An investment is the commitment of money or capital used to purchase financial instruments or other assets to gain profits in the form of interest, income or appreciation, said James Knuckles, 56th Force Support Squadron Airman and Family Readiness Center community readiness consultant.
“Due to compounding, investing transforms your working money into a state-of-the-art, highly powerful income-generating tool,” said Cory Carmichael, 56th FSS A&FRC community readiness consultant. “Compounding is the process of generating earnings on an asset’s reinvested earnings.”
Compounding requires two things to work, time and the reinvestment of earnings. The more time given, the more the amount of income will be able to accelerate and grow.
What about reinvestment of earnings?
Investments come in many forms, Carmichael said. They vary from conservative safe bonds, mutual funds and stocks to riskier alternative investments. A person’s investment should mirror their willingness to risk their money and financial goals.
A few other types of investments include real estate, gold and futures, which are contracts that attempt to predict the value of securities on merchandise, currencies and the stock market, Knuckles said.
You can also invest in a Thrift Savings Plan, Individual Retirement Account or a 401(k), Carmichael said. Many service members favor the TSP due to the choice of index funds, low costs and the asset allocated lifecycle fund.
Carmichael advises to invest at least 10 percent of your income.
“I like to say, ‘save until it hurts,’ but at the least, invest 10 percent of your income,” he said. “Remember that you are investing in your future. However, if you are living with any consumer debt or lack an emergency fund of at least three months of living expenses, then that should be a priority.”
It’s recommended to diversify investments to mitigate the risk of financial loss.
“Diversifying your investments is similar to the practice of ‘not putting all your eggs in one basket,’” Carmichael said. “If you spread your investments across various types of assets and markets, you’ll reduce the risk of catastrophic financial losses, since different securities perform differently at any one point in time.”
To be financially successful Carmichael recommends investing early in life and regularly, and staying invested.
“For every five years you delay investing, you will have to double your monthly investment amount to achieve the same goals,” he said. “Remember, you and no one else are responsible for your own financial success.”
For more information on investing or other financial needs, call A&FRC at 623-856-6550. The A&FRC, in addition to having trained financial counselors, has free publications, guides, classes and other resources to answer questions concerning finance. One-on-one appointments are also available.