Many military families pick low-yield fund, not stock market

By Tim Grant

Pittsburgh Post-Gazette

Military families cope with all types of risk, including wartime deployment, the dangers of combat, frequent relocation and post traumatic stress.

But there’s one risk many are choosing to avoid: Exposing their retirement nest eggs to the unpredictability of the stock market.

First Command, a Fort Worth, Texas-based financial services company that specializes in advising military families, reports many military families who invest in the federal government’s Thrift Savings Plan are steering clear of the stock market by stashing their retirement dollars in the G Fund — a low-risk, low-yield government securities fund.

“Steering away from stocks and toward the so-called safe investment option of the G Fund is by no means the safest choice, especially for long-term investors,” said Scott Spiker, CEO of First Command Financial Services. “While the G Fund may feel like a sanctuary from potential stock market losses in the near term, it may not grow enough over time for service members and their families to meet their future needs.”

The conservative fund is the most popular investment choice of middle class military families — commissioned officers and senior non-commissioned officers with household incomes of at least $50,000.

The overall savings plan is run by an independent government agency called the Federal Retirement Thrift Investment Board made up of five presidentially appointed board members and an executive director. It offers retirement savings and investment savings options for federal employees and members of the uniformed services similar to 401(k) plans in the private sector, according to the program website.

Recent market losses have played a big role in scaring military families away from stocks. Thrift Savings Plan participants in June moved $1.8 billion out of equity funds into the G Fund.

Data suggests the trend away from stocks is a recent one. The 41 percent of Thrift Savings Plan investors favoring bonds is 4 percentage points higher now than it was in the previous quarter.

The trend does not appear to be as pronounced in the larger population.

The Investment Company Institute compared 401(k) asset allocation for year-end 2014 to year-end 2007. Since the financial market crisis, more 401(k) participants hold stocks.

But older participants were less likely to have high concentrations in stocks in 2014 compared to 2007, while younger participants were more likely to have more than 80 percent of their account balance invested in equities at year-end 2014 than at year-end 2007.

Paul Brahim, chairman and CEO of BPU Investment Management in Pittsburgh, said the notion of families putting money in safe investments is a function of the increased volatility and uncertainty on the global investment scene.

“Just this year we saw the big January selloff that was precipitated by the Fed raising rates in December 2015,” Brahim said. “We just got through that and all of a sudden we saw Brexit. Both of these events suggest economic market and political uncertainty.

“People are running for places in the investment field that they perceive as safe havens,” he said. “They want a return of their money. They are not so much concerned about a return on their money.”

The staff at BPU thinks that’s the wrong response. “People should take a long-term view and we believe equities will outperform all traditional financial asset classes over the next 10 years,” Brahim said.

Financial illiteracy is mostly to blame for workers making poor investment choices while attempting to manage their own portfolios, and it goes way beyond military families, said Thomas J. Mackell Jr., former chairman of the Federal Reserve Bank of Richmond, Va.

“The average American doesn’t know the difference between a stock and a bond. That is a failure of the education system,” said Mackell, who is special adviser to the international president of the International Longshoreman’s Association, AFL-CIO based in North Bergen, N.J.

“People who are responsible for investing for their own retirement tend to go to the more conservative investments, such as government bonds and other fixed-income assets where the return is not significant,” he said.

“They have a fear of the volatility of the stock market.”

— Pittsburgh Post-Gazette