Investing

[othromas]

While I was stashed back at school I did some reading on investing, but kind of sat on my hands for awhile since I didn't feel like I had the money on hand to really get into it. I read several books, most notable of them was The Only Guide to a Winning Investment Strategy You'll Ever Need, by Larry Swedroe. His approach is a little complex but makes sense for the most part--he recommends using a 100% index fund approach, and has techniques for lowering risk and increasing efficiency.

I figure now is a pretty good time to start a Roth IRA up since I've got about two weeks before I head down to Corpus, but here's where I'm getting a little stuck. I want to get into about 4-5 funds in my Roth IRA, but Vanguard, the company I want to go with, has a $3,000 minimum buy-in per fund for IRAs. With the $4,000 cutoff per year for Roth IRAs, that means I won't be fully "vested" in my IRA for 4-5 years, which is aggravating.

This is a long post, but here's the bottom line: who else have you guys invested with? Who have you been happy with? Is anyone else doing a passive index-fund investment strategy? If so, who did you go with?

Thanks in advance.

 

[BOMBSonHAWKEYES]

I reccomend a vanguard index fund for starters. It would be cool to have 4-5 funds, but it would be cool to be a millionaire as well.

 

[bch]

If you are a USAA member, I have been more than pleased with their investment branch. When I could not afford to max out the fund each year, it was still not a big deal.

 

[Steve Wilkins]

While I was stashed back at school I did some reading on investing, but kind of sat on my hands for awhile since I didn't feel like I had the money on hand to really get into it. I read several books, most notable of them was The Only Guide to a Winning Investment Strategy You'll Ever Need, by Larry Swedroe. His approach is a little complex but makes sense for the most part--he recommends using a 100% index fund approach, and has techniques for lowering risk and increasing efficiency.

I figure now is a pretty good time to start a Roth IRA up since I've got about two weeks before I head down to Corpus, but here's where I'm getting a little stuck. I want to get into about 4-5 funds in my Roth IRA, but Vanguard, the company I want to go with, has a $3,000 minimum buy-in per fund for IRAs. With the $4,000 cutoff per year for Roth IRAs, that means I won't be fully "vested" in my IRA for 4-5 years, which is aggravating.

This is a long post, but here's the bottom line: who else have you guys invested with? Who have you been happy with? Is anyone else doing a passive index-fund investment strategy? If so, who did you go with?

Thanks in advance.

I suggest getting yourself an account (both brokerage and Roth IRA) with a discount broker. I was with TD Waterhouse for a few years but switched to Scottrade about a year ago (cheaper trades and much, much better customer service). I have heard that Ameritrade is quite good (and they are buying out TD Waterhouse) but have never used them myself. Sharebuilder.com is another one you might want to look into. Go to www.fool.com and do a search for 'discount brokers'.

Before you start investing, I also recommend you are completely free of any credit card or high interest debt (anything above 7%). Make sure you are contributing to TSP. In TSP, you can allocate your contributions in a number of different percentage combinations. TSP has a fund that matches the S&P 500 with a low expense ratio (just like Vanguard does). There are other index funds they offer; I only bring this up because you mentioned it in your post.

If you open up a Roth IRA with a discount broker, you can buy shares of the index fund unlike how you have to have a minimum amount when purchasing directly from Vanguard.

 

[bennett4362]

I was with TD Waterhouse for a few years but switched to Scottrade about a year ago (cheaper trades and much, much better customer service). I have heard that Ameritrade is quite good (and they are buying out TD Waterhouse) but have never used them myself.

we used ameritrade for several years, but recently switched to scotttade for the better trade rate and service.

 

[ChunksJR]

Before you start investing, I also recommend you are completely free of any credit card or high interest debt (anything above 7%). Make sure you are contributing to TSP. In TSP, you can allocate your contributions in a number of different percentage combinations. TSP has a fund that matches the S&P 500 with a low expense ratio (just like Vanguard does). There are other index funds they offer; I only bring this up because you mentioned it in your post.

I concur with the first statement, it's pointless to grow at 10% per year if you are also paying 10% on a debt that's not tax-deductable.

However, I think that you'll find tax advantages better in your ROTH IRA (no tax after 59 1/2) than you will with TSP and may want to look into investing in TSP AFTER maxing out your IRA. Just my two cents there...

I was in your same situation though and found First Command to be awesome with squirrellin' away cash instead of large amounts. Ever since their lawsuit (which didn't effect their profits) they've been even better with no-load funds...and they use Pioneer and Fidelity...2 of the better performing funds availible.

Bottom line, there are plenty of books and opinions out there...and many people on this board may disagree with First Command...but they make it easy and affordable to max out the IRA every year...not just in large lump sums. I've been very impressed with them and their products. Plus their always close by a Naval Base if you have any questions.

~D

 

[Steve Wilkins]

I concur with the first statement, it's pointless to grow at 10% per year if you are also paying 10% on a debt that's not tax-deductable.

However, I think that you'll find tax advantages better in your ROTH IRA (no tax after 59 1/2) than you will with TSP and may want to look into investing in TSP AFTER maxing out your IRA. Just my two cents there...

I was in your same situation though and found First Command to be awesome with squirrellin' away cash instead of large amounts. Ever since their lawsuit (which didn't effect their profits) they've been even better with no-load funds...and they use Pioneer and Fidelity...2 of the better performing funds availible.

Bottom line, there are plenty of books and opinions out there...and many people on this board may disagree with First Command...but they make it easy and affordable to max out the IRA every year...not just in large lump sums. I've been very impressed with them and their products. Plus their always close by a Naval Base if you have any questions.

~D

Yes, at this point in his career, maxing out the Roth IRA first makes sense. My point above was under the assumption of maxing out the Roth and wanted to be sure he was also putting money into TSP.

HOWEVER, with First Command you are paying a lot front loaded expenses. Sure investing with them is easy. But that convenience comes with a hefty price. Part of their investment strategy is to put the guy/gal into whole life. Very few people (and unlikely, young naval officers) need whole life insurance. Think about what the purpose of life insurance is for and you can see that SGLI plus maybe another term life insurance policy (from a reputable company such as USAA) to supplement. Life insurance should not be an investment vehicle. The other problem with First Command is that you cannot invest directly in individual stocks. Maybe this is an issue, maybe it's not. But I know I wouldn't want to have to commit to something that doesn't provide a bit more flexibility. I don't want to get into a First Command throwdown here. However, anybody even thinking about needs to do their research on them.

 

[dnweinreb]

Are there any restrictions on having an active roth IRA and a TSP at the same time? I'd heard scuttlebutt about not being able to have both at the same time. I have an IRA and a Vanguard fund as well and I'm pleased with the way they're performing (I also have a 40 year horizon) but would start a TSP if there were no legal complications. Also, is it true you can roll a TSP into an IRA once you get out?

 

[Steve Wilkins]

Are there any restrictions on having an active roth IRA and a TSP at the same time? I'd heard scuttlebutt about not being able to have both at the same time. I have an IRA and a Vanguard fund as well and I'm pleased with the way they're performing (I also have a 40 year horizon) but would start a TSP if there were no legal complications. Also, is it true you can roll a TSP into an IRA once you get out?

You can have both an IRA and a TSP account. This year, the IRS limits TSP contributions to $15K and $4k for the IRA. You can have both a Roth IRA and a traditional IRA, but you can only contribute $4K total (for example, 2K in each, or 3K in one and 1K in another). When you leave the service, you can roll your TSP account over into a traditional IRA where you will have much more freedom to trade stocks.

 

[Fly Navy]

$15k in a YEAR to TSP? That's some heavy duty money.

 

[ChunksJR]

$15k in a YEAR to TSP? That's some heavy duty money.

Not hard to do if you put some of your bonuses in there, especially any per diem money.

Part of their investment strategy is to put the guy/gal into whole life. Very few people (and unlikely, young naval officers) need whole life insurance. Think about what the purpose of life insurance is for and you can see that SGLI plus maybe another term life insurance policy (from a reputable company such as USAA) to supplement. Life insurance should not be an investment vehicle.

Actually, call me crazy, but I liked the idea of whole life. It's there if I need it (probably won't) and pays you back in the end if you ever decided that you were covered. Yes, it requires envisioning on the long-term and higher expenses up front, but if you cash it in after contributing to it for 40-50 years down the road, you actually make 3-4% on your contributions...so I look at it as a life insurance/long-term CD. Also, guarenteed insureability is good if I decide not to make the Navy a career and then develop some sort of cancer that I actually beat meanwhile my term insurance policy ends...

~D

 

[Steve Wilkins]

$15k in a YEAR to TSP? That's some heavy duty money.

can't hang with the big dogs?

 

[Fly Navy]

can't hang with the big dogs?

I don't make as much as you :icon_wink

 

[Steve Wilkins]

In general, I hate mutual funds. Much research has been done on these and year after year, about 80% of funds out there underperform the market. However, index funds are good because they tend to have low expense ratios. There are many, many different types of index funds to choose from....from sector index funds (energy, technology, etc) to different market index funds (S&P 500, Wilshire 5000, etc). Note: The one year, two year, and three year returns (as of 1/20/06) of the Wilshire 5000 stock index is 12.35%, 8.5%, and 17.8% respectively. Those are pretty decent returns.

 

[webmaster]

I don't make as much as you :icon_wink

TRUST ME, Steve doesn't make much sense, or money... Plus, he drinks cheap beer and mooches off of his friends whenever a BBQ is thrown... If it weren't for the high quality of his wife, dog and child, I don't know how anyone could socialize with him!

I keed, I keed....