NAPLES, Italy — Viewers of CNBC’s “Mad Money” watched host Jim Cramer tell a concerned investor on March 11: “Bear Stearns is not in trouble. … Don’t move your money from Bear, that’s just being silly.”
Five days later, the investment bank and securities trading company collapsed and was bought by J.P. Morgan at just $2 per share. It traded at more than $80 two weeks prior to the collapse.
Many point to the Bear Stearns collapse as an indicator of the extent to which the U.S. economy has been affected by the subprime mortgage crisis. But how much does the goings-on of Wall Street affect a servicemember who has been using the Thrift Savings Plan as an investment for retirement?
Ryan Ritter, personal financial educator with the Navy’s Fleet and Family Support Center in Naples, said the TSP is probably the safest way to invest and minimize risk, even in light of dramatic financial headlines.
“I try not to watch the financial news,” Ritter said. “Going with the financial media is one of the biggest mistakes people make. For me, the best strategy is to find a nice disciplined approach and stick with it.”
Ritter said the TSP is relatively safe as a long-term investment because it affords individuals the opportunity to buy into huge amounts of the market at a very low cost, with no speculation.
“Because the TSP invests in indexes, it is one of the most efficient and effective ways, to invest,” Ritter said. “There is a multitude of quantitative and qualitative evidence showing that index investing allows broader diversification at lower costs.”
There are several indexes used with the TSP. For example, the C fund is based on the Standard & Poor’s 500, which includes the top 500 U.S. companies ranked on their market value. The TSP offers several indexed funds to choose from, which allows servicemembers to invest without having to research individual companies.
The recent volatility of the stock market, coupled with the weakening U.S. economy, makes Army Sgt. Kathryn O’Toole grateful she doesn’t dabble in stocks, she said.
“Apart from not knowing much about it … I’m so glad right now I don’t play the stocks. I probably would have lost everything,” said the 24-year-old vehicle dispatcher stationed at Allied Joint Force Command in Naples.
Instead, the soldier invests $10 a month in the EE-Savings Bond program, “so I can have a nest egg when I get out,” she said.
For those looking to strike out on their own and use an investment broker to purchase stocks, Ritter said the Financial Industry Regulatory Authority should be their first stop.
The FINRA Web site — saveandinvest.org — offers a free service called BrokerCheck, which provides background information on FINRA-registered securities firms and brokers.
However, this strategy might require more work and riskier investments.
“When compared to individual stock-picking, index funds have generally outearned actively managed funds,” Ritter said.
He said another benefit to TSP investment is that the more people invest, the larger the holdings, which translate to larger returns over time.
“The more that everyone puts into the TSP, the better it gets,” Ritter said.
