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

[nsplayr]

Valid.

[Termy]

3 hours ago, nsplayr said:

Valid.

I didn't get back to this until other good quotes were in there. I'll start by saying, I'm not against leverage at all. I love leverage. I leverage property as much as I can and the couple businesses I've been in (storage mostly) have of course levered. My point on borrowing money to invest is that under almost all circumstances you'd have to take some risk to have any spread on the yield. You mentioned this loan at 1.5% which is of course very cheap money. But look at cds, and t notes. You'd have to take some near term risk to even yield greater than 1.5%. That was my only point. 

[SocialD]

On January 28, 2017 at 0:34 AM, MilitaryToFinance said:

No matter what Dave Ramsey is selling you in his books, a little leverage isn't a bad thing.

2!  Before, I was paying $1,200/month to live in a single family home.  I bought a duplex with a little leverage, now I generate enough income to pay both of my mortgages and all of my monthly bills.  

18 hours ago, nunya said:

In fairness to Dave, his target audience doesn't know what leverage is, and certainly doesn't know how to properly use it without getting burned.

This!  I listened to his book while driving across the U.S., and his plan is extremely basic for most of the members of this forum.   However, I think his book should be read by more Americans.  It provides a good base for people so springboard off of, to other financial endeavors.  As a country, I think we do a TERRIBLE job of teaching our young financial intelligence and responsibility.  Unless your parents teach you, where do they get educated on this?  This is one of my soapbox items.  

Edited January 29, 2017 by SocialD

[nsplayr]

IMHO this covers about 69% of what most people would ever need to know:

I also enjoyed Predictably Irrational by Professor Dan Ariely. I'm a big fan of behavioral economics vs rational economics...the former seems to explain the real world much better.

Edited January 29, 2017 by nsplayr

[TreeA10]

4 hours ago, SocialD said:

2!  Before, I was paying $1,200/month to live in a single family home.  I bought a duplex with a little leverage, now I generate enough income to pay both of my mortgages and all of my monthly bills.  

This!  I listened to his book while driving across the U.S., and his plan is extremely basic for most of the members of this forum.   However, I think his book should be read by more Americans.  It provides a good base for people so springboard off of, to other financial endeavors.  As a country, I think we do a TERRIBLE job of teaching our young financial intelligence and responsibility.  Unless your parents teach you, where do they get educated on this?  This is one of my soapbox items.  

There is a Dave Ramsey course for High School kids. Our kids did it through home schooling.  My 23 yr old already has 10K in a ROTH. 

[nsplayr]

The field of behavioral economics was kind of born out of the observation that a lot of decisions were being made in the real world that don't match up with the rational-actor model that "standard" or rational economics theory would predict.  The goal is to find out some of the psychological and other factors that cause people to essentially act irrationally.  Lots of cross-over applications in public policy, politics, marketing, etc., any field that deals with humans making choices essentially.

I've found it really interesting and applaud programs by companies or governments that try to leverage the lessons learned from behavioral economics to help nudge people into making better decisions.

[HAWDINGL]

IMHO this covers about 69% of what most people would ever need to know:

I also enjoyed Predictably Irrational by Professor Dan Ariely. I'm a big fan of behavioral economics vs rational economics...the former seems to explain the real world much better.

100% tracking until the last one...

Wasn't Social Security supposed to be the "Social Insurance" plan? Instead it turned into a piggy bank and a government run retirement plan (Ponzi scheme)

As Reagan said... "The more the plans fail, the more the planners plan."

Everything else was very sound advice.

I've noticed the SNCO's push the TSP on our younger airmen now. However, when I ask them what they invested it in they have no idea. I think un-allocated funds go into the G-fund until you tell them where to go... one step at a time.


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[tk1313]

32 minutes ago, HAWDINGL said:

100% tracking until the last one...

Wasn't Social Security supposed to be the "Social Insurance" plan? Instead it turned into a piggy bank and a government run retirement plan (Ponzi scheme)

As Reagan said... "The more the plans fail, the more the planners plan."

Everything else was very sound advice.

I've noticed the SNCO's push the TSP on our younger airmen now. However, when I ask them what they invested it in they have no idea. I think un-allocated funds go into the G-fund until you tell them where to go... one step at a time.


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"Social Security"... Slowly turning into just another paycheck deduction that you'll never see benefit anyone outside of politics.

As far as TSP goes, everyone I talked to told me I need to put aside the max the government will match (5%)... As for the investment, for me it's 50% C, 30% S, 20% I

Someone I trust, who has made a lot of money by evaluating the market, told me to keep it that way until further directed. I took the advice.

Edited January 31, 2017 by tk1313

[matmacwc]

Meh, par for the course for NS, we all have different priorities.  I tell you what though, I'm at a stage in my life where I'm glad there is a net.

[nsplayr]

14 hours ago, tk1313 said:

"Social Security"... Slowly turning into just another paycheck deduction that you'll never see benefit anyone outside of politics.

As far as TSP goes, everyone I talked to told me I need to put aside the max the government will match (5%)... As for the investment, for me it's 50% C, 30% S, 20% I

Someone I trust, who has made a lot of money by evaluating the market, told me to keep it that way until further directed. I took the advice.

Well my in-laws are making ends meet because of social security, so that's directly benefiting them as well as me. Were it not for that check, based on my father in law's 30+ year career at a steel mill that went bankrupt and severely reduced his pension, they'd probably be living with us. So thank you to FDR and Uncle Sam for that.

Re: TSP advice, you receive no match as a mil member unless you opt in to the new retirement plan. If that is the case, then absolutely save, at MINIMUM, the amount that will afford you the max employer match. Like the card says, 20% (or higher) of total pre-tax pay is an even better goal, and one I live by. 

Re: safety net - yep, I strongly support smartly run government programs that provide a safety net for citizens who fall on hard times. This is a widely popular position to have. Saying it's every man for himself sounds pretty noble until life kicks you or someone you love square in the dick.

[tk1313]

7 hours ago, nsplayr said:

Well my in-laws are making ends meet because of social security, so that's directly benefiting them as well as me. Were it not for that check, based on my father in law's 30+ year career at a steel mill that went bankrupt and severely reduced his pension, they'd probably be living with us. So thank you to FDR and Uncle Sam for that.

Re: TSP advice, you receive no match as a mil member unless you opt in to the new retirement plan. If that is the case, then absolutely save, at MINIMUM, the amount that will afford you the max employer match. Like the card says, 20% (or higher) of total pre-tax pay is an even better goal, and one I live by. 

Re: safety net - yep, I strongly support smartly run government programs that provide a safety net for citizens who fall on hard times. This is a widely popular position to have. Saying it's every man for himself sounds pretty noble until life kicks you or someone you love square in the dick.

I completely agree with the concept of social security... I just think (my opinion only) we'll see it slowly transition from a program used to prop-up good Americans who have worked hard for most or all of their life to just another welfare program for individuals who gamed the system by avoiding work their entire lives -- ran by a group of politicians that use it as just another source of income cut from workers paychecks. The problem isn't social security itself, but the new ideals it seems we're taking on. It's NEVER an individuals fault for not having a job. Everything is blamed on the "system"... You've got generational welfare where it's basically squatters rights, and people who actually need low-income housing are put on a waiting list. Some people who are already living in the housing think it's their right to have government funded housing while they spend most of their lives applying for, then subsequently intentionally tanking, job interviews in order to keep the money coming in without actually having to put in any additional effort. Now saying that this type of person is the majority (or even close) would be a massive stretch, but nevertheless "one bad apple spoils the bunch" applies. Make it much more appealing/beneficial to actually work a minimum wage job than it is to live off welfare (as an able-bodied person), and we'll be taking a step in the right direction as far as the future of Social Security is concerned.

In summary (to avoid my ramblings): Social Security = GOOD; Where Social Security funds are trending = BAD. I actually have a similar case with my father-in-law... He has worked (and still works) 50+ years installing commercial aircraft radar and other miscellaneous avionics. He's most likely going to need to pull from Social Security due to the buyouts/bankruptcies, etc. (honestly don't know the particulars, but he has become less wealthy with the passing of time). He was even injured a couple times, and told me horror stories about the unemployment office... But that's a whole other topic...

[Clark Griswold]

Question for the forum:

I have a rental house and the good renters I have in their now, 18 months renting so far with no complaints, have expressed some interest in buying to my agent/prop. manager.  

I am considering offering them a rent to own agreement, has anyone done this before?

I would prefer a simple sale but the market is slow, my house is towards the upper end of the market in the neighborhood and the good renters I want to turn into buyers took a loss on their previous home and are hesitant on buying again.  

This seems to be a viable Plan B for all involved, has anyone done this and what was your experience and/or advice? 

[HossHarris]

Think of it more as a mortgage with you as the bank rather than "rent to own."  It's a seller financed loan. That will help keep your head in the right place. 

 

Are they hesistant to buy because of "feelings" or did they their credit get destroyed on the last house?  Why are you willing to sacrifice an appreciating asset?  If they're dropping hints to your agents, they aren't hesitant to buy...they may just be unable to buy the "regular" way. Why is that...and are YOU willing to shoulder a risk that a bank may not be willing to bear?

[ClearedHot]

On 1/31/2017 at 7:37 AM, tk1313 said:

As far as TSP goes, everyone I talked to told me I need to put aside the max the government will match (5%)... As for the investment, for me it's 50% C, 30% S, 20% I

Someone I trust, who has made a lot of money by evaluating the market, told me to keep it that way until further directed. I took the advice.

I would tweak the statement "put aside the max the government will match" to say put aside the "max allowable."  Most view these vehicles and contribution rates as a function of trying to get the most "free" money you can from a match, when in fact they are also a tremendous way to reduce your current year tax burden. 

My current company has a 4% 401K match but I contribute 25% of my paycheck which of course lowers my tax basis in the short-term and puts a much larger chunk of coin in play for investment growth.  I will worry about the withdraw taxes in a few years when I am in Thailand chasing hookers and withdrawing from my 401K.

I am lucky to have a retirement that supplements my income and not everyone is in the same position, but if you have the discipline to maximize your contribution from your first paycheck you will likely never miss it and your future self will send a thank you note.

 

[matmacwc]

We don't want to hear about your ladyboys 

[Clark Griswold]

12 hours ago, HossHarris said:

Think of it more as a mortgage with you as the bank rather than "rent to own."  It's a seller financed loan. That will help keep your head in the right place. 

Are they hesistant to buy because of "feelings" or did they their credit get destroyed on the last house?  Why are you willing to sacrifice an appreciating asset?  If they're dropping hints to your agents, they aren't hesitant to buy...they may just be unable to buy the "regular" way. Why is that...and are YOU willing to shoulder a risk that a bank may not be willing to bear?

Their credit is fine (at least the report I saw a year and half ago) but I think the loss on their last house just left them a hole to fill in.  

They didn't sell their toys, they have a Harley in the carport so I think it drained their available cash from non tax advantaged accounts.  

My guess is that they are hesitant based on emotion, not faulting them for that.  Not sure how much they lost but it stung I'm sure so once bitten twice shy.

With their track record of payment and no drama, a modest down payment (3%) and a 15 year agreement the risk seems manageable.

I'm interested in selling as I can't tell which way the neighborhood/city is going, it's stable for now but the city is like a lot of cities nowadays, it is getting bled dry of its tax base by the little town(s) right outside the city limits and the services have suffered as a result.  The roads are ok but could be better, the schools are ok but the county schools are better, etc...  

Edited February 17, 2017 by Clark Griswold
minor fix

[tk1313]

17 hours ago, ClearedHot said:

I would tweak the statement "put aside the max the government will match" to say put aside the "max allowable."  Most view these vehicles and contribution rates as a function of trying to get the most "free" money you can from a match, when in fact they are also a tremendous way to reduce your current year tax burden. 

My current company has a 4% 401K match but I contribute 25% of my paycheck which of course lowers my tax basis in the short-term and puts a much larger chunk of coin in play for investment growth.  I will worry about the withdraw taxes in a few years when I am in Thailand chasing hookers and withdrawing from my 401K.

I am lucky to have a retirement that supplements my income and not everyone is in the same position, but if you have the discipline to maximize your contribution from your first paycheck you will likely never miss it and your future self will send a thank you note.

 

You forgot one thing, I'm a millennial. I'm all about right now. Future me can go fvck himself.

In all seriousness though, great advice. I'll change it so that I'm contributing the max amount I can financially sustain.

Edited February 17, 2017 by tk1313

[ClearedHot]

12 hours ago, matmacwc said:

We don't want to hear about your ladyboys 

You shouldn't call your Mom a ladyboy.

[nsplayr]

2 hours ago, tk1313 said:

You forgot one thing, I'm a millennial. I'm all about right now. Future me can go fvck himself.

In all seriousness though, great advice. I'll change it so that I'm contributing the max amount.

Good on ya for saving as much as possible, however you must have had a ton of cash to throw around if you can casually shift from 5% all the way up to the IRS limit of $18K annually. Unless you're making $360K per year...if so then well played!

This article is excellent at explaining the pluses and minuses of Roth (or after-tax) investing vs traditional retirement investing.

BL: If you're not saving the extra money you have in your pocket due to a lower tax bill now, you're falling behind vs where you'd be choosing Roth. If you put the money you realize in tax savings into another savings/investment vehicle in order to foot your long-term tax bill, then you'll come out ahead. But very, very few people do that, and thus Roth is a good crutch (i.e. pay your taxes now, and whatever money you have on the backend is yours and yours alone).

Unless you know for a fact you'll be hanging with CH and the ladyboys in Thailand with a dramatically lower tax rate.  My working assumption is that for most youngish, smart, hard-working, high-earning people, their future tax rates are likely to be higher rather than lower. Personally, I'd rather pay my taxes now and do my future budgeting without having to worry about unknowable tax rates biting a piece out of my pie.

Cavet: if you're even having these types of conversation you're in like the top 6-9% of investors out there, so don't sweat it too much either way. It's like working out, you don't need the perfect program to be better than all the fat slobs out there, just go out and do something and you're already way ahead.

Edited February 17, 2017 by nsplayr

[tk1313]

1 hour ago, nsplayr said:

Good on ya for saving as much as possible, however you must have had a ton of cash to throw around if you can casually shift from 5% all the way up to the IRS limit of $18K annually. Unless you're making $360K per year...if so then well played!

This article is excellent at explaining the pluses and minuses of Roth (or after-tax) investing vs traditional retirement investing.

BL: If you're not saving the extra money you have in your pocket due to a lower tax bill now, you're falling behind vs where you'd be choosing Roth. If you put the money you realize in tax savings into another savings/investment vehicle in order to foot your long-term tax bill, then you'll come out ahead. But very, very few people do that, and thus Roth is a good crutch (i.e. pay your taxes now, and whatever money you have on the backend is yours and yours alone).

Unless you know for a fact you'll be hanging with CH and the ladyboys in Thailand with a dramatically lower tax rate.  My working assumption is that for most youngish, smart, hard-working, high-earning people, their future tax rates are likely to be higher rather than lower. Personally, I'd rather pay my taxes now and do my future budgeting without having to worry about unknowable tax rates biting a piece out of my pie.

Cavet: if you're even having these types of conversation you're in like the top 6-9% of investors out there, so don't sweat it too much either way. It's like working out, you don't need the perfect program to be better than all the fat slobs out there, just go out and do something and you're already way ahead.

Yep, for some reason I was thinking 10% was the max contribution, probably because I was painfully staring at the clock during indoc, thinking I was back in HS and the bell would ring any second so I could go to baseball/football practice.

Thanks for the article share and the great advice. I'll look into the tax-me-now option so I can take all that sweet cash with me when I'm older... Although obviously Latinas > Asian chicks, so I'll be on the opposite side of the world as CH. That just means less competition for him 

[ClearedHot]

On 2/17/2017 at 8:19 AM, nsplayr said:

Unless you know for a fact you'll be hanging with CH and the ladyboys in Thailand with a dramatically lower tax rate.  My working assumption is that for most youngish, smart, hard-working, high-earning people, their future tax rates are likely to be higher rather than lower. Personally, I'd rather pay my taxes now and do my future budgeting without having to worry about unknowable tax rates biting a piece out of my pie.

I would say that is up for debate.  Most earn less in retirement than during their peak earning years.  Worrying about future tax rates is valid given our national debt...

For now I am happy with my strategy, the current market is certainly not typical but I am up 7.1% since 1 Jan and I glad I have more $ in play.

 

[flyusaf83]

What do you guys think about the new retirement system? BRS seems like it's actually a pretty good deal. I'm in that window where you can decide to go with the legacy 50%/top 3 or the BRS 40%/top 3 + matching. 

I'm an 09' guy, so if I switch I will have missed on 8 years of matching, which sucks. However, it seems like it makes sense to switch if you're not decided on whether to say in for 20 or not.  I like the idea of the military paying me retirement now and giving me control of where I put the money.

If you are in that group that gets a choice, what are you planning on doing?

[nsplayr]

I've been a huge advocate for a new type of retirement system for many years (on here and IRL), and I think that BRS is a really good deal for many service members. Estimates are that something like 85% of those who serve will now receive some type of retirement benefit.

That being said, IMHO, if you're a pilot or otherwise served more than 6-7 years and you're even open to the possibility of transitioning to the ARC to at least qual for a reserve retirement, the old system is better. The old system is always and will always be better for those who make it to 20, hands down. You would need unrealistic market performance of your TSP account to make up for the reduction in the pension annuity, and even if you're super-optimistic, why shoulder the risk when under a defined benefit plan, the government assumes all the risk?

If you know for a fact that you won't make it to 20, even in the guard, and there's nothing that will change that, then BRS is a better deal every time. Even limited TSP matching for your last few years in service is better than nothing.

I'm curious to see what the continuation payment scheme will be, i.e. when it will be given and how much. The law gives the services quite a bit of latitude on that aspect of BRS and so far it's still TBD. Continuation pay is a not-insignificant part of what BRS will ultimately end up being and the sooner services figure that out and announce the deal the better.

Personally, even as a huge advocate for a new type of system, I'm sticking with the old system based on my own personal situation. 7 and change on AD, a little over 2 in the Guard so far and based on my relatively new job/unit I plan on making it to 20+ unless they kick me out first, so sticking with the old system is an easy call. YMMV.

Edited February 18, 2017 by nsplayr

[Kenny Powers]

I plan on making it to 20+ unless they kick me out first, so sticking with the old system is an easy call. YMMV.

Are you talking about 20+ years TIS or the equivalent of 20 AD years?

I haven't run the numbers but it seems like switching to the new system is a better deal (if you max the match) for someone in the Guard who won't have a lot of active duty time by the time they hit 20 years TIS, especially if they're fairly young.


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[Kenny Powers]

I should preface that statement with the fact that I'm not super smart about Guard retirement points stuff.

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