Military Fund Investment: Pros And Cons

Military personnel have access to a variety of savings and investment opportunities, including some that are exclusive to those in federal government employment. These range from retirement plans to insurance policies, and even include benefits such as no-down-payment mortgages and tuition fee coverage. One of the most popular investment options for military members is the Thrift Savings Plan (TSP), a federal government-sponsored retirement savings and investment plan that offers tax advantages, low fees, and diversification. Other options include investing in education, paying off debt, and U.S. savings bonds.

Investing in education

Currently, there is a funding gap of $26 billion to provide universal basic education to all children, youth, and adults, particularly in low-income countries. Impact investing in education can help bridge this gap by mobilizing new funding sources and engaging the private sector in education service delivery. It can also promote innovation in teaching and learning methods, improve efficiency, and enhance equitable access to quality education.

Military funding can play a significant role in supporting education. Military service members and veterans have access to various education benefits, including tuition assistance, scholarships, and the GI Bill. These programs cover a portion or the entirety of tuition costs for college courses or professional certificates. Additionally, active-duty service members can take advantage of education support programs offered by different branches of the military, such as the Army, Navy, Air Force, Marine Corps, and Coast Guard.

In conclusion, investing in education, whether through military funding or other sources, is a crucial step towards empowering individuals, reducing poverty, and fostering economic growth. By addressing the funding gap and promoting innovative approaches to education, we can ensure that more people have access to quality learning opportunities, ultimately creating a better future for all.

Reducing debt

Military spending can have a significant impact on a nation's debt. Each dollar spent on the military is a dollar that cannot be spent on other public resources, and when government spending exceeds revenue, it results in a deficit that contributes to the national debt. As debt grows, so does the cost of borrowing, and increased debt can eventually hinder economic growth and lead to higher taxes.

In the United States, military spending is the largest portion of the discretionary federal budget, and it has been criticised for not being considered for budget cuts. Between 2001 and 2022, the US spent $8 trillion on war, and as of March 2024, the Department of Defense's budget request for the fiscal year 2025 was $849.8 billion.

Reducing military spending could be a strategy to curb national debt. Here are some ways in which this could be achieved:

• Cutting the size of the force: Reducing the number of full-time active military personnel would lower costs associated with salaries, training, healthcare, and other benefits. This could be done by decreasing the number of units in proportion to their funding level or by concentrating reductions in specific unit types, such as ground combat and tactical aviation units.
• Purchasing fewer or less expensive weapons: Decreasing the acquisition of new weapons systems and equipment would reduce spending. This could be achieved by slowing down modernisation and fielding programmes or by prioritising the maintenance and enhancement of existing capabilities.
• Reducing operating and maintenance costs: Optimising the utilisation of equipment and improving maintenance practices can lower costs. This may involve extending the lifespan of equipment, implementing more efficient maintenance procedures, or exploring alternative maintenance strategies.
• Streamlining training expenses: Training costs can be decreased by reducing the number of personnel or by exploring more cost-effective training methods and technologies. However, it is important to ensure that any changes do not compromise the readiness and proficiency of the military forces.

While reducing military spending can help alleviate debt, it is important to carefully consider the potential risks and implications. A smaller military force may lead to diminished deterrence and an increased chance of military aggression by global competitors. Additionally, reduced spending on weapon systems and equipment could slow down advancements and decrease the number of new weapon systems fielded. Therefore, a balance must be struck between debt reduction and ensuring national security.

Federal Thrift Savings Plan

The Thrift Savings Plan (TSP) is a federal government-sponsored retirement savings and investment plan. It is a defined contribution plan, meaning that the retirement income received depends on the amount contributed during one's working years and the earnings on those contributions. The TSP is similar to the 401(k) retirement plans offered by private corporations.

The TSP offers five main funds in which individuals can invest:

• The G Fund: This fund invests in government securities and is the safest option with the lowest rate of return.
• The F Fund: This fund invests in U.S. government, mortgage-backed, corporate, and foreign government bonds. It has a fairly low risk and rate of return.
• The C Fund: This fund invests in the stock market, specifically the Standard and Poor's 500 (S&P 500) Index, which consists of stocks from large to medium-sized U.S. companies. It has a higher risk and higher rate of return than the F Fund.
• The S Fund: This fund invests in the stock market but focuses on smaller companies that are not included in the S&P 500. It has a higher risk and higher rate of return than the C Fund.
• The I Fund: This fund invests in international stock markets and is the riskiest fund, offering the potential for the best rate of return.

In addition to these five main funds, the TSP also offers "Lifecycle" or "L funds", which are a combination of the above funds based on an individual's retirement trajectory. These funds automatically adjust their holdings to become more conservative as the target retirement date approaches.

The TSP allows individuals to contribute any percentage (1 to 100%) of their basic pay, up to an annual limit set by the IRS. This limit was $23,000 for 2024, with an additional $7,500 allowed for those over 50 years old. The military may match contributions up to 5% of basic pay, and these matching contributions can only be made into a traditional TSP.

The TSP offers two savings options: the traditional TSP and the Roth TSP. The traditional TSP involves pre-tax contributions, meaning taxes are paid upon withdrawal, usually after age 59 1/2. On the other hand, the Roth TSP involves contributions made after taxes, resulting in tax-free withdrawals if IRS requirements are met.

The TSP introduced several changes in 2022, including a new mobile app, online chat assistance, electronic funds transfer, and the option to purchase mutual funds. TSP users can invest up to 25% of their balance in mutual funds, with a minimum investment of $10,000.

The TSP provides various withdrawal options after separating from the military, including partial withdrawals, lump-sum payments, monthly payments, and life annuity purchases.

U.S. Savings Bonds

There are two main types of U.S. savings bonds: Series EE and Series I. Series EE bonds, similar to the savings bonds from World War II, offer a fixed interest rate that changes every six months. Currently, EE bonds have an annual interest rate of 0.10%. However, after 20 years, these bonds are guaranteed to double in value. On the other hand, Series I bonds, introduced in 1998, have an interest rate that follows the Consumer Price Index and adjusts every six months to reflect the inflation rate. As of May 1, 2024, Series I bonds have a fixed rate of 1.30%.

Real estate

Should Military Funds Be Invested in Real Estate?

The military lifestyle is unique, with frequent relocations and a sense of camaraderie among service members. These distinct aspects present both challenges and opportunities when it comes to investing in real estate. In this article, we will explore the strategies, benefits, and considerations for military personnel interested in real estate investment.

Benefits of Real Estate Investment for Military Personnel

VA Loan Advantage

One of the most significant advantages available to active and retired military personnel is the VA home loan. This loan program offers competitive interest rates and does not require a down payment or private mortgage insurance. This is especially beneficial for young service members who may not have substantial savings. By utilising the VA loan, military investors can purchase multi-unit properties, such as duplexes or fourplexes, and live in one unit while renting out the others to cover the mortgage.

Basic Allowance for Housing (BAH)

Military personnel also receive a Basic Allowance for Housing (BAH), a non-taxable monthly stipend that can be used for renting or paying a mortgage. The BAH amount is determined based on the service member's rank and dependency status, as well as the cost of living in the assigned state. This allowance provides a stable source of income that can be invested in real estate ventures.

Long-Distance Investing

The frequent relocations inherent in military life can be viewed as an opportunity rather than a hindrance. Long-distance investing allows service members to familiarise themselves with different markets and build a diverse portfolio. It also encourages the development of strong systems and teams, including property managers, realtors, and contractors, who can be trusted to handle investments from afar.

Military Tenants

Investing in real estate near military bases offers a stable tenant pool. Military tenants are generally considered clean and professional, and their rent is guaranteed, as it can be deducted directly from their pay in the event of non-payment.

Strategies for Military Real Estate Investment

Owner-Occupant Investing

The VA loan can be utilised to purchase a multi-unit property, allowing service members to live in one unit and rent out the others. This strategy, known as "house-hacking," enables them to save a significant portion of their BAH and build investment capital.

Turnkey Real Estate Companies

Turnkey real estate companies provide a "one-stop shop" for buying and leasing residential properties. They can assist with finding properties, obtaining financing, managing tenants, and handling bookkeeping. While there may be higher costs associated with these services, they can be beneficial for military personnel who want a more hands-off approach to real estate investment.

DIY Long-Distance Investing

For those who prefer a more hands-on approach, it is possible to invest in real estate from a distance. This involves researching and analysing properties online, interviewing property managers, and building a team of local professionals. While this strategy requires more legwork, it can be lucrative if done diligently.

Partnerships and Crowdfunding

Another option is to partner with experienced investors or utilise crowdfunding platforms. Partnerships can bring together individuals with complementary strengths, such as combining a service member's stable employment and access to loans with a civilian's location and capital. Crowdfunding, meanwhile, allows military personnel to invest in real estate ventures alongside numerous other investors, providing a passive income stream.

Considerations for Military Real Estate Investment

Understanding the Market

It is crucial to recognise that not every market is suitable for investment. Service members should carefully analyse the potential rental income, local economy, and other factors before purchasing a property.

Property Management

When investing in real estate, whether locally or from a distance, it is essential to have a reliable property manager. This is especially important for military personnel who may be deployed or relocated, as it ensures that their investments are properly maintained and managed in their absence.

Education and Guidance

Before venturing into real estate investment, military personnel should prioritise education. Understanding the market, financing options, and investment strategies will help them make informed decisions and avoid costly mistakes. Resources like books, podcasts, and mentorship from experienced investors can provide valuable guidance.

Military funds can be effectively invested in real estate, providing service members with a stable income stream and the potential for long-term wealth creation. By utilising benefits like the VA loan and BAH, taking advantage of frequent relocations, and implementing sound investment strategies, military personnel can successfully navigate the unique challenges and opportunities of real estate investment.

Frequently asked questions