Is a Command Financial Specialist a substitute for an accountant?

[whitesoxnation]

Shiller...

Reversion to the mean is a bitch. Obviously it's not exactly in line, but it is (roughly) correct.

A good NYT article from Professor Shiller

http://www.nytimes.com/2013/04/14/business/why-home-prices-change-or-dont.html?pagewanted=all&_r=0

Notable point: Real (after inflation) home prices rise by about 0.2% a year. Home prices would decline, however, if it were not for the owner maintaining the home. The 0.2% rise in prices is likely due to increases in construction productivity.

I wonder, on average, how much a home owner spends per year to keep their home from decreasing in value... +/- 0.2% of their homes value? I would guess more.

 

[Cobra Commander]

Even if it did, you are living in a house. Which means when you sell it, you owned the house at a net cost of $0 (you'd still pay the same utilities and whatnot if you rented). A liability depreciates in value.

Do you think $18k/yr in social security when you retire is going to allow you to afford rent, food, and have enough left over to enjoy your life? Hope you own a home by then or you'll be on the street.

Now that the market's stabilized, buying a house is better than renting.

Donny, you're out of your element.

So I take it that you're not counting your financing costs , taxes, upkeep (like replacing appliances or...a roof), or the commission you pay to the realtor (which is significant). These all turn that monster .02% real rate of return that you're supposedly earning and turning it into a negative. You're mortgage is absolutely a liability, and you can only claim depreciation on a rental property, not a primary residence although I don't think that's what you were referring to. The point is that you can save money by renting and then using the money you saved to invest in things that produce a much higher rate of return and carry much less risk, like an index fund. It also makes it much easier for you to relocate for better job opportunities. And if you're smart enough to do that, you probably aren't worried about receiving your social security check each month (good luck) or being homeless.

 

[Brett327]

Shiller...

Reversion to the mean is a bitch. Obviously it's not exactly in line, but it is (roughly) correct.

That's great if you bought your house in 1890, but not particularly applicable to someone evaluating the investment potential of home ownership in today's environment. I understand this becomes somewhat of a macro vs micro issue, but given that inflation has bounced around between 1-4% over the past 25 years (and the Fed targeting ~2% currently), bubbles notwithstanding, your average person buying a home during that period is still beating inflation. As Shiller indicates, it all depends on one's time horizon. Making blanket statements as to whether or not home ownership is a good investment isn't particularly helpful (or enlightened). Ultimately, the answer is... it depends.

 

[Cobra Commander]

Here's a solid article which does a better job explaining why a home isn't a very good investment.

http://online.wsj.com/article/SB117329581356629863.html

 

[Spekkio]

I've spent $59,600 in rent since getting married 3 years ago and have nothing to show for it but more rent (I've never lived in a place above BAH.either). If I bought a house 3 years ago, It would have to depreciate and have closing costs worth 60k to break even. Interest on a mortgage is tax deductable; rent isn't.

Interest rates are so low that saving money equates to losing money. Up until the last 6 months, putting money into more volatile assets didn't do much better --5-7% if you were lucky. That's a whopping $500 on $10k of investments and over the course of 40 years will develop into one year's worth of earnings in an optimal environment, since inflation is 1-4%.Man, that guy must be rich.

The amount an average JO will be able to put away in investments nets them peanuts without playing investment roulette. You make it sound like investing a few hundred dollars is going to make you rich. I need to invest a min of 15k a year to meet retirement goal, and that's assuming '08 doesn't repeat itself. Did I mention the other 34k/yr I'd have to invest to afford my kids' college? Most people can't afford that amount toward retirement alone; our generation is royally screwed.

If you're single and pocketing 2/3 your BAH by getting roommates then renting is economical. But once you start renting single family homes it's time to buy, which I will do if I ever get orders for somewhere longer than 24 months.

My parents bought their first house in 1992 and sold it in 2003 for double the cost, which beat inflation by quite a large margin. They put about 20k in upgrades into it over 11 years. It helped a lot that my dad knew how to do his own construction.

 

[whitesoxnation]

That's great if you bought your house in 1890, but not particularly applicable to someone evaluating the investment potential of home ownership in today's environment. I understand this becomes somewhat of a macro vs micro issue, but given that inflation has bounced around between 1-4% over the past 25 years (and the Fed targeting ~2% currently), bubbles notwithstanding, your average person buying a home during that period is still beating inflation. As Shiller indicates, it all depends on one's time horizon. Making blanket statements as to whether or not home ownership is a good investment isn't particularly helpful (or enlightened). Ultimately, the answer is... it depends.

"Bubbles notwithstanding"

The bubble in housing is the only reason why (on average) someone who bought before the bubble would have seen their home appreciate. You cannot dismiss the primary driving force in the market.

"Not withstanding the bubble in technology, technology is a wooooonderfoul investment" - said some guy in 1999 who is bankrupt

"Not withstanding the actions of the Fed, the environment looks bleek for stocks and bonds" - said everyone who tried to fight the Fed and lost or made no money since 2009

"Not withstanding the approaching train, I'm going to walk across this track"

I'm not arguing renting vs. owning and that one may be better than the other for someone's individual circumstances, I agree with you there. I disagree with the cherry picking of data. If you want to evaluate the potential appreciation in 25 years then you need to wait for higher interest rates and then evaluate every 25 year interval, not just the one that confirms your hypothesis. Even then, that would understate the risk of events like depressions. I would wait to see how the housing market reacts to higher interest rates before believing that there's a new paradigm or that "this time is different" (more famous last words).

 

[Brett327]

I'm not saying the data is cherry picked, only that it represents the ground truth for a particular set of circumstances. Depending on when one chooses to buy or sell, they can beat Shiller's stats. Bubbles can be opportunities to buy low and sell high... or the opposite. I refer to the bubbles as notwithstanding because it's difficult to draw general effects from them, since different people will suffer or gain from them in different ways.

 

[whitesoxnation]

I'm not saying the data is cherry picked, only that it represents the ground truth for a particular set of circumstances. Depending on when one chooses to buy or sell, they can beat Shiller's stats. Bubbles can be opportunities to buy low and sell high... or the opposite. I refer to the bubbles as notwithstanding because it's difficult to draw general effects from them, since different people will suffer or gain from them in different ways.

In theory yes that would be true. In practice not so much.

I don't know anyone who sold their home because they thought housing was overpriced. You would also end up having to rent, because where else are you going to live? You aren't going to buy another home, it's just going to decrease in value as well. Although if you did purchase a less expensive house you would be minimizing your loss. You could also move into a different market that hasn't overheated as much.

Anyways, if you buy a home because it is more efficient than renting and then you sell it only to rent again until you feel prices have normalized, is there really a point? Will the rent to value ratio decrease with appreciation (it did during the bubble)? What if it doesn't? What if the bubble persists and you're stuck renting and have to buy back higher?

Also, bubble aren't plainly obvious until they've popped. I haven't heard a lot of stories of people selling their primary residence because they thought homes were overvalued. In the end, recognizing the systemic nature of a housing bubble, wouldn't it be easier to hedge or profit elsewhere? i.e. a leveraged bet against companies sensitive to the housing market.

Much easier said than done for anyone, speculator or not, and possibly impractical if we're talking about selling your primary residence.

 

[Brett327]

I think you're reenforcing my point that broad generalizations aren't particularly useful to the individual.

 

[whitesoxnation]

I think you're reenforcing my point that broad generalizations aren't particularly useful to the individual.

Broad generalizations of individual investors' personal circumstances (and thus, their interpretation of opportunity from housing data) or broad generalizaion of data on home prices by itself?

I think you're talking about the first, in which case hooray! Internet consensus someone start popping bottles.

 

[Spekkio]

At your age and salary the higher tax bracket is going to be a minimal hit. If you have the funds to pay the tax hit roll it into a Roth IRA. Pick a low fee Vanguard fund and you will do fine. Take the time to learn how to manage your own money, but below are a few things that have worked well for me:

- live within your means
- never spend your next raise before you get it
- save off the top (and add at least some of every raise you get)
- Never pay a commission on any investment. Never.
- Never believe anybody (car salesman, financial advisor) that tries to push you to buy something before you can take time to think.
- Don't get greedy
- Buy less house than you think you can afford
- Car loans can be a necessary evil when you are young, but pay them off early and buy less car than you can afford.

Finally, there have been a lot of stay/go threads around here recently. Just remember that if you put yourself in a situation where you can't afford to miss a paycheck or risk a salary reduction then you don't really have a debate - you have to take the Man's money and do what he says.

Words to live by:

-If you need more than a 36 mo car loan, you can't afford it
-If you need more than a 15 year mortgage, you can't afford it
-If it has to go on a credit card, you can't afford it
-Pay off your student loans and credit cards ASAP

If you manage to just do that, you'll be ahead of a lot of people.

Investing 10% of O-1/O-2 pay instead of paying off the above might get you a down payment on a car in 40 years, if you're lucky.

 

[Spekkio]

In theory yes that would be true. In practice not so much.

I don't know anyone who sold their home because they thought housing was overpriced. You would also end up having to rent, because where else are you going to live? You aren't going to buy another home, it's just going to decrease in value as well. Although if you did purchase a less expensive house you would be minimizing your loss. You could also move into a different market that hasn't overheated as much.

Anyways, if you buy a home because it is more efficient than renting and then you sell it only to rent again until you feel prices have normalized, is there really a point? Will the rent to value ratio decrease with appreciation (it did during the bubble)? What if it doesn't? What if the bubble persists and you're stuck renting and have to buy back higher?

Also, bubble aren't plainly obvious until they've popped. I haven't heard a lot of stories of people selling their primary residence because they thought homes were overvalued. In the end, recognizing the systemic nature of a housing bubble, wouldn't it be easier to hedge or profit elsewhere? i.e. a leveraged bet against companies sensitive to the housing market.

Much easier said than done for anyone, speculator or not, and possibly impractical if we're talking about selling your primary residence.

I was never talking about flipping houses (which seems like that's what you're talking about). You don't always HAVE to get new appliances everytime you move -- many people leave these behind in perfectly good condition. If you know you're going to live in a house < 5 years, you can focus on other things that can appreciate the value of the house (re-doing a 15 year old bathroom, for example). Just don't be the diamond in the rough, because people buy neighborhoods, not just houses.

 

[whitesoxnation]

I was never talking about flipping houses (which seems like that's what you're talking about). You don't always HAVE to get new appliances everytime you move -- many people leave these behind in perfectly good condition. If you know you're going to live in a house < 5 years, you can focus on other things that can appreciate the value of the house (re-doing a 15 year old bathroom, for example). Just don't be the diamond in the rough, because people buy neighborhoods, not just houses.

If it came across like I was talking about flipping houses then it was only to illustrate one extreme of the spectrum buyers(sellers) can be on. Houses, on average, appreciate 0.2% a year. Attractive investment (disregard the rent vs buy argument for right now) for someone that will not be able to sell for 30 years? Not really. Attractive investment for someone who foresees volatility, has cash on hand, and is easily able to enter/exit the market? Perhaps.

 

[Spekkio]

The thing you seem to discount is that a house isn't like stocks -- it fulfills a basic need for shelter, one that costs far more to rent than to buy. At the end of the day, stocks are just numbers that can't do anything until sold. You can't compare something that appreciates at 0.2% and fulfills a basic need with something that appreciates at 8% and is just numbers.

 

[Mike Edwards]

Forgive my ignorance on this topic, for I, like Jon Snow, know nothing. This topic follows hours of researching around via Google, AirWarriors topics, calling the NAS Pensacola FFSC and talking to an investment firm.

The backstory: At my last job before joining the Navy, I was able to save up about $13K in a 401(k). While I'm waiting in A-Pool for IFS to start, I figured I'd try and get some retirement planning out of the way and move that 401(k) to a better option. Based on my research here and elsewhere, the common recommendation seems to be to roll it over into a Roth IRA, which would be my first priority over other options like the Thrift Savings Plan.

That said, I don't know how to get there from Point A. I narrowed it down to Vanguard and Fidelity, and after calling Vanguard this morning, I was made aware of how much I don't know about this stuff. For example, I learned that adding the $13K from the 401(k) to my salary would bump me to the next tax bracket, and that there are other ways to go about rolling over funds that may help deal with that; to that end, the representative recommended I get in touch with an accountant. I've always just done my own taxes with TurboTax because it was simple enough for a single student to do.

The question: Before I begin the research into how I go about finding/choosing/hiring an accountant, is this the kind of stuff the Navy can help me plan via a Command Financial Specialist, or is this the kind of stuff I should be taking care of on my own via an accountant?

I actually just went through the CFS training in San Diego. I can tell you that the main duties of a CFS are to provide training and education, references and referrals, and conduct financial counseling.

To break that down, the financial counseling is a mere debt to income ratio calculator. It is however a very effective tool to build a plan to get out of debt, if you are in debt.

The key part that I think may be important to you is the references and referrals. I would refer you to the actual Fleet and Family Support Center who actually has trained certified financial planners on hand, at no cost to you!! They can get you started and provide you creditable advice and although they may not be in it to make money off of you, they are trained civilians, not military members with a CFS collateral duty!!!

Hope this helps!

Mike Edwards