SavingsPlan in 2009. But yourson can also contribute allof his tax-exempt combatzonepay, as long as his totalcontributions for the yeardon't exceed $49,000.
He can start very small -- theminimum contribution isjust 1% of basic pay eachperiod -- but you shouldencourage him to set asideas much as he can.
The simplest investmentchoice is a lifecycle fund(the L Fund in the TSP).Lifecycle funds -- sometimescalled target-datefunds -- invest in a portfolioof other funds based onan investing time frame.
They start out with moremoney invested in stockfunds -- when you havemany years before you planto touch the money -- thengradually become moreconservative as your goalsget closer.
The lifecycle fund automatically adjuststhe investments every quarter,so you don't need tomake any changes yourself.You should pick thelifecycle fund with a targetdate closest to whenyou plan to withdraw themoney.
If your son is in histwenties and doesn't planon tapping the accountuntil he's in his fifties, thenhe'd pick the L 2040 fund.This fund starts with mostof its money invested inan S&P 500 index fund(large U.S. companies),followed by an allocation tothe international fund andsmall-company index fund,and just 15% of the moneyin the fixed-income fund.
The allocation graduallychanges through time, withmost money invested in thegovernment securities fundby 2040. Visit the L Fundspage at www.tsp.gov to seehow the allocation becomes more conservative as time passes.