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

[Danny Noonin]

I'm a bit confused, I was previously told by someone that the mil does not offer a "Matching" retirement investment vehicle like 401k. If they do what is the % match they offer?

matmacwc is an ART (technician) which is like a combination of GS and traditional (part-time) guardsman. The matching portion comes from the GS side of his job, not the military side.

[Danny Noonin]

IAALX is an IRA and mutual fund (Trans-America calls is a fund of funds)

Not sure if you mis-typed but that statement is not completely true. IAALX is a mutual fund. Period dot. It happens to be where your IRA is, but the fund in and of itself is not an IRA. An IRA is simply a type of account a person can have that has tax advantages (as is a Roth IRA, 401K, etc.). You can have an IRA in mutual funds or a variety of other investments. The IAALX fund is not limited to IRA accounts--you could have a regular, non-tax advantaged account in that fund as well. While it's true that it does invest in other mutual funds (and mutual funds can be invested in many different types if investments, not just stocks), IAALX is a mutual fund that invests mostly in stock mutual funds. So IAALX is predominantly a stock fund--approx 90% of your money is ultimately invested in stocks.

if I look at my net worth after 1 year of doing what DR says, I'm fairly happy.

If you're "fairly happy", then fine. But I'm trying to help you out here. You appear based on your posts to really have no real clue about investing, fees, loads, diversification, etc. As I've posted before, I used to be clueless. I was advised by someone I "trusted" to put my money into a consistently underperforming, extremely expensive fund. My misplaced trust and naivete combined to cost me a lot of money over the long run.

And putting in 5k into TSP and getting 5k of matching (about) doesn't suck. Benefit of being an ART.

You've said this now a couple of times and I'm wondering if you are confusing the TSP match with some sort of returns. Of course it's a good deal when someone matches your investment. It's free money. But that concept is absolutely independent of any returns you would get on the investment. In this case, since the match is completely unrelated to your IRA (it's in TSP) you need to mentally divorce the two things when you are analyzing the performance of your retirement accounts.

I'm trying to help you brother. Whether you follow Dave Ramsey or not, whether you trust his recommended investment advisors or not, YOU need to get smart on this stuff. You owe it to yourself--as do all of the folks on here that don't understand the basics about their money and investing--so you don't get taken. I've said this several times on the forum, but go buy or check out from the library a basic book on investing. I recommend "Investing for Dummies," "Mutual Funds for Dummies," "Personal Finance for Dummies" or something of that sort. They won't make you Warren Buffet but they do a good job of explaining the basics of this stuff at the caveman level. If you read that stuff, I suspect that you will see the light about where your money is truly going and what it could be doing for you if you weren't overwhelmed with loyalty to a guy you've never met (DR).

The fund you've chosen (IAALX) is not the worst out there--there are far worse. But it is consistently underperforming both the S&P and against it's category (similar type funds) every single year since it's inception according to what I can find on it. The thing that alarms me about it is that it is extremely expensive--2.2% in expenses per year plus a 1% load. That's really ridiculous. Someone is making a shit ton of money off of you, whether your IRA makes money or not. The question you would have to ask yourself is why would an investment advisor recommend a fund to you that has never even beaten the S&P 500 index? What is it about this fund that makes it the place to put your money? It's certainly not based on a history of strong performance. Possibly your investment advisor has a crystal ball and believes this fund is well positioned for the future, but that hasn't worked out well for you so far. I suspect it's because it's the best way to make him money, not because it's the best way to make you money. I've been there.

Some quick hypothetical caveman math may put this in perspective a bit more for you...

If you had $50K in IAALX on Jan 1st 2012 and never contributed another dollar, your IRA would be worth $55,930 today (11.86% gain as I type this). Let's assume for the purposes of the discussion that it would be the same on Dec 31. 2.2% in expenses equals roughly $1,200 that you paid over the year for that performance. You would also pay a 1% back end load on all of that money when you withdraw.

If you had that same money in the Vanguard S&P 500 index fund, it would have made 15.44% so your $50K would be $57,720. The expenses are a lean 0.17% which is less than $100 for the year with no load--over $1,100 less than you paid (whether you realize that you paid it or not) for lesser performance.

The difference is almost $2,000 this year alone not counting the load, so about 4% of your initial $50K more than you have now. Not chump change.

If you had put your money in a commonly recommended managed fund--T Rowe Price Growth Stock--it would have gone up over 20% this year. That's about 4 grand more than you made or 8% of your initial hypothetical money. That's really not chump change.

I'm sure there are errors in my back-of-an-envelope math, but you at least get the idea. Disclaimer: I'm also only using numbers from this year, so that's not necessarily fair nor is it the complete picture. Obviously they vary from year to year, the long term is what counts, and past performance is not necessarily indiciative of future performance, but like I've said, from what I can see your fund consistently underperforms year after year. And you are paying extra for it to do that. That's the point I'm really trying to get across with regards to IAALX.

All I'm saying is that you would do yourself a great service, sts, to learn up on this stuff on your own. If you end up sticking with your plan, so be it. But do so armed with some basic knowledge and make the best decision you can based on logic and facts, not loyalty.

Edited October 15, 2012 by Danny Noonin

[ThreeHoler]

I'm a bit confused, I was previously told by someone that the mil does not offer a "Matching" retirement investment vehicle like 401k. If they do what is the % match they offer?

Also, anyone utilize sharebuilder for their investments? I just signed up for them, seems like their auto investment plan for $12 a month is a nice deal (12 stock purchases included, every 1 after is $1, plus other discounts). Before I jump into that was wondering if anyone has experience with them.

Their fee schedule sounds terrible.

https://investorjunkie.com/6285/sharebuilder-review/

[Smokin]

Why buy individual stocks? Index funds with extremely small expense ratios will almost always outperform individual stock purchase plans like that one. And $12 a month actually does sound like a lot compared to $0 per month with companies like Vanguard where you can set up the same system for free.

And to second Noonin's advice, if you haven't read The Investors Manifesto, I suggest you go to the library ASAP. I won't go into all the math he does, but he goes through a hypothetical situation where an investor uses a brokerage for 40 years that charges a 3% fee. If the brokerage turns around and invests their 3% charge in an index fund like most of them at Vanguard, the brokerage will have actually made more money over the 40 years than the investor. That is pretty eye opening and could/will have a huge impact on your retirement savings.

[HeyWatchThis]

I get that you follow Dave Ramsey and like it. If it works for you, fine. It's your money. But you might do well do think for yourself a bit once in a while. Dave Ramsey's "ELPs" are all commission based. They make money when the sell you funds with a load and high expenses. Guess where some of those fees go? Back to the Lampo Group--Dave Ramsey's company--as a referral fee. I'm sure you know this because you've looked it up yourself..

I thought DR strongly advocated against using commission based financial advisors? I know he says that in his videos but are his ELPs going against that? I thought he made money off ELPs by charging them for his name's endorsement?

[Danny Noonin]

I thought DR strongly advocated against using commission based financial advisors?

Not according to his website:

How are you paid?

Your advisor is paid any number of ways, so what you’re looking for is an honest answer. Your advisor should be willing to explain all fees and expenses associated with the investments he or she recommends. Don’t settle for anything less.

Dave prefers a commission-based advisor and funds.

Edited October 16, 2012 by Danny Noonin

[Bishop]

Why buy individual stocks? Index funds with extremely small expense ratios will almost always outperform individual stock purchase plans like that one. And $12 a month actually does sound like a lot compared to $0 per month with companies like Vanguard where you can set up the same system for free.

And to second Noonin's advice, if you haven't read The Investors Manifesto, I suggest you go to the library ASAP. I won't go into all the math he does, but he goes through a hypothetical situation where an investor uses a brokerage for 40 years that charges a 3% fee. If the brokerage turns around and invests their 3% charge in an index fund like most of them at Vanguard, the brokerage will have actually made more money over the 40 years than the investor. That is pretty eye opening and could/will have a huge impact on your retirement savings.

I like to have a mixture of the index funds and the individual stocks never let yourself be weighted in one thing. I am looking into vanguard but for the time being I have about $200 in different incentives i got just for signing up that I need to stay with them for a while.

[HeyWatchThis]

Not according to his website:

How are you paid?

Your advisor is paid any number of ways, so what you’re looking for is an honest answer. Your advisor should be willing to explain all fees and expenses associated with the investments he or she recommends. Don’t settle for anything less.

Dave prefers a commission-based advisor and funds.

Haha wow......thats pretty shitty business ethics......

I admit, Dave Ramsey's teachings on having a budget and sticking to it (I know he repackaged age old advice but its what worked for me) really helped set my wife and I up for a comfortable future but I have never really bought into his investment advice 100%.

I'll confess I am a member on the my total money makeover forums and I asked about this..........to no ones surprise the lap dogs who vehemently and blindly defend him came out in full force......

I'll stick to using Vanguard and a few other avenues for investing..............

Edited October 16, 2012 by MattS

[Bishop]

Why buy individual stocks? Index funds with extremely small expense ratios will almost always outperform individual stock purchase plans like that one. And $12 a month actually does sound like a lot compared to $0 per month with companies like Vanguard where you can set up the same system for free.

After looking at Vanguards, I see the value if I am just buying up vanguard ETF's but If I invest in something other than vanguard I'm looking at 7.25 a trade and then after so many it jumps to $20 a trade.

Three holer, what do you consider a good fee schedule? I had everything with USAA but even that gets pricy after a while. I see they have the $4 flat fee brokerage at tradeking. Am I missing something seeing where the $12 a month for 12 auto trades ($1 per trade beyond 12) and discounted brokerage ($7.95 a trade).

[Bishop]

Some of you seem much more informed on some of this stuff than I am. Was hoping to get some clarification on the tax penalties when holding a stock less than a year. May seem pretty straightforward but want to be sure I have a clear understanding

• I buy one share of XYZ today and then Next week I buy another share of XYZ
  
• One year from last week I sell one of my shares having held both shares less than a year but I'm still holding the other share, I assume I'm hit with the tax penalty for that one share (assuming I had profit)
  
• I pick up another stock of the company a week later, does it matter that I'm back up to 2 shares in that tax year?
  
• When I am being taxed on the short term gains, are they taxing me on my pre-gain income or is the gains from the sale figured in possibly bumping me up another bracket.
  

Just FYI this is purely curiosity and i have been reading up on it and became confused by it. I am nowhere near a stage that I would possibly worry about being bumped up another tax bracket (nor am I dealing with any "gains" at this moment.

Thanks in advance.

[Danny Noonin]

Was hoping to get some clarification on the tax penalties when holding a stock less than a year.

So, you're on an anonymous internet forum asking pilots for tax advice on which you will make financial decisions?

Bad idea jeans. I was going to wear a condom but then I figured "when will I ever make it back to Haiti?"

[Bishop]

lol not basing any decisions on it, just wondering if someone knew, just noticed some people seem to know what they were talking about on here.

[Learjetter]

lol not basing any decisions on it, just wondering if someone knew, just noticed some people seem to know what they were talking about on here.

Don't confuse "length of post" (sts) with intelligence.

[Danny Noonin]

Nice jab there

[matmacwc]

DN...PM sent.

[Butters]

lol not basing any decisions on it, just wondering if someone knew, just noticed some people seem to know what they were talking about on here.

There is no penalty. Selling within a year is taxed at short term capital gains rate and over a year is long term. If you do not know the difference I would stop buying shares of XYZ on your e-trade account and go talk to a proffsional. ( not Dave Ramsey)

[Hacker]

When I was a young 2Lt, I got roped into the USPA gig. Nice retired Lt Col pilot was the local USPA guy and sponsored my UPT class. Gave a great sales pitch about how loads don't matter in the long run and "you get what you pay for" with loaded funds...which is absolute bullshit. They put me into a fund that severely underperformed the market for years and years until I finally wised up. That was an expensive lesson for me in the long run and I'm pissed about it to this day.

I got suckered into this too back in '95, and like you I was pissed that I wasn't smart enough to understand it was a sucker bet at the time.

That experience actually paved the way for me getting smart on my own investments such that I wouldn't get into a loser deal like that again.

I'm fortunate that, outside of the $$ I flat out lost on that first-year 50% load, the check I received when I cashed out of Fidelity Destiny was worth more than the face value of what I'd invested (although by about 2% per year, which is a terrible, terrible return). I consider the money I 'lost' a fee for being ignorant about what I was doing with my money.

Edited October 18, 2012 by Hacker

[Bishop]

There is no penalty. Selling within a year is taxed at short term capital gains rate and over a year is long term. If you do not know the difference I would stop buying shares of XYZ on your e-trade account and go talk to a proffsional. ( not Dave Ramsey)

I suggest you re-read my original question. I was asking how literal the law is or if there are exceptions with regards to selling then picking the same thing up a week later if it makes a difference and other scenarios. I was also asking if anyone knew the IRS takes your income before or after the sell in determining your bracket. This question primarily comes about from curiosity of dividends that get auto reinvested are those also required to be held for a year. Thank you for explaining to me the difference between short and long term although that isn't what I asked.

[Danny Noonin]

I suggest you re-read my original question.

I suggest you quit being a prick. Don't come on here and ask for advice then throw spears at someone attempting to reply to your question honestly--even if it's not quite what you were looking for.

I say again...don't ask anonymous people on internet forums for tax advice.

[Bishop]

I suggest you quit being a prick. Don't come on here and ask for advice then throw spears at someone attempting to reply to your question honestly--even if it's not quite what you were looking for.

I wasn't really being a prick, maybe I misread the tone but I picked up sarcasm in his post and responded as I would normally to someone being sarcastic towards me. If he had read my question it would be quite obvious I understand that if you dont hold it for a year you are penalized with short term gains my question was regarding the clarification of the rule and other factors that would be accounted for in the penalization. What I took as sarcasm was him stating that if I dont understand the difference between short and long term gains I shouldn't be trading at all when that had nothing to do with my original question.

Thank you for reiterating your advice to not take advice on an anonymous board. Ill be the first to admit I dont know my @$$ from my hand on most of this investment stuff, you were one of the people I was referring to who appears to know much more about this than I and I was hoping to get some sort of useful feedback but would of been just as ok with none at all. Instead I'm getting criticism for my curiosity which is fine too, but not what I was hoping for. This thread is about investments, taxes need to be taken into account on investment decisions, I figured it was a good place to ask.

[Danny Noonin]

Instead I'm getting criticism for my curiosity

No you weren't. You are getting criticized for throwing a spear at a guy who tried to answer your question. If you don't feel he understood your point well enough to answer what you were really asking then you don't get to take a shot back at him. You can clarify your point, but not with attitude like you did. You're asking for someone to take their personal time to help you. You take what you get.

I re-read your first post and I still don't understand what the fuck you are really asking. It's a confusing post. Call me illiterate...or maybe you just can't write coherently. Maybe a little of both. Your second post on the subject was a complete bucket of fuck for sure.

My point and his both stand. You appear to need professional advice. Don't come on the internet and ask strangers tax questions, then bitch that their answers didn't live up to your bullshit expectations.

Edited October 18, 2012 by Danny Noonin

[Bishop]

You keep telling me to not ask advice on an anonymous forum, however your giving out most of the advice on here (and its pretty damn useful advice). Perhaps I underestimated the complexity of my question and/or screwed up the wording I'm sure it was both. I was asking for clarification on the penalty's for short term gains with 3 different scenarios, not sure why that is hard for you to understand, but go ahead and belittle me more because you didn't understand what I was saying. No one is able to answer it fine enough, ill keep looking. If my post didn't make sense and you are willing to help me on the subject then maybe ask me to clarify what I asked, or at least tell me I would have better luck with an answer if my question dint look like a pile of crap.

I was not throwing spears, like I said I picked up on a smart ass remark so I replied back to him the same way. To simplify where I felt he was being a smart ass, it should be pretty clear to someone reading my question that I understood >1y=Short term, so it should be pretty obvious <1yr=long term gain. Not to mention I didn't ask anything about long term gains my question was only dealing with 1 year or less. Then he tells me I shouldn't be doing any trading because I dont know the difference, does that mean since you cant answer my question you have no business trading stocks either? If he was truly trying to help and not be sarcastic with his response to me then I am truly sorry I misread his tone.

This is going off course, so I am sorry if I upset you or butters, you were both right and i was wrong. Thank you for your insight whether you believe it or not, I admire your knowledge on investments.

Edited October 18, 2012 by Bishop

[Butters]

You keep telling me to not ask advice on an anonymous forum, however your giving out most of the advice on here (and its pretty damn useful advice). Perhaps I underestimated the complexity of my question and/or screwed up the wording I'm sure it was both. I was asking for clarification on the penalty's for short term gains with 3 different scenarios, not sure why that is hard for you to understand, but go ahead and belittle me more because you didn't understand what I was saying. No one is able to answer it fine enough, ill keep looking. If my post didn't make sense and you are willing to help me on the subject then maybe ask me to clarify what I asked, or at least tell me I would have better luck with an answer if my question dint look like a pile of crap.

I was not throwing spears, like I said I picked up on a smart ass remark so I replied back to him the same way. To simplify where I felt he was being a smart ass, it should be pretty clear to someone reading my question that I understood >1y=Short term, so it should be pretty obvious <1yr=long term gain. Not to mention I didn't ask anything about long term gains my question was only dealing with 1 year or less. Then he tells me I shouldn't be doing any trading because I dont know the difference, does that mean since you cant answer my question you have no business trading stocks either? If he was truly trying to help and not be sarcastic with his response to me then I am truly sorry I misread his tone.

This is going off course, so I am sorry if I upset you or butters, you were both right and i was wrong. Thank you for your insight whether you believe it or not, I admire your knowledge on investments.

Shit I missed a lot. Took forever to get to the runway out of ATL. Now my internets are back on.

I was not being sarcastic. You obviously do not understand how securities are taxed.

Ok, short term CG tax is not a penalty! All securities are taxed from the day you buy it to the day you sell it. If you buy XYZ on 2 mar and get a reinvested dividend on 5 may and sell on 4 mar the next year your 2 mar shares rte taxed long term and 5 may short term. It is not that difficult. If you only sell some of the safes you need to specify which ones the are. You can sell all or some of the shares you bought on the different days. If I were you I would just spend the money on stripers and cocaine.

Pardon Amy misspellings as this was sent from my iPhone.

[Bishop]

Thank you Butters, I apologize for jumping to the offense previously, I really thought you were being sarcastic toward me

I was referring to it as a penalty because to my understanding your taxed differently Short term (no to your benefit) then you are long term. Regarding specifying which securities you intend to sell, when I used USAA I did not see an option to state which ones you wanted to sell (I assume they are FIFO). I know the concept is not that difficult to grasp but with taxes there is always some sort of side note it seems (this only applies if a and b did or didn't happen). Just wondering if that was one of those instances.

[Danny Noonin]

You keep telling me to not ask advice on an anonymous forum, however your giving out most of the advice on here

Actually, no I haven't. The only actual advice I gave out was to read up on your own about financial basics so you can understand things like expenses, loads, risk, diversification, etc. and how those things affect your money. Everything else was simply pointing out the facts about one particular fund and how I felt a specific individual was getting robbed by his financial advisor. Never did I actually recommend anything other than doing some research.

Edited October 18, 2012 by Danny Noonin