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

[nsplayr]

2 hours ago, stlpilot11 said:

Not looking for financial advise - just curious. I am a newly commissioned 2Lt so I have the option to take out the 2.99% 25K USAA career starter loan. I also have a HYSA which pays 4.6% interest. It seems like a no brainer to take out the loan and just leave it in my HYSA. Is this a crazy idea?

Nope, just don't fuck it up and pay back the loan. The difference in interest can be your reward for being smart about it, there's really no tricks AFAIK.

[FourFans]

7 hours ago, stlpilot11 said:

Not looking for financial advise - just curious. I am a newly commissioned 2Lt so I have the option to take out the 2.99% 25K USAA career starter loan. I also have a HYSA which pays 4.6% interest. It seems like a no brainer to take out the loan and just leave it in my HYSA. Is this a crazy idea?

Here's the problem with having 25K.  In theory you'll put it in a HYSA and let it sit.  But you won't.  Having 25K at that age and leaving it alone is very tough.

[herkbier]

1 hour ago, FourFans said:

Here's the problem with having 25K.  In theory you'll put it in a HYSA and let it sit.  But you won't.  Having 25K at that age and leaving it alone is very tough.

Be disciplined. If your plan is to make 1.6% for a few years, do that. 
 

I think TBills are paying around 5.5% if you’re worried about touching the money early. 

[brabus]

Dump it into a SP500 index fund and never log in to check on it, ever, no matter what. You’ll be glad you did. 

[StrikeOut312]

Throw it in something that’ll have a better rate of return than the high yield. Max your Roth IRA this year too.

Any SP500 index should be solid.

[Biff_T]

Put it all in on a brand new red Corvette!   Tell the ladies you're a pilot and let the rest fall into place.  

If someone tells you the above statement, don't listen to them.  The dudes above know what to do with money.  Chicks who will bang you for you red Corvette will give you herpes.  😉  I wish had that advice earlier in life.  

[FourFans]

19 minutes ago, Biff_T said:

Put it all in on a brand new red Corvette!   Frost your tips, Tell the ladies you're a pilot and let the rest fall into place.  

FIFY

[Biff_T]

3 minutes ago, FourFans said:

FIFY

This!!!

[ViperMan]

2 hours ago, Biff_T said:

Put it all in on a brand new red Corvette!   Tell the ladies you're a pilot and let the rest fall into place.  

If someone tells you the above statement, don't listen to them.  The dudes above know what to do with money.  Chicks who will bang you for you red Corvette will give you herpes.  😉  I wish had that advice earlier in life.  

Put it all on black.

[Biff_T]

1 hour ago, ViperMan said:

Put it all on black.

Do it.  

I Bet this guy would.

 

https://www.jetsprops.com/fighters/outshining-in-the-second-spot-thomas-mcguires-legacy.html

 

 

Edited January 29 by Biff_T
Afterthought

[StrikeOut312]

I mean if you need a car, buy one. I was the classic LT that bought a corvette shortly before finishing USAFA; put a little over half of my loan into the Vette. The rest went into investments. The career starter loan is set up to get you on your feet—if you need wheels, get something reasonable.

Or be like Biff, stories over standards, and make some wild memories!

[nunya]

On 1/29/2024 at 4:28 AM, StrikeOut312 said:

Max your Roth IRA this year too.

And last year.

[Lord Ratner]

On 1/29/2024 at 12:38 AM, brabus said:

Dump it into a SP500 index fund and never log in to check on it, ever, no matter what. You’ll be glad you did. 

 

On 1/29/2024 at 4:28 AM, StrikeOut312 said:

Throw it in something that’ll have a better rate of return than the high yield. Max your Roth IRA this year too.

Any SP500 index should be solid.

Don't do this.

 

The guys who did this in early 2000, and the ones who bought houses at their PCS locations in 2006/2007 got their dicks kicked. "It can only go up."

 

Now, if you already have much more than 25k (let's say $100k or more) in investments and can afford a 50% haircut on the 25k, then go for it. Otherwise:

 

Stick with your plan (or better, put it directly into T-bills with higher yields)

Or

If you want to put it into the SP500 (or other "unsafe" assets), put 1k per month in over the course of the next two years, keeping the rest in the HYSA as you dollar cost average your way into the market.

 

The stock market over time trends upwards. But in the short term it's a casino. I have most of my money in it, so I'm not just a paranoid gold hoarder, but you definitely shouldn't be dropping huge percentages of your wealth in when you have a deadline for repayment. The dudes who put their money into the NASDAQ at the peak in 2000 took fifteen years to break even. Same duration for the Vegas housing market to surpass the 2006 peak.

[TreeA10]

I started investing my flight pay as a 1Lt using dollar cost averaging.  Just put money in every month because the market will increase over the long term.  I quit adding money to that account years ago when I was hired at an airline.  That account has had some serious ups and downs over 40 years but is now approaching 7 digits because time in the market usually beats timing the market.  

[brabus]

@Lord Ratner What? He’s young and should get started on long term investment. Now is absolutely the time to put money in things like a SP500 index. A simple index will massively outperform his 2.99% debt. It’s also lower risk than buying individual stocks. Your advice to not do that is either retarded or you’re assuming he wants to cash out the hypothetical investment in a few years. If it’s the latter, I see that point, but also cashing out in a few years is exactly the opposite of smart long term investing.

I DGAF about 2008, and the simple reason is I didn’t lose my mind and pull out all my investments. I now have tons of gains from the very money I “lost” in that time period. If I was 60 at the time, it would have been different, but I was in my 20s with tons of time to wait it out. Buy early, buy often, have patience and emotional control = all someone needs to do in their 20s to build a solid base for retirement.

 

Edited February 1 by brabus

[mcbush]

Concur. If I were in my 20s, I would borrow infinite money at 3% to dump into index funds. Oversimplifying somewhat, but if you don't need the money any time soon, that's a damn good deal and a pretty safe bet. Over the past 100 years, the worst annualized return over any rolling 30-year period was 7.8%... (source)

[Lord Ratner]

1 hour ago, brabus said:

@Lord Ratner What? He’s young and should get started on long term investment. Now is absolutely the time to put money in things like a SP500 index. A simple index will massively outperform his 2.99% debt. It’s also lower risk than buying individual stocks. Your advice to not do that is either retarded or you’re assuming he wants to cash out the hypothetical investment in a few years. If it’s the latter, I see that point, but also cashing out in a few years is exactly the opposite of smart long term investing.

I DGAF about 2008, and the simple reason is I didn’t lose my mind and pull out all my investments. I now have tons of gains from the very money I “lost” in that time period. If I was 60 at the time, it would have been different, but I was in my 20s with tons of time to wait it out. Buy early, buy often, have patience and emotional control = all someone needs to do in their 20s to build a solid base for retirement.

 

It's not his money, it's the bank's money. If we need to go back to the basics of investing then step one is knowing who's money you're playing with.

 

There is a cataclysmic difference between dollar cost averaging, which is a good strategy for index investing, and dumping most of your (the bank's) money into something that historically has very large moves in the negative direction on its way up.

On 1/29/2024 at 12:38 AM, brabus said:

Dump it into a SP500 index fund

Anyone who dumped money into the market back in 2000 or 2007 took years just to get back to even. Those who dollar cost averaged did much, much better.

The same uniformed amateur financial advisors who recommended everybody buy a house at their PCS location "because housing never goes down" put a lot of people into some serious debt when '08 '09 came around. That's all well and good when it's your money to lose, but when it's the bank's money it's a very different game.

1 hour ago, brabus said:

A simple index will massively outperform his 2.99% debt. It’s also lower risk than buying individual stocks.

It may seem obvious to you that this statement has a gigantic caveat, but it might not to the cadet asking for financial advice. Better advice: " A simple index fund historically outperforms 2.99%. however that is a running average and varies dramatically based on the starting and ending points of the investment. Dollar cost averaging will help you avoid these wild fluctuations and take advantage of the long-term trend upward, so don't dump your money into an investment all at once, ever."

If that's what you meant, great. But it certainly wasn't obvious from your post.

 

[mcbush]

9 minutes ago, Lord Ratner said:

Dollar cost averaging will help you avoid these wild fluctuations and take advantage of the long-term trend upward, so don't dump your money into an investment all at once, ever.

Lump sum investing beats dollar cost averaging about two thirds of the time. There are a ton of studies on this... see, for example, this one from Vanguard.

Let me ask you this: would you be willing to loan me money at 2.99% if I told you I were going to invest it in the broad market? If not, what interest rate would you charge me to make that risk/benefit math worth it to you? I understand that it depends on the length of the loan, but what's your ballpark?

[StrikeOut312]

9 hours ago, Lord Ratner said:

 

Don't do this.

 

The guys who did this in early 2000, and the ones who bought houses at their PCS locations in 2006/2007….words

Sure, throw it all in on a car that’ll depreciate or wild times with your girlfriend or put it in conservative options.

You can hedge your bets and put some in index funds and some in a high yield. But as a young LT you have plenty of time to park your cash money (or the bank’s cash money) in the market. If it was too risky, they’d be charging more than 2.99%.

Seems like a waste to me to park the whole $25k in a high yield if you already have money in the HY account.

 

[brabus]

@Lord Ratner

Here’s a great index fund to dump that money in…if you look at this picture and still stand by your opinion, well then as Biff would say, LOL.

 

Edit: VFIAX for anyone interested

Edited February 1 by brabus

[nunya]

Gents, before this gets derailed too far, @Lord Ratner's point is not invalid. He's assuming you will pay the loan payments with the loan capital. Everyone else is assuming you pay the loan back with fresh paycheck money.

I'm in the latter camp because I think even as an Lt, you should be able to scrape together $450 from your paycheck and let the loan money sit for the long term untouched. You shouldn't NEED that loan capital to pay the loan payments. It should be locked away somewhere (i.e. 2x maxed Roths + the rest in a brokerage account, although I'm more of a VTSAX man, myself).

If you will NEED the loan capital to make the loan payments, then yes, put it in HY savings and make a few dollars on the difference.

[Smokin]

It takes a long time to get rich on your money.  Making money off of other peoples' money is the way to go.  For example, I bought a new house when the housing market was down.  I put a grand total of around $15K into the house between VA funding fee and improvements.  I rented the house out after I moved and sold it 10 years later at 200% more than I paid for it and walked away with about $50K more than the original purchase price.  I did all this with other people's money because I got the loan at a low rate so it was worth keeping it to keep making money off of other people's money.

If someone is willing to loan you money at well under inflation, take as much as they will loan you and put that money to work.  Don't buy a car with it, most companies now are subsidizing rates down to similar or lower than the 3% from USAA.  Invest it and your 40 year old self will thank you.  VFIAX is absolutely what I would do.  Then make yourself constantly add the same amount into that fund that you spend on beer and you won't have to worry about retirement.

[Lord Ratner]

1 hour ago, nunya said:

Gents, before this gets derailed too far, @Lord Ratner's point is not invalid. He's assuming you will pay the loan payments with the loan capital. Everyone else is assuming you pay the loan back with fresh paycheck money.

I'm in the latter camp because I think even as an Lt, you should be able to scrape together $450 from your paycheck and let the loan money sit for the long term untouched. You shouldn't NEED that loan capital to pay the loan payments. It should be locked away somewhere (i.e. 2x maxed Roths + the rest in a brokerage account, although I'm more of a VTSAX man, myself).

If you will NEED the loan capital to make the loan payments, then yes, put it in HY savings and make a few dollars on the difference.

Finally. You guys really haven't been paying attention to financial history for the last 20 years of you can't differentiate between investments with loaned money and investments with personal cash. Hell, we literally had the worst/second worst banking failure in American history happen less than a year ago, and all because the risk managers at the 4 banks invested borrowed money into what they were positive were highly safe assets. Until they weren't after a 40 year bond bull rally.

 

Leverage is always a completely different game. If you don't understand that, you have no business telling anybody what they should do with their money.

 

And anybody under the age of about 40-45 has never invested in a normalized interest rate environment. Absolutely everything has changed now that we are no longer in the era of ZIRP/NIRP. Just look at what is happening to commercial real estate, another "sure thing."

 

The cadet should absolutely dump his personal money into whatever investment vehicles he wants to, but investing with leverage is a dangerous game. It should not be done by anyone who assesses the viability of financial instruments simply by looking at the chart brabus posted.

[Lord Ratner]

10 hours ago, mcbush said:

Lump sum investing beats dollar cost averaging about two thirds of the time. There are a ton of studies on this... see, for example, this one from Vanguard.

That's great, but useless to an individual. Would you risk your financial stability on a one-time bet with a 33% chance you lose?

 

For personal funds, sure, for leveraged investing that's a different story.

10 hours ago, mcbush said:

Let me ask you this: would you be willing to loan me money at 2.99% if I told you I were going to invest it in the broad market? If not, what interest rate would you charge me to make that risk/benefit math worth it to you? I understand that it depends on the length of the loan, but what's your ballpark?

I would do it exactly how the investment firms do it. https://www.fidelity.com/trading/margin-loans/margin-rates

 

So around 9-12% with the option to liquidate your collateral if your losses put my funds at risk.

 

If the loan is restricted to only market index funds, then maybe that drops to Fed Funds Rate + 3 (so about 8.5%), but again, only if I have the option to liquidate your collateral if the investments decline towards a loss.

[BFM this]

On 1/28/2024 at 1:58 PM, stlpilot11 said:

Not looking for financial advise - just curious. I am a newly commissioned 2Lt so I have the option to take out the 2.99% 25K USAA career starter loan. I also have a HYSA which pays 4.6% interest. It seems like a no brainer to take out the loan and just leave it in my HYSA. Is this a crazy idea?

While everyone is busy not giving you financial advice...

Here's a thought, how about swinging for the fences toward financial independence?  

Did you have income in 2023?  If so, start a Roth IRA, and while you're at it, contribute to 2024 as well.  $6500 +$7000 = $13500.

Use the remaining $11500 to budget for fully contributing to your Roth IRA on January 1st every year going forward.

THEN, when you get promoted, take half of the promotion pay increase every month and put it in your Roth TSP. 

That's just a start; you should be thinking long term of how to budget so that you can fully contribute every year with your first few paychecks toward your Roth TSP; just takes having about $30k in cash to live off of, then you can set your Roth TSP to 100% at the beginning of the year for a few months.  Once your paycheck comes back, save up the $30k over the rest of the year to get ready for next year.  Front loading your Roth TSP is an O4 time horizon goal, don't rush it and get into a binge/purge financial cycle.  And, for the love of all that is holy, this should be the LAST consumer debt, aside from a house, that you ever touch.  You've got a good job and great career ahead of you, use it to live truly well.

(hint: if you're single this whole exercise becomes exponentially easier)