We will all remember for the rest of our lives where we were the morning of September 11, 2001. I was leaving my office to visit a client when I heard about the World Trade Center on the radio. I had submitted paperwork to retire from the Air Force Reserves and was looking forward to a life with no annual training or drill weekends.

In an instant it all changed. I pulled my retirement back, and I'll be around for a bit longer. While my participation won't make much difference, it just doesn't seem right to leave the military at this time.

It's not hype to say that many of us will see our lives changed in ways we could have never have foreseen by the events of that day. For those of us in the military -- whether on active duty, in the Reserves or National Guard -- the days ahead will be very difficult at times. As I'm sitting here writing this, I really can't predict what the future will hold. Will there be a major conflict? Will it drag out for years? Will many of us be called to serve? There is no way to really know.

I think I'm fairly safe in predicting that we'll see a higher operations tempo. This comes on top of the past few years' increase in commitments, when we've seen active duty military deployed continually, Army National Guard and Army Reserve units activated for service in places like Bosnia, and Air National Guard and Air Force Reserve deployed under the Expeditionary Air Force concept. With the new set of problems, all of us will probably see even more frequent and extended deployments away from home.

How to invest when duty calls
As part of the planning for this, we in the military have to think about our investments (and lots of us here talk about them on The Motley Fool's Military Fools discussion board). When you are packing your bags for a several-month stay at Prince Sultan Air Base in Saudi Arabia, it's hard to think about which stock is going to be the best investment in for the next several months. While you're there, your interest in the stock market and how your investments are doing will probably fall. But even though your present circumstances may change, your future retirement or other financial needs don't. Investing for the future can't stop.

What's the best investment for those of us who may have to go away for a while? Actually, it's one that gets little attention in the financial press because it's not that interesting -- a plain old ordinary index fund. With a broad market stock index fund, you simply match the market, instead of trying to beat it. Look at some of the advantages:

  • You don't have to evaluate individual companies for investment. The index makes the choice.
  • It isn't necessary to follow your investment for changes in the market, corporate troubles, etc. In today's economy, what's hot today can change faster than many of us can react. That's no way to invest, especially when your attention is elsewhere.
  • There is no mutual fund manager to worry about doing things that fund managers do, such as churning the stocks, "window dressing" at the end of the quarter with hot stocks, or making the wrong "bets."
  • You are positively guaranteed to almost match the market (your returns will be slightly lower because of management fees).

Hmmm... come to think of it, those are good reasons for any investor -- military or not -- to own index funds!

The downsides?
Of course, there are some down sides, too. In exchange for matching the overall market's  return, you won't experience the kind of short-term high returns you might get from a high-flying stock. Frankly, your index fund almost certainly won't double your money in six months.

Also, there is still risk -- all of the major market indexes have taken a beating over the past 12 months, so you still can lose a lot of money in the short term. That's why index investing is best for those who have a long term investing horizon. In my opinion, only money that you can put away for five years or more should go into any stocks or index funds. Money that you will need within five years to help you move, buy a house, or start a business should not be put in any stocks or stock fund, but in a short-term savings instrument.

How to invest in index funds
Once you decide to invest in an index fund, what's the best way? Pick the fund with the lowest expense ratio and an index that matches your risk tolerance. There is an amazing variety of indexes to invest in, from the S&P 500, the Nasdaq 100, the Wilshire 5000, the Dow Jones Industrials, the Russell 2000, and more. The performances of these can vary greatly, according to risk.

If you are a federal government employee, one obvious index fund choice is the S&P 500 index fund offered as part of the military's Thrift Savings Plan, the government's 401(k)-like plan (civilian federal employees have a version of this plan, too). It allows you to invest up to a certain percent of your pay before taxes.

For investing outside of your retirement fund, start with our 60-Second Guide to Index Investing, and learn several ways to buy the funds, including from mutual fund companies and even on the stock exchanges. The latter are exchange-traded funds (ETFs) -- index funds bought and sold like shares of stock. An ETF for the S&P 500 is the S&P 500 Depositary Receipts(AMEX: SPY), known affectionately as SPDRs, which trade as the ticker symbol SPY on the AMEX. ETFs can also be purchased in small amounts regularly -- just as investors in DRIPs (dividend reinvestment plans) do -- through BuyandHold or Sharebuilder.

Whether you're military or civilian, index funds offer you the long-term rewards of stock market returns with the benefits of not having to spend too much time on your investments. That can be especially important when your attention and duty take you elsewhere.

In the meanwhile, stay Foolish, and please be careful.

George Runkle is the owner of Runkle Consulting, Inc. a (very) small engineering firm in Georgia. He is a former employee of The Motley Fool, and a member of the Air Force Reserves for the foreseeable future. His investments are almost totally in index funds, primarily the S&P 500 index, and a small amount in the Nasdaq 100 index. You can often find him hanging out on the Military Fools discussion board.