Investment showdown -- beyond the Roth, SDP, & TSP

[Fud]

It's a good deal: invest $5k in your Roth IRA with a solid commercial manager, and another $17k in TSP. After retirement, roll-over the TSP into a commercial vehicle. Don't over-think it.

Huge 2 on this one, which is why I'm keeping my Roth IRA. I might choose to use TSP come promotion time (~1K raise/mo) and live like I don't even have that money available while it is invested in mutual funds. I look at TSP kind of like social security. Seems like a great program, but if someone can arbitrarily dip into it then it is not something I want to do at all.

Not overthinking it is the biggest key here. I am not a huge investment guy, and I let USAA handle the fine details on that. I've been investing the max amount for a few years, and don't look at it quite that often. When the market is down, my automatic transfers are buying more shares. When the market recovers, I see a big jump in the amount.

USAA also has "Managed Money" accounts under their investment tools, but to start these funds you have to have at least $25-50K immediately ready to invest. I think this would be a great option for anyone going through involuntary separation/VSP/ACP when you get to that point. At this point, you have the best minds at the company working on your investments for you. There is alwas risk of loss, but in the end I think all of this is a win.

Another thing I haven't seen mentioned as advice is individual stock trading. I've always seen that as a hobby and haven't made much money, nor have I seen anyone else do so. I just think its easier to go with mutual funds.

[Termy]

If you are indeed totally debt free, maxed out on tax advantaged methods, and looking to invest more, don't be afraid to buy some individual stocks. I keep no more than 8% of my portfolio in low PE dividend paying stocks. It is certainly engaging to research and own individual stocks-and in the last four years, profitable!

[nsplayr]

I know absolutely nothing about stocks but did have a buddy in the squadron invest 30K in Apple about 4 years ago and has continued buying shares during the time period since then...needless to say he's done well for himself! Good thread BTW.

[Guest]

I heard there's a solid equity out there - look up FB and bet the farm.

[Swizzle]

I'd rather buy a call options on the large banks than buy FB.

How is FB making social media pay? data mining your private info? mining your pokes, likes, favorites, keywords and then selling it?

[Fud]

mining your pokes

I chuckled when I read this.

[Day Man]

I'd rather buy a call options on the large banks than buy FB.

probably better off with straddles on FB...

[epsilon]

Huge 2 on this one, which is why I'm keeping my Roth IRA. I might choose to use TSP come promotion time (~1K raise/mo) and live like I don't even have that money available while it is invested in mutual funds. I look at TSP kind of like social security. Seems like a great program, but if someone can arbitrarily dip into it then it is not something I want to do at all.

Not overthinking it is the biggest key here. I am not a huge investment guy, and I let USAA handle the fine details on that. I've been investing the max amount for a few years, and don't look at it quite that often. When the market is down, my automatic transfers are buying more shares. When the market recovers, I see a big jump in the amount.

USAA also has "Managed Money" accounts under their investment tools, but to start these funds you have to have at least $25-50K immediately ready to invest. I think this would be a great option for anyone going through involuntary separation/VSP/ACP when you get to that point. At this point, you have the best minds at the company working on your investments for you. There is alwas risk of loss, but in the end I think all of this is a win.

Another thing I haven't seen mentioned as advice is individual stock trading. I've always seen that as a hobby and haven't made much money, nor have I seen anyone else do so. I just think its easier to go with mutual funds.

Like you, I also am a follower of the Dave Ramsey approach. My wife and I have been married for 3 .69 years. In that time, we became debt free, got rid of ALL credit cards, and pay cash for everything (vehicles included). We have no loans. However, we don't have a house yet and do not really plan on buying one til we get out. Hopefully we will have 200K or more to pay cash or have a huge deposit. We will have to get a manual underwriting mortgage though because our credit score is ZERO.

For investments we do 2 X Roth IRAs (mine is with Fidelity Contrafund and the wife's is with a standard USAA fund). We also do the TSP--I put in 10% of base pay. I wanted to mention that I started to get away from the USAA pushed funds--which I had used for 10+ years--because I started looking at what is avail in the big market. USAA funds rarely perform and don't have the track records like the heavy hitting Vanguard, Fidelity, etc. So, as Dave Ramsey advises, I sought out a fund with a minimum 10 year track record and historical return of at/near 12%. Not a hit on USAA entirely, but as someone else mentioned in another thread, they often assume they have your total loyalty and allegiance....so they always push their funds even though they may have zero history.

Our friends think we are crazy for having zero credit and not borrowing. I guess we are.

Edited September 9, 2012 by epsilon

[Fud]

Our friends think we are crazy for having zero credit and not borrowing. I guess we are.

This is the only area where I differ with the Dave Ramsey opinion of no credit. My wife and I use a few credit cards, but never maintain a balance. We have never been in any kind of debt and kept the card even after reading "Total Money Makeover". While I hate credit cards, mainly because the amounts do not show up immediately on the charge sheet, or immediately when you pay them off, I still see use for them. When we rented our current house, we were the top choice among five other couples because we had phenomenal credit scores. I rarely use the card, but do see some use for it.

As for Vanguard, I'm going to be looking into them when I get back because their expense ratios are very low, and their return is higher. I've also started to look at different auto insurance carriers as well, although I was in a wreck not too long ago, and USAA had outstanding customer service. It also didn't hurt that I had accident forgiveness on my account either.

I do have a question for people on the forum who use rental properties as an investment. Is it worth it? Do you make a lot of money with hardly any hassle, or is it a pain to be constantly fixing the house, evicting terrible tenants, etc? I've always been curious about this.

[nsplayr]

I thought one of the advantages of TSP (Roth or otherwise) was that it had the lowest fees period, even lower than Vanguard.

I agree with some above on credit and use of credit...if you pay off your credit card (or cards) each month without fail they're a useful tool for building your credit score and either getting cash back (free money if you're never charged interest) or discounts (ie. instant 5% off at target where we shop a lot).

[Buenos Diaz]

This is the only area where I differ with the Dave Ramsey opinion of no credit. My wife and I use a few credit cards, but never maintain a balance. We have never been in any kind of debt and kept the card even after reading "Total Money Makeover". While I hate credit cards, mainly because the amounts do not show up immediately on the charge sheet, or immediately when you pay them off, I still see use for them. When we rented our current house, we were the top choice among five other couples because we had phenomenal credit scores. I rarely use the card, but do see some use for it.

As for Vanguard, I'm going to be looking into them when I get back because their expense ratios are very low, and their return is higher. I've also started to look at different auto insurance carriers as well, although I was in a wreck not too long ago, and USAA had outstanding customer service. It also didn't hurt that I had accident forgiveness on my account either.

I do have a question for people on the forum who use rental properties as an investment. Is it worth it? Do you make a lot of money with hardly any hassle, or is it a pain to be constantly fixing the house, evicting terrible tenants, etc? I've always been curious about this.

I have two rentals. One is the house I plan on retiring in. I lose money on that one every month partly because I send the rental income straight to principle and then pay the mortgage out of pocket. It will be paid off before I retire. Similar concept to what others have said about saving a big chunk of money over 20 years to buy a house when they retire. In my case, I already have the house picked out and someone else is helping me pay it off. If it was truly just an investment it would be a bad one. The rent covers the mortgage but not the taxes and insurance.

The second rental is a money maker. I am clearing a few hundred every month (I hope Finance Guy doesn't chastise me for making a profit like in the Pit Pad thread). When I put my houses up for rent, I always price them below market by $50 to $100 per month. Every month they sit empty is $100 to $200 less a month you could have charged.

I have great property managers for both houses. I can't say it has always been rosy but the property managers handle the problems and try to keep me insulated from minor issues. The little bit of hassle is definitely worth the extra money I am paying the houses off with. I can go months without even thinking about the houses.

If the market was different, I probably would have sold the second house. But I figured since I am making money renting, why would I sell at a loss? When the market turns, I may sell the second house and use the proceeds to pay off the first rental early. I also own the house at the assignment I'm at now and stand to make a healthy profit on it when I sell. It helps to buy right.

My 2 cents on investing: As long as you are doing something, you are doing better than most. Compound interest is a wonderful thing. Just keep putting money away and you'll be surprised how much you end up with.

Later,

Buenos

Edited September 9, 2012 by Buenos Diaz

[Marco]

Big "2" on USAA thinking they are high and mighty with total loyalty. I got laughed at by a customer service rep when I called to cancel my auto insurance. Quite a few of us in my Guard unit switched to Geico (USAA rates are ridiculous for Florida). The rep refused to believe that Geico would up my coverage and cut my premium by more than half. I refuse to go back now.

As far as alternative investments, I've started a business this year, and am about to put a second house up for rent. The wife works in a business run by her family and also makes a decent mint buying/ selling stuff on eBay, etsy, zulilly, etc. Baby clothes and accessories mostly. Gotta be creative these days. :)

[BFM this]

I do have a question for people on the forum who use rental properties as an investment. Is it worth it? Do you make a lot of money with hardly any hassle, or is it a pain to be constantly fixing the house, evicting terrible tenants, etc? I've always been curious about this.

It can be, but it is typically overrated.

On the surface, your PCS orders are buying you a position. Nowhere else/noone else can secure investment positions with such regularity and impunity as the military member. That is worth something. When I get orders in hand, I can easily secure (most of the time) a 100% (or nearly so) leveraged position on a new property. But it comes with some downsides.

-First, I plan on management if I intend to hold (and rent). That's going to eat 9% off of your bottom line, and likely >50% off of your margin. Conventional wisdom holds that investment properties should be no further than a 30min drive. So long term, this can be a winning play; planning a 1031 (like kind) exchange once you end up in a rooted location, all of those real estate POSITIONS now become local properties that you can manage yourself.

-But the second (and more costly) downside is that: you make your money on the buy. I've seen this work for single dudes. But with a tribe in tow, that becomes a more difficult proposition. Try telling the frau that for the next pcs, you're planning on spending 3-6 (harrumph!) months in a temporary rental while you canvas the market and pick up a bargain. Good luck. Momma's going to want to start nesting immediately. Just how it is.

So, in practice, you're probably going to drive away from each duty station with another property that is ~$200-$400 in the red to start with. Keeping in mind that you are building principal while you are occupied, so it's not like it's money down the drain. And it will improve over time (with increasing rents), but my math has worked out to around a 6% long term yield when accounting for expenses. It can be a good conservative long term strategy, but it comes with the occasional ulcer.

FWIW

[Buenos Diaz]

It can be, but it is typically overrated.

On the surface, your PCS orders are buying you a position. Nowhere else/noone else can secure investment positions with such regularity and impunity as the military member. That is worth something. When I get orders in hand, I can easily secure (most of the time) a 100% (or nearly so) leveraged position on a new property. But it comes with some downsides.

-First, I plan on management if I intend to hold (and rent). That's going to eat 9% off of your bottom line, and likely >50% off of your margin. Conventional wisdom holds that investment properties should be no further than a 30min drive. So long term, this can be a winning play; planning a 1031 (like kind) exchange once you end up in a rooted location, all of those real estate POSITIONS now become local properties that you can manage yourself.

-But the second (and more costly) downside is that: you make your money on the buy. I've seen this work for single dudes. But with a tribe in tow, that becomes a more difficult proposition. Try telling the frau that for the next pcs, you're planning on spending 3-6 (harrumph!) months in a temporary rental while you canvas the market and pick up a bargain. Good luck. Momma's going to want to start nesting immediately. Just how it is.

So, in practice, you're probably going to drive away from each duty station with another property that is ~$200-$400 in the red to start with. Keeping in mind that you are building principal while you are occupied, so it's not like it's money down the drain. And it will improve over time (with increasing rents), but my math has worked out to around a 6% long term yield when accounting for expenses. It can be a good conservative long term strategy, but it comes with the occasional ulcer.

FWIW

Great advice! You can mitigate the downsides of your second point by starting your househunting as soon as you get your orders. My wife and I start researching as soon as we received orders. We narrow our search down to school district first (important factor to a lot of folks), then proximity to work (military and civilian), amenities (shopping, clubhouse, pool, etc.), and then our individual preferences (# beds/baths, yard, fixer upper).

We like to fix up the houses we live in so we typically buy the house for 15 - 20% below market, put in some sweat equity, and then when we turn around to rent or sell we are above market value because of the upgrades. The last house I rented out, was on the market for only 7 days and rented for full asking price with an 18 month lease. The other took two weeks to rent out for full asking price. I think the reason I can rent my houses out quickly is because I keep them up and I price them slightly below market.

I've never had to evict anyone. I think this is because I have great property managers that screen out the undesirables.

Later,

Buenos

[Champ Kind]

I love when the "credit" discussion comes up.

You guys continue to crack me up when you insist that "using" credit cards is somehow contributing to your wealth.

You are doing nothing but putting money into the hands of credit card companies. Plain and simple. Want to be wealthy one day? Start paying in CASH and live on a budget that puts every dollar in its place every week. You'll feel like you got a pay raise, and you won't owe anything to anybody.

[nsplayr]

I love when the "credit" discussion comes up.

You guys continue to crack me up when you insist that "using" credit cards is somehow contributing to your wealth.

You are doing nothing but putting money into the hands of credit card companies. Plain and simple. Want to be wealthy one day? Start paying in CASH and live on a budget that puts every dollar in its place every week. You'll feel like you got a pay raise, and you won't owe anything to anybody.

So the approx. $400 I got in cash back from my credit card last year wasn't "contributing to my wealth?" I paid exactly $0 in interest, so no money was "put into the hands of credit card companies." Am I missing something here?

And for those who haven't fully chugged the Dave Ramsey cash-only no-debt Kool Aid a good credit score helps you secure the best rates for mortgages and other lines of credit you may choose to take down the road. Not sure what's wrong with planning ahead for known factors...if you know you will at some point take a mortgage/car loan/personal loan, etc. it behoves you to ensure your credit score as high as possible.

Edited September 9, 2012 by nsplayr

[Fud]

I love when the "credit" discussion comes up.

You guys continue to crack me up when you insist that "using" credit cards is somehow contributing to your wealth.

You are doing nothing but putting money into the hands of credit card companies. Plain and simple. Want to be wealthy one day? Start paying in CASH and live on a budget that puts every dollar in its place every week. You'll feel like you got a pay raise, and you won't owe anything to anybody.

I view credit cards kind of like crack cocaine. Not everyone gets addicted, but the majority of people do. Same thing as people who cannot handle alcohol. You need to show self control and pay down your credit card every month if you have one. That is how they were designed originally, and I think the credit card company should shut down your line of credit if you cannot pay, vice raising your limit when you have more of a balance on the card.

I agree paying for everything in cash is awesome. When I bought my last car in cash a little over six months ago, the salesman was talking me through all the options of how to pay for it, asked me for my SSN so he could give me my credit score first to determine monthly payments. I smiled and told him that wouldn't be necessary and told him I'd write a check. I was at one of these "no haggle" places, which I hate with a passion, but they still went lower because I was paying for the car outright. The salesman could not believe I was doing this, and then asked me in disbelief how old I was. I was then able to tell him about this philosophy of investing. I hope I don't sound like I am being pious about this stuff to people who don't follow it, but it is an amazing feeling to pay for big ticket items immediately and let your money work for you.

Another aside, Kelly has a black book as well as a blue book. This black book gives prices the dealers pay for their vehicles (not sticker price, not MSRP). You should never pay $1K over the invoice price for any vehicle you buy. Knowing this, most dealerships will try and tack on things like laser etching for $1K in addition to the price, and an overpriced warranty. If you have an emergency fund, you won't even need the extended warranty.

[sky_king]

You guys continue to crack me up when you insist that "using" credit cards is somehow contributing to your wealth.

Like what nsplayer said. I got back about $750 from CitiBank last year and paid them $0 interest. I've had a credit card since I was 15 and I have not once paid a late fee or carried a balance (weird, huh?). Because of this, my credit score when I bought my house was in the high 700s which made my interest rate lower. The lower interest rate will save me more than $10,000 over the life of my mortgage.

Credit cards are not the devil. The way I use my card, it is basically a debit card that deducts from my checking account once a month instead of every purchase. Financial responsibility is the same regardless of method.

[Swizzle]

Not having a credit card is dumb, it however doesn't belong in an investment discussion.

Bottom line: businesses must pay credit card companies for accepting/using their cards. You as the consumer pay the fees of the business offering that credit card. This is why credit card companies can offer cash-back, rewards, perks, etc....

Most people are paying the credit card fees even if they're paying cash. How many stores do you know that have 2 prices? Cash price and credit price?

There are businesses which mandate minimum purchases.

https://truecostofcredit.com/

I say take advantage, get back 1% or perks because you're paying ~3% extra for the store to pay AMEX, Visa, or Mastercard...

[sky_king]

Unless they have the Cash/Credit price, you're paying the "credit card premium" anyway. True, this probably doesn't belong in an investment thread. Unless of course you're talking about not carrying a balance. That said, the cash back from my credit card did out perform my IRA last year. Sad but true.

[Champ Kind]

Agree to disagree, fellas.

[MC5Wes]

" Like you, I also am a follower of the Dave Ramsey approach "

I would just like to add. Back in 2007 Peter Schiff saved me about 75K of my TSP balance.

When everyone including Dave Ramsey were saying we were not heading for trouble. Peter Schiff was the only one saying we were heading for a cliff.

I knew we were in trouble when all of my ART brothers i worked with were buying 300K houses using zero interest loans. After hearing him. Just enforced what I knew already. Moved all my TSP money to the G-Fund.

[Archa3opt3ryx]

Maybe slightly off topic, but can anyone give investment advice for a new 2Lt? Zero debt, only living expenses are gas and groceries which is maybe $400 of the $2800 I'm getting every month. I have 20% of my paycheck going into TSP, and I'll switch it over to Roth as soon as that becomes available. Any other good first moves?

[epsilon]

Not having a credit card is dumb, it however doesn't belong in an investment discussion.

Bottom line: businesses must pay credit card companies for accepting/using their cards. You as the consumer pay the fees of the business offering that credit card. This is why credit card companies can offer cash-back, rewards, perks, etc....

Most people are paying the credit card fees even if they're paying cash. How many stores do you know that have 2 prices? Cash price and credit price?

There are businesses which mandate minimum purchases.

https://truecostofcredit.com/

I say take advantage, get back 1% or perks because you're paying ~3% extra for the store to pay AMEX, Visa, or Mastercard...

Please tell my why I need a credit card. I can buy everything with cash. I can get rental cars with my mastercard or visa debit card. I can reserve and pay for hotels the same. I can get a mortgage with a quality lender even if I have a zero credit score. Emergencies? Well, I have over 6 months of expenses sitting in a money market that I can instantly use to take care of any emergency necessary. I have travelled all over the world with just a debit card and cash...zero issues. I'm not telling you that you shouldn't have a card, but the fact that you think not having a card is dumb is simply ignorant. Cash is king....and you often get a better deal when you break out the cash.

[Archa3opt3ryx]

Please tell my why I need a credit card. I can buy everything with cash. I can get rental cars with my mastercard or visa debit card. I can reserve and pay for hotels the same. I can get a mortgage with a quality lender even if I have a zero credit score. Emergencies? Well, I have over 6 months of expenses sitting in a money market that I can instantly use to take care of any emergency necessary. I have travelled all over the world with just a debit card and cash...zero issues. I'm not telling you that you shouldn't have a card, but the fact that you think not having a card is dumb is simply ignorant. Cash is king....and you often get a better deal when you break out the cash.

What's the difference between a debit card and a credit card that you pay off in full every month? The credit card has the advantage of positively impacting your credit score and giving you cash back, both of which are never bad things. So, why not have a credit card (that you pay off in full every month)? Hell, I'm getting 6% back on gas and 3% on groceries on my card, find me a debit card that'll do that.