Investing Outside the TSP

Investing outside the TSP has gotten complicated with all the different account types, fund options, and strategies flying around. As someone who’s built portfolios both inside and outside the TSP over my military career, I learned everything there is to know about diversifying your investment approach. Today, I will share it all with you.

Individual Retirement Accounts complement TSP contributions with additional tax advantages. Traditional IRAs offer tax deductions on contributions, while Roth IRAs provide tax-free growth and withdrawals in retirement. For service members in lower tax brackets, Roth options often make the most sense. That’s been my approach, anyway.

Taxable brokerage accounts lack tax advantages but offer complete flexibility. No contribution limits, no withdrawal penalties, and no required minimum distributions make these accounts valuable for goals before retirement age or for amounts exceeding tax-advantaged account limits.

Index Fund Investing

Probably should have led with this section, honestly. Low-cost index funds form the core of evidence-based investment strategies. These funds track market indexes at minimal expense, outperforming most actively managed funds over time. The simplicity of index investing appeals to military members who lack time for individual stock research.

Total market index funds provide exposure to thousands of companies in single investments. That’s what makes index investing endearing to us military folks — a simple three-fund portfolio combining U.S. stocks, international stocks, and bonds can match the performance of complex strategies while requiring minimal attention.

Dollar-cost averaging through automatic investments smooths market volatility effects. Regular contributions buy more shares when prices fall and fewer when prices rise, naturally optimizing average purchase prices without attempting to time the market.

Real Estate Investing

VA home loan benefits create unique real estate investment opportunities. The ability to purchase with no down payment while obtaining favorable interest rates enables property acquisition that might otherwise require years of saving. I’ve watched several fellow service members use this benefit strategically to build rental portfolios.

House hacking strategies involve purchasing multi-unit properties, living in one unit, and renting others. VA loans permit purchase of up to four-unit properties, and rental income can offset or exceed mortgage payments, effectively providing free housing while building equity. It’s one of the better moves available to us.

Real estate investment trusts offer property exposure without landlord responsibilities. These publicly traded companies own portfolios of properties and distribute rental income as dividends. REITs provide diversification and liquidity that direct property ownership cannot match.

Risk Management

Diversification across asset classes reduces portfolio volatility without necessarily sacrificing returns. Combining investments that respond differently to economic conditions smooths the ride toward financial goals, helping investors stay the course during turbulent markets.

Emergency funds deserve priority before aggressive investing. Three to six months of expenses in accessible savings prevents forced selling during market downturns or unexpected financial challenges. Military families face unique expenses during PCS moves that adequate reserves can address.

Investment time horizon determines appropriate risk levels. Young service members with decades until retirement can accept volatility in exchange for growth potential, while those approaching transition should consider gradually reducing risk exposure to protect accumulated gains.