Investing

When you’re in a position to set a little money aside at the end of each month or year, you can invest that money to reach your savings goals.

MFAN has resources to help you understand the basics of investing and to help ensure that you are getting the most out of your investments.

Taking the time to invest your money wisely is an investment in your future.

Understanding Investments

The three most common types of investments are:

Cash Options: This short-term option includes savings accounts, CDs, and money market funds. Cash options typically have low risk and a low return.

Bonds: This is a more medium-term option and includes government, municipal, and corporate bonds, as well as bond funds. They carry a more moderate risk and a higher return.

Stocks: Stocks and stock funds can be volatile, but historically, they have also delivered the highest return. This is a long-term option.

When considering short-term (three years), midterm (seven years), and long-term investing (more than seven years), ask yourself: What are you saving for, and when do you expect to need the money?

So, when do you start?

You should begin investing once you have a modest emergency fund. Then you can continue to grow your savings by investing in your retirement.

Thrift Savings Plans

One of your best options for retirement savings is a thrift savings plan (TSP).

These plans are essentially the government equivalent of a 401(k) plan, with your retirement income based on your contributions and the money you earn on those contributions. One key benefit is that TSPs charge very low investment fees. They are also very user friendly — easy to enroll in, update, and roll other retirement balances into.

When in Doubt: Lifecycle Fund

If you are having trouble picking a TSP plan, the “L” or “Lifecycle” plan is a good option. Over time, your money will shift from higher-risk, higher-reward investments to more conservative investments — maximizing your earnings early on, and then lowering the risk as you move closer to your retirement date.

Roth vs. Traditional: What’s Right for You?

When selecting a TSP, another key decision is whether the Roth or traditional option is the better fit for you. Your answer will depend on both where you are now, and where you expect to be later on in your career.

• Traditional plans: Your contributions are taken out of your paycheck before taxes are withdrawn. Owners of these plans are taxed later, when they withdraw their investment money.
• Roth plans: You contribute money after taxes have been taken out of your paycheck, so that you are not charged taxes again on the money.

If you expect to be in a higher tax bracket when you retire, or if you expect to continue working after you start withdrawing money from your retirement savings, the Roth plan may be a good fit for you.