Investing

[Catmando]

All excellent advice here… diversification, USAA, Vanguard, avoid First Command, real estate, etc.

But the very best, and fundamental advice is to do like the old Chicago elections – invest early, and invest often . . . even if you think you cannot afford it.

You also may well spend a lifetime trying to figure out the "best" investment for you. But rather than quibbling, just go do it!

Take even a miniscule amount, have it automatically withdrawn from your pay and put into a legitimate investment vehicle – a Vanguard or USAA or other fund is as good as any, a tax-advantaged account even better. Buy a house, but still have an allotment to some equity savings plan. Even the investing fool – if he avoids the charlatans that permeate the industry – will, through the magic of compounding, become wealthy, if he invests even small amounts, early, consistently, and often over his career.

Just do it! Speculation, exotics, derivitives, trading, etc., should all occur, if at all, later in life when an initial and substantial "grub stake" is established.

May it work for you… but it only begins to work when you start, and keep it up, consistenly, over time.

It worked wonderfully for me.

 

[corvairdroptop]

I think this is an interesting conversation, a lot of it being aimed at younger people.

We have less cash on hand to pour into investments, making it difficult to diversify. At the same time, we have the greatest need for stock exposure. There was some talk about ratios -- I would argue that someone under 30 needs a high percentage of stocks, 85% say, from different classes. (This is really true for civilians, who generally don't have defined benefit plans nowadays).

We're still in a bind in that we can't buy a basket of 30 stocks. Mutual funds have minimums and, more importantly in my opinion, they inherently suck.

Younger guys could really benefit from ETFs. They need to be bought carefully, though -- and transaction costs are high if you're going to spread out your cash. A friend of mine threw all of his money into the S&P 500 at once. Could be good...but it might not be today. At least he's willing to admit that he can't pick stocks!



I agree with what some people have already said. Being an 0-1 or 0-2, it's best to find mutual funds that allow you to cost average. Keep all of your cash in the money market and let it flow into your funds on schedule, without loads -- and start it today. USAA makes this very easy for its members. (It's also fairly liquid at the end of the day, if you want to have a down payment for a house, etc.). For service members, TSP is another obviously good plan.

As for the IRA, I think it should be funded for two or three years before it gets risky. The minimums just don't allow a good deal of cash to come in and spread out quickly enough. I would set one up with a discount broker (def. a Roth), making sure that they have a good variety of no-load funds, but treating it safely for a while.

The brokers generally make it very easy to get creative with the IRA, when you want to. I think it can be valuable for younger guys to be trading covered derivatives for profit and protection, especially if they're exposed to only a few stocks.


My two cents
(which is half of my net worth)

 

[kmac]

Agreed. I will say it again, unless things have recently changed, no matter how convenient you find it, go FC and you are being taken. There is no reason a 23 year-old single Ensign needs life insurance, let alone whole life. They sell it to you as a savings and investment vehicle which is BS. If you take the money you put into whole life and invest it instead, the return will be greater by the time you take the money out of what would have been your whole life policy.

I got the FirstCommand spiel when I got commissioned. I crosschecked with several other financial advisers and their universal response was that FC's program is bunk. YMMV.

I'm going to disagree with the crowd on First Command. Each agent I'm sure is quite a bit different, but I'm pretty happy with where I'm at. I had some serious doubts about the whole life vs term life question, and after running some numbers it doesn't seem to cost me nearly what I thought it does over a lengthy amount of time. A lot of people would argue that the money is better invested. I'm not using whole life as an investment vehicle. That's what Roth IRA, other mutual funds, (and soon to be real estate) are for. I treat insurance as insurance and investments as investments. Now if someone is trying to get your to have whole life instead of investing anything, then laugh your brains out at 'em.

My thoughts on First Command was that they're sharks out in Pensacola... not sure how they are now. However, it seems that the company itself has had a change of philosophy. They don't seem to be the salesman that they once were. I know that my current advisor has been rock solid. Anyway, that's that.
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TSP- Not as good as Roth. If it was believed that your income will be a lot less when you turn 59.5 (earliest eligible for retirement account), then there would be no reason for the "Roth" IRA in the first place (compared to traditional IRA). Now, I do believe that TSP can be very useful in one regard. Say you and your spouse are just above a marginal tax rate limit. With TSP you can reduce your taxable income enough to save over $10,000 alone in taxes. Look it up. Go to the IRS website and see what the annual income marginal tax rates come to. I was amazed at how valuable TSP can be (which it isn't yet for me since I have no spouse).
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Real Estate- Steve is right on. There's one word: leverage. I crunched some numbers and found that a 10% downpayment will grow, even at a modest 4% appreciation (national average over last 40 years has been ~6%), so that your annualized rate of return is greater than 12% for 18 years or so. In other words if you took that same money and invested in the stock market, it would take 18 straight years of 12% growth to finally outpace the money you would have in one property. That calculation doesn't even account for the tax benefits, any deduction in principle on the mortgage, or the tax implications of mutual funds (which would probably have a real growth of ~9-10% instead of 12%). So yeah, I'm thinking that Steve has something there with real estate... especially since you can use it as part of an IRA.

 

[The Chief]

... go FC and you are being taken. ...

There are some very fine folks involved with FC (Board of Directors), at least last time I checked. However, from where I sit, not a very good deal. You can do better without even trying.

Some random thoughts:

Real Estate is one of the best investments, not all real estate, but selective. Market timing is important, as previously posted, now is good time to buy in a lot of areas, and my estimation is that the situation will continue to improve for the buyer throughout the year.

TSP, Traditional IRA, 401K (and variants) are good at deferring taxes, thus allowing you to use money to invest instead of paying taxes. But the tax man cometh, personal experience I am under mandatory disbursement (70 1/2). I am required to take a minimum of $21,000 each year from my combined TSP/IRA/401K. I am paying a whopping $9,500 (regular income) in taxes on that $21,000. Pains me to withdraw it but no choice. Something to think about when you are deferring taxes.

Mutual and Index funds provide for some automatic diversification and picking the right winners is enjoyable. Bonds in my view, I simply don't. Individual stocks are great, often beat the averages, but takes work and some attention. China Mobile (CHL) Bank of America (BAC) Discovery Holding (DISCA)((Owner of Discovery Channel), Disney (DIS), Innkeeper Trust (KPA) have given me great returns. CHL and KPA are more of a trading stock rather than investing, two different things. I have bought and sold each several times in the last 18 months. Disclaimer: Not a buy tip, but some examples of some stock that have high yeilds (dividends) on top of equity growth. I have a couple of dogs if anyone interested. Apple (AAPL) is also a good trading stock, if you timing is good, and you buy low and sell high! Note: Do not go with the 3% per trade brokers, far too much money for what they give.

By all means, save, save and save, Someone said put half of each pay raise into savings, IMO this is a good target and my view a minimum. You got along without it before it came, you can certainly pay yourself at least half of it!

 

[BRM21o]

I don't know if this has been said already, but if you're going to invest in any real estate, read up on REITs. They are not as vulnerable to market shifts as regular real estate funds. I invested in Uranium a year and a half ago and it's booming now....Emerging Europe and Mediterranean is doing very well lately for emerging markets. Most of these are pretty high risks. If you are looking to just put your money away and not worry about it until you retire, invest in T. Rowe Price Retirement XXXX fund (XXXX being whatever year you want to retire in). It starts off aggressive and then towards the end of the fund, it is more conservative. If you want a more aggressive portfolio for a longer period of time, choose a year later than the one you want to actually retire in. These type of funds are perfect for ROTH IRA's. They adjust for market shifts and will actively manage everything. It's like an entire portfolio in one fund.

For everyone reading, pick up Kiplinger's Mutual Funds 2007 magazine...it is a MUST!!!

 

[Steve Wilkins]

Something that I haven't seen addressed yet in this thread. If you have ANY credit card debt or auto loans with interest greater than 7%, pay those things off before you plunk your money into an investment.

 

[Recovering LSO]

Cherry USAA Roth Mixture

Roth IRA comprised of USAA's: Precious Metals and Minerals (USAGX), Aggressive Growth (USAUX) and International Fund (USIFX).

TSP is great, sure its a traditional vice Roth setup, but the fees are very low and if you choose wisely there are some outstanding returns.

Emergency / Rainy Day Funds. More of a necessity for civilians - if you (active duty officer) get hurt or even 'fired' you're still going to get paid for several months. Still a good idea though.

Targeted Retirement / Lifecycle Funds. Not a bad idea for someone who is young and does not have the time/desire/knowhow to micromanage your investments. Fund composition is automatically shifted over time as your risk threshold shifts. Keep an eye on the fees though.

Kiplingers is a great magazine, however Money is a better read in that it gives great gouge on how to save money on everything from investing to digital cameras to vacation cruises. Kiplinger tends to focus only on investing.

there's my two cents and my effort to make this the longest thread ever!

 

[KSUFLY]

there's my two cents and my effort to make this the longest thread ever!

It has a long ways to go to beat the Skeeterman thread!

 

[othromas]

We're still in a bind in that we can't buy a basket of 30 stocks. Mutual funds have minimums and, more importantly in my opinion, they inherently suck.

Why do you feel this way? Just wanting to see your rationale. Is it because you don't feel like you have enough control over what you're picking?

I agree with what some people have already said. Being an 0-1 or 0-2, it's best to find mutual funds that allow you to cost average. Keep all of your cash in the money market and let it flow into your funds on schedule, without loads -- and start it today. USAA makes this very easy for its members. (It's also fairly liquid at the end of the day, if you want to have a down payment for a house, etc.). For service members, TSP is another obviously good plan.

That's the one thing that I don't like about Vanguard. The index funds have such low fees they require a giant chunk of change up front, but I crunched the numbers and it will pay off big time later down the line. I'm not too worried about it, though, since it's what I chose to do and I'm not worried about it now.

Incidentally, how many of you have actually maxed out TSP yet? Just being curious.

 

[boobcheese]

Mutual funds have minimums...

I know through USAA they will generally waive the minimum startup investment in their mutual funds if you set up an automatic debit from your checking account. I think it requires a minimum of $50/month but once set up you can adjust the auto debit to any amount or stop it all together if you choose. This is a great way to get started if you don't have any initial capital to invest.

 

[Squid]

usaa requires minimum of $250 as I remember, even to open an account where you do monthly deferrals.

 

[boobcheese]

usaa requires minimum of $250 as I remember, even to open an account where you do monthly deferrals.

For an IRA account there is a $250 minimum initial investment. For a regular mutual fund they waive it all together. From the USAA website:

For a regular account: Minimum initial investment is $3,000. Minimum additional investment is $50 ($20 for the USAA First Start Growth Fund). The minimum initial investment can be waived if you participate in the InveStart* program. InveStart requires an election of monthly investments of $50 ($20 for the USAA Cornerstone Strategy Fund, USAA First Start Growth Fund, USAA Income Fund and USAA Money Market Fund) through electronic bank draft. InveStart is not available for index or tax-exempt funds or the USAA Value Fund.

For an IRA account: Minimum initial investment is $250 ($2000 for index funds). Minimum additional investment is $50 ($20 for the USAA First Start Growth Fund). The minimum initial investment will be waived if you participate in the InveStart program. InveStart requires an election of monthly investments of $50 ($20 for the USAA Cornerstone Strategy Fund, USAA First Start Growth Fund, USAA Income Fund and USAA Money Market Fund) through electronic bank draft. InveStart is not available for index funds or the USAA Value Fund. Tax-exempt funds and the USAA Growth and Tax Strategy Fund are not available for IRAs.

Either way its a good way to get your feet wet and start putting some money away even if you don't have much to get started with.