NFO or 4million bucks?

[JoeBob1788]

So your sister found the chic homeless encampments in Mexico, huh!? See they're everywhere. Surely OP can find one in SF and make that bank coding numbers to his heart's content.

She’s in Austin now but managed to find a lot of those chic homeless beach encampments, with better wifi than I have, all over the world. It’s ridiculous. When I spent 6 months in central and South America we were all jobless bums with no phones, now most of them work remotely on their macs. Times change so quickly haha

 

[Spekkio]

I'll also add this part is wrong unless I'm misunderstanding you. You're suggesting that I would have had to invested that all at once to get a 50% ROI. In reality, the power of compounding is truly phenomenal - again - I don't have access to my investment accounts right now, but at last check they were near 14%. Over 12 years, when I made my first investment, that is now up 481% from the initial value!

Sorry, I should have said 100% ROI (doubling of money).

No, I'm not assuming a lump sum investment at year 0, which is how the investment caps at ~100% over a 20 year career assuming average returns of index funds (7-8%).

Since he apparently doubled that APR (which is not typical), and also was extremely frugal throughout the first 10 years of his career, he made out pretty damn good. But that's still about a 100% ROI on about a total of $1M invested.

I don't think the average officer would be able to invest 50% of his net earnings.

Your holdings have also outperformed the S&P, which only 23% of investors manage to do. Congratulations (seriously), but this is the part on the informercial where someone says "results not typical."

I wouldn't sell someone on becoming a Naval officer on investing 50% of his net income on an investment portfolio that has a 12-14% APR.

 

[Mos]

Here's my stab modeling this in Excel (attached), comparing OP's 400k/yr job and a Navy career, with some very rough guesses for expenses. It's adjustable for anyone that wants to play with it. Below is just what I calculate for potential investment growth (TSP or 401K, plus an investment portfolio). In either case, the TSP/401K is maxed out each year, and the key difference arises from the extra income the civilian job affords to invest in a portfolio. This is with a 7% rate of return.

	age 30	age 42
Military Investments	$312,030.65​	$1,675,412.55​
Civilian Investments	$1,368,155.37​	$5,992,364.52​

Interest gained by age 42 is over 3 million for the civilian income vs 800k for the military income.

---

I think if OP has this kind of financial opportunity and the work offers more good than bad, it'd be perfectly understandable to pursue it. I do cherish my experiences as an NFO, but I don't personally see Naval Aviation as particularly exclusive or special. As for the argument that OP can always go back to this field after 8-10 years in naval aviation, I would consider what that looks like when one is away from it for so long a time.

 

[DanMa1156]

Sorry, I should have said 100% ROI (doubling of money).

No, I'm not assuming a lump sum investment at year 0, which is how the investment caps at ~100% over a 20 year career assuming average returns of index funds (7-8%).

Since he apparently doubled that APR (which is not typical), and also was extremely frugal throughout the first 10 years of his career, he made out pretty damn good. But that's still about a 100% ROI on about a total of $1M invested.

I don't think the average officer would be able to invest 50% of his net earnings.

Your holdings have also outperformed the S&P, which only 23% of investors manage to do. Congratulations (seriously), but this is the part on the informercial where someone says "results not typical."

I wouldn't sell someone on becoming a Naval officer on investing 50% of his net income on an investment portfolio that has a 12-14% APR.

Something isn't quite right and I'm not understanding your numbers.

If today's ENS invests 50% of his/her base pay only in the S&P 500 index and got a 10% return (which is the actual historical average from 1915 to today, pre inflation - the 7% figure everyone cites is inflation adjusted because inflation was 3% over the same period of time going back to 1915), he/she would have over $1,100,000 assuming he/she never contributed a more than 50% of ENS base pay. (Again, I recognize my 12-14% is above that average, but my number is also not inflation adjusted, so we're talking much closer to the mean of 9-12% when you account for average historical inflation.)

To come up with these numbers, I used a monthly contribution of $1738.50 over 20 years at 10% which is today's O-1 base pay. Obviously, this assumes no investing costs, but that's possible/nearly possible with Vanguard/Fidelty/Schwab these days. Now imagine keeping the 50% invested but account for all the pay raises over time (up to 3x a year with the January pay raise, the pay raises associated with promotions, and the pay raises associated with increased years of service), and I don't think it's hard to end up with my numbers. Even if we use 7%, that 20 year investment ends up with over $855,000 + a pension. This also assumes the person has no equity in a home which their BAH may very well have been used to pay for. In my case, with my frequent PCS's, unfortunately, it hasn't outside of one sale, so I haven't factored it in.

I don't think I did anything special. I obviously pursue savings and investing a lot, and 99% of my net worth is in index funds and I realize that my rate of return is historically high and will regress to the mean over time which is why I plan to 7-8%. However, what I did is not out of the ordinary in my opinion. An E-8 in my command right now at 16 years of service has a current net worth over $1.8 million by doing the same thing as me. My old roommate did roughly the same as me. In my case, I just kept it roughly at that percentage over time so my pay raises have significant effect on my monthly contributions. I don't let my money sit in checking accounts and don't leave anything left over at the end of the month, but I don't even have a budget. I just pay myself first, pay off my credit cards, then take all the leftover and dump it into investments. I don't think I live frugally, but I'm not someone who buys a new car every year or takes 2 vacations a year either. Add in having a roommate until I got married where I was able to save 50% of my BAH up until I was a LT, and that will add up quickly and be way more than 50% of base pay. So, sure, do I think my "results are typical?" No, but only because people don't seem to understand how to pay themselves first or they rely on the stability of our paychecks and future pension as an excuse to have a spending free-for-all. In my opinion, OP could have very similar results as I with basic financial discipline. Obviously, he'd have much bigger results with the same financial discipline at $400k /year, but I was simply making the point that I worry not for money in the military and won't in retirement either, which, I can easily pursue at the age of 43 if I so desire. The pension allows me to remain in riskier/more volatile investments longer (and by that, I mean equities via index funds over bonds) which, over the long run, should increase my net worth even further.

I also recognize I am unburdened by student debt, which, I assume OP has already gone to college and doesn't have the same benefit as ROTC/USNA grads, which is something he will have to factor in for himself.

 

[Flash]

When I was an unmarried Ensign, I would balance my checkbook down to $5 each paycheck and all the leftover was invested. I follow the same principle now but to a higher amount.

I think you were Ensign-ing wrong, you are supposed to waste it all on hookers and blow.

For reals, over two decades on and I am still not close to doing something like that.

 

[MIDNJAC]

Yeah that is impressive discipline that I did not have as an ENS (or maybe even now). I will say that I saved a lot more money as a single ENS than I did a few years down the road being married....or a few more years down the road with kids.

 

[sevenhelmet]

All of this is assuming the market continues to make money (real gains, not inflationary increases) in today's debt-leveraged environment.

Good luck with that.

 

[DanMa1156]

I think you were Ensign-ing wrong, you are supposed to waste it all on hookers and blow.

For reals, over two decades on and I am still not close to doing something like that.

Ha! I had a great time as an ENS (except API... that was honestly pretty miserable at the time). But outside of that, I had a lot of fun. I don't remember thinking "I'm being frugal," I remember thinking "why let money sit in a checking account?" I still went to the bars with the boys, ate out, and drank all the local Texas, Louisiana, and Florida beers I could, but having a roommate pay half your BAH really helps with both the a) social life, b) studying, and c) finances. I'll say I didn't particularly realize how much I was saving at the time, but I still continue to use the same edition of quicken and manually input all my spending, so maybe that gives me a good feel for how much I spend/save/invest.

Yeah that is impressive discipline that I did not have as an ENS (or maybe even now). I will say that I saved a lot more money as a single ENS than I did a few years down the road being married....or a few more years down the road with kids.

Kids definitely have put a dent into our goal of continuing to save at increasing rates. With that said, it's been great to have a wife on board who also knows how to balance the checkbook. I don't think she is wont for anything though, except maybe a good vacation, and that hasn't been a finance issue as much as it is a "get back to sea" issue.

All of this is assuming the market continues to make money (real gains, not inflationary increases) in today's debt-leveraged environment.

Good luck with that.

I assume I'm going to regress to somewhere between 7-10% for the remainder of my lifetime. I don't particularly have a lot of concerns about the overall health of the market long term. The bet I'm effectively making with Index funds is: "Do I think the American economy will be bigger or smaller than when I put my money in?"


Oh, and on top of all of this, we forgot about the $100k bonus + the "Continuation Pay" from BRS, both of which can be invested heavily.

 

[mapache2426]

The bet I'm effectively making with Index funds is: "Do I think the American economy will be bigger or smaller than when I put my money in?"

Found out recently my retirement's index fund is invested in Shenyang Aircraft Corporation - presumably funding the J15&etc that would (hypothetically) be used to prevent Americans from reaching retirement age.

 

[DanMa1156]

Found out recently my retirement's index fund is invested in Shenyang Aircraft Corporation - presumably funding the J15&etc that would (hypothetically) be used to prevent Americans from reaching retirement age.

I have to ask, what index fund are you in? (I realize we are now in severe threadjack territory).

While I have some foreign funds, I'd have to take a look at the overall makeup of them. I know the I fund inside TSP has no China. I'm not positive about with my civilian broker.

Nonetheless, the majority of my money is tied up in American index funds.

 

[Sonog]

I work at a big tech company in SF and 400k starting for a software engineer is extremely high but not unbelievable if he has some kind of majorly in-demand talent.

In my case O-1 pay would be a paycut but I'd probably still be saving more per month due to reduced cost-of-living.

Noted. My skepticism and doubt was founded by the starting salary statistics of top MBA programs. I didn't consider the raw salary power of super niche programming skills in certain pockets of tech.

 

[mapache2426]

I have to ask, what index fund are you in? (I realize we are now in severe threadjack territory).

While I have some foreign funds, I'd have to take a look at the overall makeup of them. I know the I fund inside TSP has no China. I'm not positive about with my civilian broker.

Nonetheless, the majority of my money is tied up in American index funds.

Ironically enough its the Fidelity FREEDOM INDEX 2050 - pretty heavily invested in China. Took a lot of legwork to find the specific stocks it holds, which happen to include also include all the controversial companies like iflytek

 

[mapache2426]

Noted. My skepticism and doubt was founded by the starting salary statistics of top MBA programs. I didn't consider the raw salary power of super niche programming skills in certain pockets of tech.

its certainly still at the extreme high end of starting salary ranges. but not totally beyond credible belief

 

[sevenhelmet]

@Mods: Recommend a thread split.

 

[Spekkio]

Something isn't quite right and I'm not understanding your numbers.

If today's ENS invests 50% of his/her base pay only in the S&P 500 index and got a 10% return (which is the actual historical average from 1915 to today, pre inflation - the 7% figure everyone cites is inflation adjusted because inflation was 3% over the same period of time going back to 1915), he/she would have over $1,100,000 assuming he/she never contributed a more than 50% of ENS base pay. (Again, I recognize my 12-14% is above that average, but my number is also not inflation adjusted, so we're talking much closer to the mean of 9-12% when you account for average historical inflation.)

To come up with these numbers, I used a monthly contribution of $1738.50 over 20 years at 10% which is today's O-1 base pay. Obviously, this assumes no investing costs, but that's possible/nearly possible with Vanguard/Fidelty/Schwab these days. Now imagine keeping the 50% invested but account for all the pay raises over time (up to 3x a year with the January pay raise, the pay raises associated with promotions, and the pay raises associated with increased years of service), and I don't think it's hard to end up with my numbers. Even if we use 7%, that 20 year investment ends up with over $855,000 + a pension. This also assumes the person has no equity in a home which their BAH may very well have been used to pay for. In my case, with my frequent PCS's, unfortunately, it hasn't outside of one sale, so I haven't factored it in.

A few things:

1. It doesn't do any good to talk numbers without discounting the future value of money. Doing that over-estimates the real value of the investment. Hence the 7%. This also assumes someone puts 100% of their investments into stocks throughout their whole career, something most financial advisers would advise against as someone approaches later in their careers.

2. The difference between your Ensign calculation (which nets ~400% ROI) is that the monthly contribution is even throughout the 20 year investment period. In the case where someone gets promoted a few times, the vast majority of the investment principal comes from the last 10 years of contributions, so compounding doesn't have as big as an effect.