21 yr old Active Duty starting random walk! Any advice?!

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GoNavyBeatArmy
Posts: 11
Joined: Wed Oct 29, 2008 9:45 pm

21 yr old Active Duty starting random walk! Any advice?!

Post by GoNavyBeatArmy »

Hello everyone. I have been hanging around this site for about a year and the time has finally come for me to start my random walk. I turned 21 last week and am a junior @ a military academy. I just received my "career starter" loan of 30k @ 1.49%, which does not start coming out of my pay until I am an officer in 2010. Also I cannot contribute to the TSP until that time.

Books I've read: A Random Walk..Four Pillars..Bogleheads' Guide (Enjoyed them!)

Debt: None (30k loan @ 1.49% to be paid off over 5 years starting 2010)

Emergency Fund: Yes

Desired Allocation: (90/10)

Int. Allocation: (30-40%)

Cash: 5%

Goals: Long term horizon (20+ years) No wife or kids right now

Current Investments: None..Vanguard will be getting my business soon :)

* I plan to max out roth for 2008 & 2009 (lump sum)
* I plan to eventually add REITS and maybe tilt towards small value
* I plan to use the following funds:

Prime Money Market Fund - VMMXX
Total Stock Market Index - VTSMX
Target Retirement 2045 - VTIVX
FTSE All-World - VFWIX

Questions:

1) How to allocate the different funds (taxable/ tax-deferred) & should I include Total Bond Market Index - VBMFX or will I have enough with the TR2045?
2) How do things change when I am able to contribute to TSP?
3) How and when is best time to rebalance (Time Interval/ expansion bands)? (Leaning towards 2x a year)
4) How do I contribute after I have maxed out roth for 2008/2009?
5) It seems to me that the advice often given if you are inexperienced or do not have a significant amount of money is to simply own the Target Retirement Fund, but eventually should the move should be to slice and dice.

I would appreciate ANY help/advice/comments!!
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robolove
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Post by robolove »

(not informed enough to comment)

but army > navy

:wink:
Laura
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Getting Started

Post by Laura »

Navy,

Welcome aboard. Glad to have you posting as part of our forum.

Before opening your roth make sure you actually have earned income of $5k per year or greater. Just having cash doesn't qualify you to open the roth. If you do have earned income then using a Vanguard Target Retirement fund is all you need. Don't worry about rebalancing since Vanguard will take care of that for you.

To set yourself up for the long haul you want to build a strong financial base. This means having an emergency fund in place then working on investments. You have this money but it needs to be paid back 5 years after graduation. For money needed in less than 5 years you should keep it in cash. For money needed in 5-10 years you can bring in some bonds. At this point in the game I suggest you invest in a CD ladder so that you have the money available to repay that loan as needed. You can keep some in cash as your emergency fund then invest the rest into something guaranteed. Although it has a low interest rate that is a large loan to be paid back in a short period of time. You don't want to have a really tight budget once payments start and by investing carefully now you can earn more than the interest rate without taking a lot of risk.

Use your other earned income for the roth so you would have something like this:

taxable
emergency fund
loan money invested conservatively

roth
Target Retirement fund

Once you have access to the TSP use the Lifecycle funds. Put your first $5k into the roth then work to maximize contributions to the TSP. I wouldn't worry about slicing and dicing until you have a portfolio valued at a minimum of $50k and probably something much closer to $100k. If you have only tax advantaged accounts I would let Vanguard and the TSP manage everything through the TR and Lifecycle funds so you can concentrate on your career.

I am sure this isn't what you expected to hear but don't assume that investing that cash in the market will put you ahead. Look at the last 10-15 years. You want to get your roth started but also don't want to end up with a large loan payment that will really crimp your lifestyle just when you get out of school. You can do both.

Thanks for your service to the country.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
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Re: 21 yr old Active Duty starting random walk! Any advice?!

Post by White Coat Investor »

GoNavyBeatArmy wrote:Hello everyone. I have been hanging around this site for about a year and the time has finally come for me to start my random walk. I turned 21 last week and am a junior @ a military academy. I just received my "career starter" loan of 30k @ 1.49%, which does not start coming out of my pay until I am an officer in 2010. Also I cannot contribute to the TSP until that time.

Books I've read: A Random Walk..Four Pillars..Bogleheads' Guide (Enjoyed them!)

Debt: None (30k loan @ 1.49% to be paid off over 5 years starting 2010)

Emergency Fund: Yes

Desired Allocation: (90/10)

Int. Allocation: (30-40%)

Cash: 5%

Goals: Long term horizon (20+ years) No wife or kids right now

Current Investments: None..Vanguard will be getting my business soon :)

* I plan to max out roth for 2008 & 2009 (lump sum)
* I plan to eventually add REITS and maybe tilt towards small value
* I plan to use the following funds:

Prime Money Market Fund - VMMXX
Total Stock Market Index - VTSMX
Target Retirement 2045 - VTIVX
FTSE All-World - VFWIX

Questions:

1) How to allocate the different funds (taxable/ tax-deferred) & should I include Total Bond Market Index - VBMFX or will I have enough with the TR2045?
2) How do things change when I am able to contribute to TSP?
3) How and when is best time to rebalance (Time Interval/ expansion bands)? (Leaning towards 2x a year)
4) How do I contribute after I have maxed out roth for 2008/2009?
5) It seems to me that the advice often given if you are inexperienced or do not have a significant amount of money is to simply own the Target Retirement Fund, but eventually should the move should be to slice and dice.

I would appreciate ANY help/advice/comments!!
Welcome to the forum. Thank you for your service.

First, determine the goals for this money. If this money is all for retirement, then you will need to start a taxable investing account. If it is not (i.e. some is going for an emergency fund, some for a car, some for a house downpayment etc), then you can probably get by with a Roth and TSP for now.

You will be well served by using target retirement funds and L funds with the exception of your desired relatively high international allocation. You'll need to add an additional international fund to get there. Since you'll probably have at least a small taxable account, you could add FTSE Ex-US, a great long-term international holding.

Let's try your questions now.

1,2,4) How to allocate:

Desired allocation:

90/10
1/3 intl
wants REITs and SV tilt
Initially large % taxable but eventually large % tax-protected

It will be difficult to implement your allocation initially and keep it static without screwing some stuff up down the road. So what I would do is try to keep it close to what you want and not sweat the minor deviations until your portfolio hits $100K or so.

Perhaps this for now:

Taxable:
$10K FTSE Ex-US
$10K Tax-exempt MMF (change to Prime when it yields more for your tax-bracket)

Roth IRA (2008 and 2009 contributions)
Target Retirement 2045

In 2010, you'll need that $10K in the MMF to do your 2010 Roth contribution and max out your TSP.

You'll be very heavy internationally at first, but it has decreased quite a bit in value lately so it may be a very good buy over the long term.

Later on, your roth will be used for SV and REITS and you can use the TSP funds for your domestic stocks, international stocks, and bonds (G fund.) But you're looking at 4 or 5 years from now.

What you don't want to do is put $3K into all kinds of different funds in taxable to implement your AA now when you'll be making majors changes within just a couple of years. What matters most right now is your savings rate, not your asset allocation or return.

http://www.bogleheads.org/forum/viewtop ... highlight=

3) You can rebalance using bands, which is convenient for early accumulators. I think time-based rebalancing is pretty useful for those nearing or in retirement. I think it is best to do it every year or two to take advantage of momentum in asset classes.

5) There is nothing that says only the inexperienced can use TR funds. They're great if all you have is tax-deferred accounts and similar funds are available in each of your accounts. In fact, later on if you don't have the money to max out your Roth and TSP, it wouldn't be a bad move to sell taxable holdings and live on them while deferring your current salary into the TSP and sticking it in an L fund.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Topic Author
GoNavyBeatArmy
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21 yr old Active Duty starting random walk! Any advice?!

Post by GoNavyBeatArmy »

Thanks for the reply EmergDoc and Laura. I have a couple things maybe you can clear up. Paying back the loan will not be a problem at all and will not stricken my budget. I have an earned income over $5k per year. $500 a month will be taking out of my officer pay starting 2010 and that is guarantee. So why is it that Laura is recommending I "park" my 30k in conservative investments to pay back the loan? Or am I misunderstanding her?

What is the difference between the Prime Money Market Fund and the Tax-Exempt MMF you recommended?

How come the Total Stock Market Fund is not included in my portfolio and when and how do you recommend I implement that into my portfolio?

All of my classmates who also received the loan are racing to their E-Trade accounts etc..looking at trends/research..buying/selling daily..where do begin with "saving" them and telling them that is not the way to go, they are SO lost????

**All of the money is for retirement.
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fishnskiguy
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Post by fishnskiguy »

Hi, Shipmate :D

First, what do you plan your service selection to be? Navy line, Navy air, submarines, supply, Marines, or other? I'm asking because the pay varies, as I'm sure you know.

Second, what kind of car (new or used) do you intend to buy and how do you intend to pay for it.

Third, is marriage on your horizon.

Answering these questions will help me make some suggestions.

Chris
USNA 65 (classmate of Roger Staubach)
Trident D-5 SLBM- "When you care enough to send the very best."
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Re: 21 yr old Active Duty starting random walk! Any advice?!

Post by White Coat Investor »

GoNavyBeatArmy wrote:Thanks for the reply EmergDoc and Laura. I have a couple things maybe you can clear up. Paying back the loan will not be a problem at all and will not stricken my budget. I have an earned income over $5k per year. $500 a month will be taking out of my officer pay starting 2010 and that is guarantee. So why is it that Laura is recommending I "park" my 30k in conservative investments to pay back the loan? Or am I misunderstanding her?

What is the difference between the Prime Money Market Fund and the Tax-Exempt MMF you recommended?

How come the Total Stock Market Fund is not included in my portfolio and when and how do you recommend I implement that into my portfolio?

All of my classmates who also received the loan are racing to their E-Trade accounts etc..looking at trends/research..buying/selling daily..where do begin with "saving" them and telling them that is not the way to go, they are SO lost????

**All of the money is for retirement.
The VG TR funds include TSM. The C and S fund, held in the right proportion, is also the same as TSM (actually slightly better.) You don't pay federal tax on TE MMF. You do on Prime. So you have to do a calculation to determine which is right for you. However, right now, TE MMF is better for everyone.

Laura's recommendations are more conservative than mine. That is why she recommends you park the loan money in a conservative place. If you lost your job or something else happened and you couldn't make those payments you'd be up a creek. But, since your job and income are pretty stable, I think it is probably okay to invest the loan. It is non-callable, low interest, and should be well within your income to service the debt.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Laura
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Daily cash flow

Post by Laura »

I recommend investing some but parking the rest. You would be surprised what a dent $500 per month will be in your take home pay. Certainly affordable but you will have less flexibility. Even with a guaranteed income and employment watching your fixed monthly expenses is a good idea.

I agree with looking ahead to what your needs will be. Investing is only one part of a financial plan. Staying out of debt, especially expensive consumer debt, is another. If you need a car, plan to get married, buy furniture for an apartment or home, etc you need cash. You have it now at a low interest rate. If you invest it in the market there is absolutely no guarantee that it will be available when you need it to keep you out of debt.

Look around at your friends and you will see people in debt who are limiting their options for the future. They will have no choice but to pay for that debt down the road (assuming they don't declare bankruptcy).

Invest some and bank some to cover both parts of a financial plan.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
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fishnskiguy
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Post by fishnskiguy »

Before I sign off for the night just one last thought for GoNavyBeatArmy.

Go Navy Beat Army :D

Chris
Trident D-5 SLBM- "When you care enough to send the very best."
Topic Author
GoNavyBeatArmy
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21 yr old Active Duty starting random walk! Any advice?!

Post by GoNavyBeatArmy »

Sir,

I am going to service select Marine ground. Not exactly sure what I want my MOS to be, but an Infantry Officer or a Financial Officer appeal to me. I'm set with a car, my mother is handing me down her 2007 Nissan as an early graduation present. And marriage? haha I am in no rush for that, but who knows. How does that come into play with my financial plan?

In regards to Laura's post, staying out of debt is not a problem for me. I live within my means and only buy things I could afford. I am anxious to start investing and feel now is a good time, especially since my goals are to experience financial freedom in the long term.

Hope this helps. I look forward to any suggestions.

V/r,

Matt
USNA 2010
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Post by isleep »

Be sure to spread Jack's good word in the units you get assigned to. :)
AA goal: 70% VTWSX (taxable), 12.5% VBMFX (IRA), 12.5% VIPSX (IRA), 5% VMSXX
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Re: 21 yr old Active Duty starting random walk! Any advice?!

Post by White Coat Investor »

GoNavyBeatArmy wrote: but an Infantry Officer or a Financial Officer appeal to me.
I'm sure they're very similar. Reminds me of the guy who couldn't decide between Nephrology and trauma surgery.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Post by fishnskiguy »

OK, Matt, if you are absolutely, positively sure you can keep that $30K in funds until retirement, I would recommend two thirds in Vanguard Total Stock Market fund and one third in Vanguard Tax Managed International. REIT funds and small value funds are very tax inefficient and so I would recommend putting these asset classes in you IRA.

I'm almost always with Laura regarding debt, but that loan is as close to free money as you can get, so I say go for it. And keep adding something every month to your IRA, and TSP when you become eligible for it.

Chris
Trident D-5 SLBM- "When you care enough to send the very best."
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GoNavyBeatArmy
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21 yr old Active Duty starting random walk! Any advice?!

Post by GoNavyBeatArmy »

I think I am going to max out roth with TR2045 for 5k for 2008/2009, leaving me with 20k out of 30k left to invest in taxable account. Then put 10k in Tax-exempt MMF and 10k in Tax Managed International or FTSE Ex-US.

Questions:

1) What is the difference between the FTSE Ex-US fund and the Tax Managed International besides min. requirements and expense ratio?

2) When I analyze my portfolio in the M* X-ray feature do I include the TR2045 Fund? I'm not sure what my portfolio looks like with the options I have above.
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Re: 21 yr old Active Duty starting random walk! Any advice?!

Post by White Coat Investor »

GoNavyBeatArmy wrote:I think I am going to max out roth with TR2045 for 5k for 2008/2009, leaving me with 20k out of 30k left to invest in taxable account. Then put 10k in Tax-exempt MMF and 10k in Tax Managed International or FTSE Ex-US.

Questions:

1) What is the difference between the FTSE Ex-US fund and the Tax Managed International besides min. requirements and expense ratio?

2) When I analyze my portfolio in the M* X-ray feature do I include the TR2045 Fund? I'm not sure what my portfolio looks like with the options I have above.
1) It is easier to tax-loss harvest the FTSE fund without the pesky 5 year requirement. Also, it includes Emerging markets and Canada, unlike the TM international. Theoretically, the TM international will be more tax efficient, but we're really talking about a very minor difference as they are both quite tax efficient, and given the comprehensiveness of the FTSE fund and its ETF sub-class, it might even be more tax efficient.

2) You can put TR 2045 into x-ray just like anything else. Your suggested portfolio looks like this:

33% Cash
3% Bonds

64% stocks split about 1/3 domestic and 2/3 international. If you chose All-World index instead of FTSE you would be a lot closer to a 50/50 split.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
b.c
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Re: Daily cash flow

Post by b.c »

Laura wrote:I recommend investing some but parking the rest. You would be surprised what a dent $500 per month will be in your take home pay. Certainly affordable but you will have less flexibility. Even with a guaranteed income and employment watching your fixed monthly expenses is a good idea.
Laura, I think you're totally right. When I commissioned in 2006 had the option of a 25k loan at 2% APR from USAA. Took 10k and paid off my wife's school loans and then took a year to pay it off. I've never regretted not having $475 leaving each paycheck to pay back a loan. The guys who took it and put it in a MM fund weren't thinking of inflation...
johnjtaylorus
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Post by johnjtaylorus »

GoNavyBeatArmy, just remember:

It doesn't rain in the infantry; it rains on the infantry.
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J-e-L-L-o
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Re: 21 yr old Active Duty starting random walk! Any advice?!

Post by J-e-L-L-o »

GoNavyBeatArmy wrote:Hello everyone. I have been hanging around this site for about a year and the time has finally come for me to start my random walk. I turned 21 last week and am a junior @ a military academy. I just received my "career starter" loan of 30k @ 1.49%, which does not start coming out of my pay until I am an officer in 2010. Also I cannot contribute to the TSP until that time.

Books I've read: A Random Walk..Four Pillars..Bogleheads' Guide (Enjoyed them!)

Debt: None (30k loan @ 1.49% to be paid off over 5 years starting 2010)

Emergency Fund: Yes

Desired Allocation: (90/10)

Int. Allocation: (30-40%)

Cash: 5%

Goals: Long term horizon (20+ years) No wife or kids right now

Current Investments: None..Vanguard will be getting my business soon :)

* I plan to max out roth for 2008 & 2009 (lump sum)
* I plan to eventually add REITS and maybe tilt towards small value
* I plan to use the following funds:

Prime Money Market Fund - VMMXX
Total Stock Market Index - VTSMX
Target Retirement 2045 - VTIVX
FTSE All-World - VFWIX

Questions:

1) How to allocate the different funds (taxable/ tax-deferred) & should I include Total Bond Market Index - VBMFX or will I have enough with the TR2045?
2) How do things change when I am able to contribute to TSP?
3) How and when is best time to rebalance (Time Interval/ expansion bands)? (Leaning towards 2x a year)
4) How do I contribute after I have maxed out roth for 2008/2009?
5) It seems to me that the advice often given if you are inexperienced or do not have a significant amount of money is to simply own the Target Retirement Fund, but eventually should the move should be to slice and dice.

I would appreciate ANY help/advice/comments!!
I never knew that the service academies provided starter loans. Good luck with your investment decisions midshipman!

-AD2
"Not everything that can be counted...counts; And not everything that counts can be counted."
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Post by Asterix »

Welcome aboard, shipmate.

No real advice here, but at least you're not doing the standard officer routine of running out and buying the sports car.

At some point you'll want to set up a cash management account somewhere with good international access (i.e low ATM and currency conversion fees) and at least semi-automatic operation (because telephone and internet access to move your funds around can be mighty sketchy in most of the world.) I'd recommend something like Fidelity's mySmartCash, but I haven't looked into the international fees. As a junior officer you can expect to pop up out of the muck into random cities of the world for a few days at a time, with little or no prior notice, and you'll want (and deserve) to throw a little money around. Most of my buddies depended on their Navy Fed cards, and kept getting locked out of their accounts for suspicious international transactions.
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Post by J-e-L-L-o »

Asterix wrote:Welcome aboard, shipmate.

No real advice here, but at least you're not doing the standard officer routine of running out and buying the sports car.

At some point you'll want to set up a cash management account somewhere with good international access (i.e low ATM and currency conversion fees) and at least semi-automatic operation (because telephone and internet access to move your funds around can be mighty sketchy in most of the world.) I'd recommend something like Fidelity's mySmartCash, but I haven't looked into the international fees. As a junior officer you can expect to pop up out of the muck into random cities of the world for a few days at a time, with little or no prior notice, and you'll want (and deserve) to throw a little money around. Most of my buddies depended on their Navy Fed cards, and kept getting locked out of their accounts for suspicious international transactions.
sorry if this seems a little flamey, but this sounds like an advertisement. NavyFed has always been at a disadvantage. I've been places with my buddies and some places wouldn't read their debit cards.

USAA is a better bank overall in IMO. We get paid a day before everyone else does, ATM fees are re-imbursed (domestic and international), and I have never had to endure waiting in line on payday in a military city and do everything I need to online.
"Not everything that can be counted...counts; And not everything that counts can be counted."
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GoNavyBeatArmy
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Two year update for 2nd Lt USMC

Post by GoNavyBeatArmy »

Hello everyone. It has been two years since I started my random walk and last posted on the forum. My purchases and withdrawals were $23,500 and currently my vanguard portfolio has a value over $33,000 equating to over a $9,500 investment return. I have max out my roth IRA for 2008, 2009 & 2010 and recently started contributing 5% of my basic pay to TSP. My current asset mix according to vanguard displays 91.6% stocks, 5.3% bonds, & 3.1% short term reserves.

My question is, how does contributing to the TSP effect my asset mix? Also, which funds should I choose in the TSP? Currently my contributions are by default going straight to the G fund. Another question I had was do I need to rebalance due to the investment return I have been experiencing? I have yet to rebalance since I've started investing in 2008.

Would appreciate any comments or advice! Thank you.
Default User BR
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Re: Two year update for 2nd Lt USMC

Post by Default User BR »

GoNavyBeatArmy wrote:My question is, how does contributing to the TSP effect my asset mix? Also, which funds should I choose in the TSP? Currently my contributions are by default going straight to the G fund. Another question I had was do I need to rebalance due to the investment return I have been experiencing?
You would benefit by going through the portfolio review process. See the link below for the standard format.

http://www.bogleheads.org/forum/viewtopic.php?t=6212



Brian
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Taylor Larimore
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Need more information

Post by Taylor Larimore »

Hi Second Lt. USMC:

Congratulations on becoming a Marine officer and for starting early to assure your happy financial future.!

Follow Brian's suggestion and we will be able to give you informed suggestions.
"Simplicity is the master key to financial success." -- Jack Bogle
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tom0153
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Post by tom0153 »

Hello, I hope your graduation went well and you are on a path you are enjoying! Thank you for your service, and all the best for your military career.

You want to become a real expert on that TSP, knowing what the funds are doing. You know that they have an autopilot fund which shifts as you age; there are other options for managing the accounts that TSP provides. See https://www.tsp.gov/lifeevents/military ... Duty.shtml but be sure to review the other pages which serve as education on the fund options.

The DoD offers this info on how to use the TSP:
http://www.dfas.mil/militarypay/thrifts ... antsp.html

G fund has this really great option that guarantees that you won't lose money, and should be part of your allocation, for sure - but how much, at your age, matching your goals - you need to put that in the wash, being sure to separate the whites from the colors so you don't end up with a blended color you sure don't want. Of course, your developing understanding will show what cost comes with that guarantee without including it in your larger allocation.

How does that effect your allocation? Well, you've discovered the Vanguard tool, but you can put in your outside investments as "other" into that tool (I am not sure you can give automatic access to TSP, but you can try - I had to withdraw funds from the TSP when my wife passed away, before they allowed survivors to keep the funds). You have a recommendation here to follow a forum format to obtain the best replies to your question. All of the TSP funds are based on other indexes, for the most part and the web site discloses them.

In terms of matching funds to your goals and developing your allocation, you can also use www.NARFE.org over the years (useful membership required for full access), or you can use Military Saves on Facebook for regular reminders (http://www.facebook.com/#!/pages/Milita ... 5037599726). They are constantly offering resources for you to review. There are also a couple of unofficial TSP specific sites, and caveat emptor applies (I think anyone can obtain the same info elsewhere without having to pay membership costs) - this is an example and I am concerned how strongly it seems to suggest frequent trading instead of regular rebalancing http://www.tsptalk.com/. It can be useful if you are regularly rebalancing within a slice of your overall holdings.

Finally, these might be neat sites for personal financial planning for the military (you will acheive sophistication by degree over time): http://militaryfinance.umuc.edu/index.html
and the official resource for benefits at: http://myarmybenefits.us.army.mil/

By golly, I hope the Navy has something similar so you don't get more teasing here!

I often recommend this book in addition to those found in the wiki for bogling, written by professors at West Point - Armed Forces Guide To Personal Financial Planning, sold by Stackpole Books. Google them, and see if you can get the 6th edition second hand somewhere, since it may not take into account the all the opportunities that have recently opened up, in the TSP and elsewhere - the website maintained at West Point may offer the same, but the link is broken. However, the only better resource for those in your situation as a young military officer that I have found is Emergency Doc, here in this forum.

Hopefully he'll join in commenting with others on your complete reply.

Of course, this is where you might want to point out the Army link is broken, but you'd better find a better one on a Navy website :lol:

Best,
Best, Tom
Topic Author
GoNavyBeatArmy
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Sorry for incorrect format

Post by GoNavyBeatArmy »

Emergency funds: Yes approximately $6,000

Debt: Career starter loan 30k loan @ 1.25% - term 60 months

Desired Allocation: (90/10)

Int. Allocation: (30-40%)

Cash: 5%

Goals: Long term horizon (20+ years)

Taxable
3% Prime Money Market Fund - VMMXX
23% Total Stock Market Index - VTSMX
20% FTSE All-Work - VFWIX

Roth IRA
54% Target Retirement 2045 - VTIVX

Total Vanguard assets: 33,000

TSP
5% of basic pay into G fund ( $137.00 each month - total $411.00 so far)

Questions
1. How does contributing to the TSP effect my asset mix?
2. Which funds should I choose in the TSP? Currently my contributions are by default going straight to the G fund.
3. Do I need to rebalance due to the investment return I have been experiencing? I have yet to rebalance since I've started investing in 2008.

Once again welcome and would appreciate any comments or advice.
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Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Stay-the-Course

Post by Taylor Larimore »

Hi GoNavy:

Your portfolio is serving you well. It has all the earmarks of a superior portfolio:

Reflects your asset-allocation plan.
Very low cost
Very tax-efficient
Very diversified
Simple to understand and maintain thereby giving you more time for other things and less chance for mistakes.

I suggest you leave your portfolio unchanged for now. Continue to maximize your Roth and the G Fund in the TSP (it is a superior fund not available elsewhere). If you have excess portfolio contributions just add to your taxable funds.

When your G Fund reaches your desired bond allocation (ignore the bonds in your Target fund), you should re-evaluate your portfolio and probably exchange your Target fund-of-funds for one or two specific funds to make your overall asset-allocation easier to understand and maintain.
The enemy of a good plan is the search for a perfect plan. --Jack Bogle
Thank you for your service to your country.
"Simplicity is the master key to financial success." -- Jack Bogle
vesalius
Posts: 794
Joined: Tue Jul 13, 2010 7:00 pm
Location: Texas

Post by vesalius »

Hey Go navy another easy option for you would be to choose the TSP L2040 fund for your monthly contributions. Then you could leave your other accounts unchanged.

BTW, thanks for your service.
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burnsh
Posts: 145
Joined: Sat Jan 10, 2009 2:09 pm
Location: San Antonio, TX

Post by burnsh »

Keep your eyes open for the ROTH TSP. Hopefully it will come out by 2012 and it will greatly benefit the members of the military who do not receive matching contributions.
Burnsh | ______________________________________ | VFIAX 17%, VVIAX 17%, VEXAX 16%, VTIAX 21%, VGSIX 9%, VIPSX 10%, VBMFX 10%
minskbelarus47
Posts: 162
Joined: Tue Nov 09, 2010 7:02 pm

In Chesty's Line

Post by minskbelarus47 »

GoNavy(USMC)

You have forty years of investing in front of you. Good start.

But, I always allow some play money, and as a former Foreign Area Officer, I have found it worthwhile to learn about other countries. So, I study other countries economies. Bloomberg is a good start and just click on regions. To me, it is far easier with all the information out there to make judgments about the directions of national economies, and therefore invest some in higher risks investments. You are certainly at a point where should take some risk. As the Rolling Stones sang, "Time, Time, Time, is on your side!"

So, look at the BRICS. Brazil (Latin America), India, Indonesia, China/Asia. I like Russia too because they have natural resources. You can learn a little by looking at those ETFs. RSX, EWZ, CH, IF, FXI, EWA, and so forth. As a Marine, you will most likely pull duty in those countries or at least be off shore on some of them.

So, continue to learn, always wear ALL your body armor, Franks Hot Sauce improves the taste of any food, and SEMPER FI.
Laura
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Joined: Mon Feb 19, 2007 6:40 pm

G fund

Post by Laura »

I suggest using the G fund in your TSP to cover the entire 10% of your asset allocation in fixed income. This is a fabulous fund that is one of the few true free lunches around. The "bonds" in this fund are issued for one day only but they pay the rate of return of intermediate treasury bonds. There is no better risk/return ratio. You don't lose money here.

In fact, the TSP funds are some of the best around because of their very low cost. You should be maximizing your contributions to the TSP, even if that means using your taxable money to cover your living expenses so that you can add $16.5k from your salary. This gives you a way to "transfer" money from taxable into tax advantaged accounts.

You should rebalance using new money. You need more bonds in your account. 10% of the 54% of your portfolio in the roth only represents 5.4% of your portfolio. You do have an additional 3% in the prime money market fund but at still a little short. You can solve this problem by adding the maximum amount to your TSP account. You can also switch the roth into a slightly more conservative Target Retirement fund with an asset allocation closer to 20% fixed income.

You are absolutely on the right track and overall are way ahead of most investors today. Congrats and thanks for your service to the country.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
Default User BR
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Joined: Mon Dec 17, 2007 6:32 pm

Re: G fund

Post by Default User BR »

Laura wrote:I suggest using the G fund in your TSP to cover the entire 10% of your asset allocation in fixed income. This is a fabulous fund that is one of the few true free lunches around. The "bonds" in this fund are issued for one day only but they pay the rate of return of intermediate treasury bonds. There is no better risk/return ratio. You don't lose money here.
As I've mentioned in the past, I'm not nearly as enamored with the G fund as others. It's a middling-rate stable-value fund, with a really good insurer. I think people focus too much on how G is structured, with special this and that, rather than its actual performance mechanism. I don't consider it a bond fund at all.

This month the G fund rate is down around 2%, significantly below many comparable corporate SV funds. The G fund, like other SV funds, doesn't do well in falling rate environments. Unlike a bond fund, there's no increase in the share price due to the rate fall, and itps rate decreases. That's why G has returned under 2.5% for the year, compared to aggregate bond funds (like F) that have had year-to-date of over 8%.

Conversely, if rates rise, the share price won't get hammered when bonds do, and its rate will increase. I think some of both an aggregate bond fund and a stable-value fund like G make sense.



Brian
Topic Author
GoNavyBeatArmy
Posts: 11
Joined: Wed Oct 29, 2008 9:45 pm

Deploying to Afghanistan in May, advise please..

Post by GoNavyBeatArmy »

Hello everyone, I have a question as I continue on my random walk. Portfolio is below:

Emergency funds: Yes - $5,000

Debt: Academy Loan @ 1.25% - 21,000

Desired Allocation: (90/10)

Int. Allocation: (30-40%)

Cash: 5%

Goals: Long term horizon (20+ years)

Taxable
3% Prime Money Market Fund - VMMXX
18% Total Stock Market Index - VTSMX
14% FTSE All-Work - VFWIX

Roth IRA
57% Target Retirement 2045 - VTIVX

Total Vanguard assets: 44,000

TSP
8% (8% of basic pay into G fund - $235.00 each month)

Total TSP assets: $4000.00

Grand Total: $48,000

Comments:
1. I will be deploying in May to Dec and plan on contributing to the Savings Deposit Program (10,000) which earns 10%.
2. I max out Roth (VTIVX) every year - 5,000

Question:
1. What would be the best thing to do with my tax-exempt deployment pay, max out TSP ROTH? Still contribute to regular TSP G fund? Taxable investments? Pay off Academy loan?

2. What do I do with the currently $4000.00 in my G fund, I don't believe it's possible to roll over to the TSP ROTH. So would I just keep it in there?

Any comments/advise on portfolio or things I should be considering prior to deploying I would greatly appreciate it. I hope to get all my finances in order so I do not have to worry once I'm over there. Once again thanks in advance!
Last edited by GoNavyBeatArmy on Sun Apr 01, 2012 12:03 pm, edited 1 time in total.
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White Coat Investor
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Location: Greatest Snow On Earth

Re: 21 yr old Active Duty starting random walk! Any advice?!

Post by White Coat Investor »

Yes, the Roth is a good idea for you, especially this year. The max is $17K for the Roth TSP PLUS $5K into a Roth IRA. You may also want to do tax-exempt TSP contributions if you still have money left over after the two Roths and the SDP.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Topic Author
GoNavyBeatArmy
Posts: 11
Joined: Wed Oct 29, 2008 9:45 pm

Active Duty sticking with Random Walk! Any advice?!

Post by GoNavyBeatArmy »

Hello, my orders got changed last minute so turns out I did not deploy, atleast not yet. I wanted to make sure I'm still on the right track with my random walk. Below is an update on where I sit right now.

Emergency funds: Yes

Debt: Career starter loan (15k remaining of 32k loan @ 1.25%)

Desired Allocation: (90/10)

Int. Allocation: (30-40%)

Cash: 15% ~ 10,400

Goals: Long term horizon (20+ years)

Taxable
4% ~ $3,200 Prime Money Market Fund - VMMXX
13% ~ $9,800 Total Stock Market Index - VTSMX
9% ~ $6,800 FTSE All-Work - VFWIX

Roth IRA
47% ~ $36,200 Target Retirement 2045 - VTIVX

Total Vanguard assets: $56,000

TSP (Contribute 12% of Basic Pay ~ $521/month)
6% ~ $4,900 Traditional - G Fund
6% ~ $5,000 Roth - G Fund

Total TSP assets: $9,900

GRAND TOTAL: $76,300

Questions/Comments:
1. If I don't count the Bonds in my Target Retirement 2045 fund (10%), but count the G Fund in my TSP as Bonds (12%) and Prime Money Market as Bonds (4%) then my portfolio has roughly 16% Bonds. Should I now allocate future contributions to the C and S Funds (80/20) to try to replicate TSM and increase my stock allocation??

2. I will only be able to contribute to TSP for about 2 more years because I will transition out of the military. I expect I would just roll over my TSP assets when I complete my obligated service. Should that change the way I invest to TSP?

** According to Vanguard my current mix is %65 Stocks %17% Bonds %18 Short-term reserves.

Once again welcome and would appreciate any comments or advice!
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White Coat Investor
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Joined: Fri Mar 02, 2007 8:11 pm
Location: Greatest Snow On Earth

Re: 21 yr old Active Duty starting random walk! Any advice?!

Post by White Coat Investor »

1) If you want 90/10, then yes, you should put more money into stocks. Was this a trick question?

2) You don't have to roll your money out of the TSP when you go. You can keep it in there for decades. That's what I'm doing to take advantage of the low ERs and the G fund. In fact, I may just roll money in there later. An upcoming rollover probably shouldn't change what you do now.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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SkolVikes7
Posts: 69
Joined: Mon Jul 18, 2011 4:07 pm

Re: 21 yr old Active Duty starting random walk! Any advice?!

Post by SkolVikes7 »

Welcome aboard. I run a financial blog specifically for US Navy Sailors.. Take a look, hope it helps. http://www.deckplatedollars.com
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