Personal Finance

Returning Veterans' Biggest Financial Folly: Fear of Risk

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You might think that the risk inherent in combat would make soldiers good investors.

But both the anecdotal evidence and a recent academic study suggest the opposite.

Servicemen and women returning from combat zones are often too quick to spend their savings rashly, experts say, but are also too cautious when it comes to taking ordinary investment risks more likely to grow their assets.

After months or years in combat zones where money is of little use, fighting men and women often bungle their re-entry to the ranks of ordinary spenders. Single servicemen especially have the cash and the pent up desire for new cars and televisions that may lead them to spend their accumulated paychecks rashly.

"There are a lot of things that can go wrong post-deployment," said Charles Fischer, who fought in Operation Desert Storm in the early 1990s and is now a private wealth manager with Ameriprise Financial in Boca Raton, Fla. "You may have feeling of freedom and want to spend the money you saved." (Read more: American Finances Get Passing Grade)

Fischer recommends that newly returned soldiers and sailors put off large purchases until they have their financial bearings. If they are intent on treating themselves, he tells servicemen and women to look carefully at contracts, or any purchase agreement that encumbers them financially.

But if a returning Marine is liable to sign too hastily for a new hot rod, he or she doesn't seem in greater danger of taking an impulsive financial position. A recent study by Vicki Bogan, David Just and Brian Wansink at Cornell's Dyson School of Applied Economics and Management showed that being exposed to combat makes veterans some 15 to 18 percent less likely to hold stocks — even relatively safe investments, like mutual funds.

Based on investing habits of veterans from World War II through Vietnam, the study raises concern that soldiers who have seen combat will forfeit the returns of higher-risk equities for years to come. "Given portfolio choices of stock historically have been critical to economic advancement and wealth-building," the report said, "combat could influence veteran preferences for financial risk-taking in a sub-optimal manner."

The question is, how should a combat veteran deal with these seemingly contradictory financial impulses?

Picking up the threads of a financial life is easier, Fischer pointed out, if veterans have left themselves a roadmap. "I strongly recommend that they do a pre- and post-deployment budget," he said, to help them reconnect with their routine payments and to assess their overall position.

This is equally true of single and married servicepeople whose spouses have been paying the bills while they are away. "Spouses may find things are different when they come back," warns Fischer; a re-examination of the budget will help the returning vet get a clearer picture of the new financial reality. (Read more: More Women Are Breadwinners)

For reservists who are called up from a civilian job, that reality is almost necessarily different. Many employers can and do afford to keep their part-time soldiers on the payroll through their deployment. Most reservists, however, will have to transition from military pay and benefits and back again.

The government does what it can to take the financial stress out of deployment. The Soldiers and Sailors Relief Act, passed in 1940 and updated in 2003, allows deployed service members to put their finances on hold while deployed. It prevents his family from getting evicted from a rental home, for instance, and caps the interest rate on any financial obligation as long as they are away (and can prove it was on military business).

Legal advisers are available at most military bases to assign a trusted friend or relative power of attorney. Fischer recommends that soldiers and sailors take the further precaution of deputizing someone to settle any financial emergencies in their absence.

But Fischer says that the more that can be done before deployment, the better. He urges those shipping out to establish online accounts, let lenders and other creditors know why you might not respond immediately to communications. If bill-paying and other decisions are being left to a spouse or financial surrogate, don't leave discussions with them to the last minute before deployment.

It's understandable that money is not at the top of people's minds when the bullets are flying. But there's no reason why combat troops can't maintain their financial health, and even building on it, said Fischer, "You're taught in the military to look at operations plans and have all your ducks in a row," he said. "If they think about finances in terms of a mission, they'll do fine."