Starting to get more involved in my investing [Military]

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Starting to get more involved in my investing [Military]

Postby deadlymonkey » Wed Jan 30, 2013 10:07 pm

Hello, A friend who I asked questions to pointed me in the direction of this site and I have been reading extensivly since then. I am 32 and military, wife is 27 and stay at home mom.

Emergency funds: I had been saving about 6 months of salary (not expenses) so I have this excessivly covered. I have approx 15 months of expenses.
Debt: zero debt, credit cards are used to pay things like cell phone etc... and then paid in full each month.
Tax Filing Status: Married, filing jointly, 1 child
Tax Rate: 15% Federal, 0% State (my state has income tax but does not tax military pay earned outside the state.
State of Residence: PA
Age: 32, wife is 27
Desired Asset allocation: 80% stocks / 20% bonds (I'm guessing this is a fairly good mix for our age)
Desired International allocation: xx% of stocks (not even sure how to peg a good number here)

Current TSP portfolio is in the L2040 fund and is in low six figures. I have mid 5 figures in available cash (see my emergancy fund statement).

I have only recently opened a Roth TSP option. Between the Roth and Normal TSP, I max out the current 17,500 contribution.

I also have a relatively small amount of money in a USSPX Index mutual fund which was my first attempt at branching out my investing.

Questions:

1. I now have kids and will be gifting my new GI Bill to them. Is a 529 plan a good idea now?

2. I have mid 5 figures that are sitting in a very low interest savings and checking account. My income and career is very stable and can expect a military pension. In 8-10 years, my wife may begin to work part time but probably not until then. What would be a good use for investing my available assets? Should I open a spouse Roth through Vanguard and max that out?

Expected Large Expenses
We are currently overseas and will need to buy two cars when we arrive stateside again (low cost used vehicles). We have discussed pros and cons of buying a house, but have no idea where in the world we would like to end up living in after I retire from the military.
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Re: Starting to get more involved in my investing [Military]

Postby Duckie » Thu Jan 31, 2013 12:20 am

deadlymonkey wrote:Desired International allocation: xx% of stocks (not even sure how to peg a good number here)

Vanguard has found between 20% and 40% of stocks in international to be the "sweet spot". See the discussion and the Vanguard paper link. Vanguard splits the difference and uses 30% in their Target Retirement and LifeStrategy funds. So if you have an AA of 80% stocks and 20% bonds, then it would break down to 56% US stocks, 24% international stocks, and 20% bonds. Your L 2040 Fund is currently 22% international.

I have only recently opened a Roth TSP option. Between the Roth and Normal TSP, I max out the current 17,500 contribution.

That's good. See Most TSP Participants Should Switch To The Roth TSP.

I also have a relatively small amount of money in a USSPX Index mutual fund which was my first attempt at branching out my investing.

Is this a taxable account? Did you buy this for long-term retirement investing or something else?
USSPX is an S&P 500 Index Fund similar to the C Fund. If you're buying for retirement I have better (and cheaper) options below.

I have mid 5 figures that are sitting in a very low interest savings and checking account. My income and career is very stable and can expect a military pension. In 8-10 years, my wife may begin to work part time but probably not until then. What would be a good use for investing my available assets? Should I open a spouse Roth through Vanguard and max that out?

Yes, fully fund Roth IRAs for both of you. Set aside some for the new (to you) cars you'll need when you get back. The remainder could be put in a 529 for your child or a taxable account for your retirement. (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.18%) and (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.22%) are two good options for taxable (especially TISM because of the 
Foreign tax credit). You could also consider 
I Savings Bonds through Treasury Direct. However, if you do start a taxable account for retirement, you'll need to drop the L 2040 Fund and start using the C, S, F, and G Funds separately. (The I Fund is the only weak link in the TSP system. It is missing emerging markets, small-caps, and Canada.)

We are currently overseas and will need to buy two cars when we arrive stateside again (low cost used vehicles). We have discussed pros and cons of buying a house, but have no idea where in the world we would like to end up living in after I retire from the military.

Wait until near the end of your service before buying a house. Too many things change.

If you haven't already, check out this thread on Military Investing and this Wiki article on Military finances.

Just some possibilities.
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Re: Starting to get more involved in my investing [Military]

Postby deadlymonkey » Thu Jan 31, 2013 12:52 am

A lot of that makes sense. The USSPX is a taxable account. That is not for retirement purposes, it was really just to see if I could get more of a return on the investment than a savings account. In theory I would put my money that I am setting aside for the furture cars in a taxable account like that to get higher short term returns. I do not intend to have any retirement funds in taxable accounts.

Please confirm for me onthis though. I can have the maximum for this year (17,500) in my TSP, either 401k or Roth(k). I can also have a separate Roth IRA in my name at the maximum of 5500? That would give me for 2013 a theoretical maximum of $23,000 tax advantaged retirement contributions?
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Re: Starting to get more involved in my investing [Military]

Postby Duckie » Thu Jan 31, 2013 1:49 am

deadlymonkey wrote:In theory I would put my money that I am setting aside for the future cars in a taxable account like that to get higher short term returns.

Money for short-term needs should not be in the stock market. It should be in savings accounts, money market accounts, CDs, I Savings Bonds, and possibly a short-term bond fund. The stock market is a little too wild in the short run. It can lose 50% in a year. Yes, it usually makes it up, but not necessarily by the time you need it.

I can have the maximum for this year (17,500) in my TSP, either 401k or Roth(k). I can also have a separate Roth IRA in my name at the maximum of 5500? That would give me for 2013 a theoretical maximum of $23,000 tax advantaged retirement contributions?

Yes. Plus another $5,500 for your wife.
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Re: Starting to get more involved in my investing [Military]

Postby BL » Thu Jan 31, 2013 2:25 am

"Please confirm for me onthis though. I can have the maximum for this year (17,500) in my TSP, either 401k or Roth(k). I can also have a separate Roth IRA in my name at the maximum of 5500? That would give me for 2013 a theoretical maximum of $23,000 tax advantaged retirement contributions?"

Yes, you can also have a Roth IRA. In fact, you can add $5000 into a Roth IRA for 2012 if you do it by April 15. You can do one for your spouse as well, and then do the same with $5500 for 2013 by April 15, 2014. You must have earned income or the military equivalent to cover all of your annual contributions to all retirement accounts. You can also withdraw contributions to Roth IRAs without penalty (but not income they earn) in case you absolutely need them.
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