What's the point to building net worth if there isn't a destination in mind. What do we really want to have, to do, and to be when we grow up?
My wife and I have been talking about it lately, and started dreaming of what our lives might be like after our military adventure comes to a close.
So, in no particular order, here is what we're thinking about.
1. We don't want to worry about depending on a job to pay the rent, keep the lights on, or put food on the table.
2. We want our children to get a good education, but we also want them to feel some responsibility for paying for it.
3. We want continued access to world-class health care. As a future military retiree, we are very happy to know that our health care needs will be taken of at a reasonable cost.
4. We would like to live near our children, or have the means to travel to see them often.
5. We only want to work in positions that are interesting, challenging, and provide adequate amounts of leisure time away from the office.
6. We would like to live in our own home for as long as possible.
7. We want to leave our children a legacy that extends beyond money and possessions, but also includes integrity, honor, patriotism, and self respect.
Tuesday, June 24, 2008
Sunday, June 22, 2008
Saving vs Investing for College
I am considering changing the "Worst Financial Decision" portion of my NetworthIQ profile. Since my 18 year old is getting ready to begin college in the fall, I've looked back on my college savings plan with some regret. Yes, I did open a 529 plan and contribute along the way, but I anchored my plan with a regular purchase of Government EE Savings Bonds.
I justified this "investment" by thinking that the interest on the bonds was tax free when used for college, that the money could double as my emergency fund, and finally by believing that Savings Bonds were somehow a civic responsibility.
Well, if you run the numbers you'll see that this decision has had a much bigger impact on my financial life than the decision to purchase a new car ABOVE the dealer's sticker price when I was 22 years old.
Beginning in 1991 I've purchased a bond for $50 each month. Over the years, these bonds have earned an average of 4.5% and currently have a value of $15000.
If I had instead purchased a S&P Index fund, I would have earned an average of 10% and the account value would be over $25,000. The proceeds would be taxable, but at the 15% rate. I'd still be up more than $8500.
In the end this is a great example of savings vs investing. Buying CDs, savings bonds, or money market mutual funds are all examples of saving. Equity index fund investments get the most out of every dollar, and over time, have made real gains where savings have barely kept up with inflation.
I'll finance most of my sons college expenses with cash flow from work, but this effort would have had a lot less pain if I had invested more aggressively in the 1990s!
I justified this "investment" by thinking that the interest on the bonds was tax free when used for college, that the money could double as my emergency fund, and finally by believing that Savings Bonds were somehow a civic responsibility.
Well, if you run the numbers you'll see that this decision has had a much bigger impact on my financial life than the decision to purchase a new car ABOVE the dealer's sticker price when I was 22 years old.
Beginning in 1991 I've purchased a bond for $50 each month. Over the years, these bonds have earned an average of 4.5% and currently have a value of $15000.
If I had instead purchased a S&P Index fund, I would have earned an average of 10% and the account value would be over $25,000. The proceeds would be taxable, but at the 15% rate. I'd still be up more than $8500.
In the end this is a great example of savings vs investing. Buying CDs, savings bonds, or money market mutual funds are all examples of saving. Equity index fund investments get the most out of every dollar, and over time, have made real gains where savings have barely kept up with inflation.
I'll finance most of my sons college expenses with cash flow from work, but this effort would have had a lot less pain if I had invested more aggressively in the 1990s!
Saturday, June 21, 2008
Fighting the plan: Avoiding the Investor Induced Oscillation
You've probably heard about automated investing. You set aside a regular allocation to your investment account on a monthly basis, and it is automatically invested according to your instructions. This is a great plan because it takes advantage of what's called "dollar cost averaging". Over time you buy more shares when the price is low and fewer when the price is higher.
The trouble comes when you interfere with the plan based on an emotional response to the latest CNBC story about the certain demise of the equity markets. You frantically contact your management company, sell shares when the price is low, then jump back in when the prices are higher and the news stories are all positive.
There is a comparison in aviation. It's called a pilot induced oscillation. When the pilot has the aircraft properly trimmed for a given airspeed, if everything else remains equal, the plane will maintain heading, airspeed, and altitude with almost no control inputs. If the pilot begins to put unnecessary corrections in, the airplane will go into bigger and bigger oscillations as the pilot chases the desired attitude. The more inputs the pilot makes the more unstable the airplane becomes.
Modern airplanes are designed so that if the airplane goes out of control the best course of action is simply to remove your hands and feet from the controls!
You should do the same thing with your investment strategy. Set up your regular investments and then just do periodic monitoring. I actually believe that if you buy the right stock funds (low fee, no-load equity funds or exchange traded funds) you probably do better by only checking the value 4 times a YEAR! More than that will tempt you to "fix" a problem and lead to an Investor Induced Oscillation (IIO).
Set a plan and let it ride!
The trouble comes when you interfere with the plan based on an emotional response to the latest CNBC story about the certain demise of the equity markets. You frantically contact your management company, sell shares when the price is low, then jump back in when the prices are higher and the news stories are all positive.
There is a comparison in aviation. It's called a pilot induced oscillation. When the pilot has the aircraft properly trimmed for a given airspeed, if everything else remains equal, the plane will maintain heading, airspeed, and altitude with almost no control inputs. If the pilot begins to put unnecessary corrections in, the airplane will go into bigger and bigger oscillations as the pilot chases the desired attitude. The more inputs the pilot makes the more unstable the airplane becomes.
Modern airplanes are designed so that if the airplane goes out of control the best course of action is simply to remove your hands and feet from the controls!
You should do the same thing with your investment strategy. Set up your regular investments and then just do periodic monitoring. I actually believe that if you buy the right stock funds (low fee, no-load equity funds or exchange traded funds) you probably do better by only checking the value 4 times a YEAR! More than that will tempt you to "fix" a problem and lead to an Investor Induced Oscillation (IIO).
Set a plan and let it ride!
Thursday, June 19, 2008
(Really) Painless Retirement Savings
The President's 2009 budget proposed a 3.5% raise for military personnel. If you allot the raise to the Thrift Savings Plan in January, you'll see no change in your bi-monthly check and you'll have a significant contribution in your TSP account by year's end.
Using this technique, over a 20 year career, if your TSP earns 8% each year, you could have as much as $50,000 in the account with virtually no effort or pain whatsoever!
Using this technique, over a 20 year career, if your TSP earns 8% each year, you could have as much as $50,000 in the account with virtually no effort or pain whatsoever!
Wednesday, June 18, 2008
3% Checking Account
Here's an offer to consider. The Global Credit Union is offering a 3% annual percentage yield on accounts up to $30,000. You do have to meet a few qualifications to get the rate.
- Sign up for eStatements and opt-out of paper statements
- Provide an e-mail address
- Log in to the credit union online banking site once each cycle
- Receive an automated deposit or withdrawal to the account of at least $100 per cycle
- Use your debit card for at least 12 purchases per cycle
Monday, June 16, 2008
Saving on Commercial Flights
Military members are always looking for airfare bargains. CNN-Money offered these tips:
- Travel on Tuesdays or Wednesdays
- Fly between Labor Day and Thanksgiving
- Fly to popular destinations at unpopular times (Think Orlando or Colorado in the summer.)
- Buy tickets early in the morning
- Buy a travel package, not just a plane ticket (I've done this myself and saved $30 and got the rental car for free!)
Sunday, June 15, 2008
Feeding the Mob for $2.65 per day!
A lot of people are looking for ways to save money on groceries. The US Federal Prison system uses the Armed Forces Recipe Service as the basis for many of their menus. Using this process, the system wide average cost to feed an inmate is just $2.65 per day.
Is this a bread and water menu? No way! You can use this link to view a sample menu. It provides a vegetarian option at each meal, and provides quite a variety.
For you to duplicate this you'll need to purchase in big quantities, grow some of your own vegetables, and hire some people who will work for about $.25/hr.
The menu does a good job of dressing up inexpensive food choices, gives good variety, and can be the basis of a money saving food plan for any family.
Is this a bread and water menu? No way! You can use this link to view a sample menu. It provides a vegetarian option at each meal, and provides quite a variety.
For you to duplicate this you'll need to purchase in big quantities, grow some of your own vegetables, and hire some people who will work for about $.25/hr.
The menu does a good job of dressing up inexpensive food choices, gives good variety, and can be the basis of a money saving food plan for any family.
Saturday, June 14, 2008
Bargains Every Day
Military members and civilians should check out passwird.com, a web page that searches the internet daily to find great bargains and deals.
Friday, June 13, 2008
Simplify your Investment Choices: Part III
Paul Farrel, writing for Moneywatch, has written an article about "Lazy Portfolios" that can help small investors choose mutual funds that will beat the averages and broadly diversify their portfolios.
My favorite was the "Second Grader's" portfolio.
This simple portfolio actually has better 5-year results than many of the more complex strategies outlined in the article, and the Vanguard funds have very low minimum investments and fees. It's another great option for small investors, especially military investors, for their Roth IRAs or their taxable investment accounts.
My favorite was the "Second Grader's" portfolio.
| Fund | Allocation | 1-year return | 3-year annualized return | 5-year annualized return |
| Vanguard Total Stock Market Index | 60% | -6.34% | 8.20% | 10.74% |
| Vanguard Total International Stock Index | 30% | 1.64 | 19.11 | 21.21 |
| Vanguard Total Bond Market Index | 10% | 6.40 | 4.08 | 3.67 |
| Portfolio | 100% | -2.67 | 11.06 | 13.18 |
This simple portfolio actually has better 5-year results than many of the more complex strategies outlined in the article, and the Vanguard funds have very low minimum investments and fees. It's another great option for small investors, especially military investors, for their Roth IRAs or their taxable investment accounts.
Wednesday, June 11, 2008
Simplify your Investment Choices: Part II
My last post highlighted a simple porfolio of mutual funds that you could use to diversify your investments and leave them alone.
Can you do this with your TSP account? Absolutely. Here's how I've allocated mine:
C Fund: Mirrors the S&P 500 (40%)
S Fund: Small and Mid-sized Company Fund (30%)
I Fund: International Fund (30%)
F and G: Fixed income and Government Secured Funds: 0% as long as you are on active duty.
RATIONAL: Between ages 18 and 45, I believe that you need to invest for long term growth. There aren't many places that are better for that than investing in global stocks in the Thrift Savings Plan. Since you aren't planning to touch the money until you're 59 1/2 (you aren't, are you?) you have at least 10 years to park the money before you need it.
I've set up my account so my contributions are added in those rations, and then I rebalance my account in the month that I joined the service. If you forget, just look at your Leave and Earnings Statement. When the "Years of Service" number changes, log in to your TSP account and do an adjustment.
Eventually you might decide to add some different funds, but I'd recommend that you wait until you leave the military. Roll the TSP into a self directed IRA account, and give yourself lots of flexibility. By then you'll have enough cash to hire a financial advisor who can optimize your fortune!
Can you do this with your TSP account? Absolutely. Here's how I've allocated mine:
C Fund: Mirrors the S&P 500 (40%)
S Fund: Small and Mid-sized Company Fund (30%)
I Fund: International Fund (30%)
F and G: Fixed income and Government Secured Funds: 0% as long as you are on active duty.
RATIONAL: Between ages 18 and 45, I believe that you need to invest for long term growth. There aren't many places that are better for that than investing in global stocks in the Thrift Savings Plan. Since you aren't planning to touch the money until you're 59 1/2 (you aren't, are you?) you have at least 10 years to park the money before you need it.
I've set up my account so my contributions are added in those rations, and then I rebalance my account in the month that I joined the service. If you forget, just look at your Leave and Earnings Statement. When the "Years of Service" number changes, log in to your TSP account and do an adjustment.
Eventually you might decide to add some different funds, but I'd recommend that you wait until you leave the military. Roll the TSP into a self directed IRA account, and give yourself lots of flexibility. By then you'll have enough cash to hire a financial advisor who can optimize your fortune!
Monday, June 9, 2008
Simplify your investment choices
With so many mutual funds to choose from, how do you narrow it down? CNN Money provided this list of the only seven investments you need to make.
Once you've picked the funds, however, you're only half way. You then have to select your portfolio composition. In other words, what percentage of your investment will you put in each fund. CNN-Money has a description linked to the investment options.
If you're making your very first investment in mutual funds, you might want to consider an asset allocation fund like USAA's Cornerstone fund. It has a 5 year return of more than 9% and is a blend of equity investments.
- Blue Chip Stock: Fidelity Spartan (FSMKX)
- Blue Chip Foreign Stock: Vanguard Total International Fund (VGTSX)
- Small Company Growth: T. Rowe Price New Horizons (PRNHX)
- Value Stock: Vanguard Value Index (VIVAX)
- High Quality Bond Fund: Vanguard Total Bond Index (VSMFX)
- Inflation Protected Bond Fund: Vanguard Inflation Bonds (VIPSX)
- Cash: Fidelity Cash Reserve (FDRXX)
Once you've picked the funds, however, you're only half way. You then have to select your portfolio composition. In other words, what percentage of your investment will you put in each fund. CNN-Money has a description linked to the investment options.
If you're making your very first investment in mutual funds, you might want to consider an asset allocation fund like USAA's Cornerstone fund. It has a 5 year return of more than 9% and is a blend of equity investments.
Overnight millionaire!
Have you seen the sites offering details on how to become a millionaire virtually overnight? It seems the most recent popular technique is to use a home equity loan to purchase life insurance policies that will grow faster than the interest charged by the mortgage lender. As it turns out, this technique is speculative by the borrower, but guaranteed income for the life insurance salesman!
A much better strategy is to spend less than you make, pay yourself first, invest in low cost equity mutual funds or exchange traded funds, and live your life. Take advantage of tax free savings programs like the ROTH IRA.
I'd also like to mention that your military benefits, including health care, access to the commissary, fitness centers, recreation centers, and countless others, enrich your life without costing you a dime. These benefits continue after you retire and can really improve your way of life in retirement.
Finally, when military personnel got access to the Federal Government's Thrift Savings Plan in 2002, we were given an incredible way to save for retirement. The low cost fund choices are the envy of many in the private sector, and the TSP provides all military members with another way to save money for retirement even if they decide to leave the service before they are eligible for the full military retirement.
So to summarize, here's how I believe you should build wealth:
1. Spend less than you make.
2. Invest in mutual funds and exchange traded funds, especially in ROTH IRAs.
3. Contribute to the TSP.
No real estate? That's another story.
A much better strategy is to spend less than you make, pay yourself first, invest in low cost equity mutual funds or exchange traded funds, and live your life. Take advantage of tax free savings programs like the ROTH IRA.
I'd also like to mention that your military benefits, including health care, access to the commissary, fitness centers, recreation centers, and countless others, enrich your life without costing you a dime. These benefits continue after you retire and can really improve your way of life in retirement.
Finally, when military personnel got access to the Federal Government's Thrift Savings Plan in 2002, we were given an incredible way to save for retirement. The low cost fund choices are the envy of many in the private sector, and the TSP provides all military members with another way to save money for retirement even if they decide to leave the service before they are eligible for the full military retirement.
So to summarize, here's how I believe you should build wealth:
1. Spend less than you make.
2. Invest in mutual funds and exchange traded funds, especially in ROTH IRAs.
3. Contribute to the TSP.
No real estate? That's another story.
Friday, June 6, 2008
Combat Experience and Financial Risk Taking
I'm a military pilot with more than 3,500 hours and 400+ in combat. Before flying a combat mission I've studied the risks and taken factors such as the weather, the aircraft's performance capabilities as well as my own, the threats, and the mission objectives into consideration. I make a deliberate go/no-go decision.
While flying sometimes I encounter something unexpected. Things change enroute to my objective, and I have to decide if the changes will prevent me from completing my mission or if I still have a realistic chance for success.
Before I strap into the plane, I've had years of training, flown similar missions or more difficult ones in the simulator, and been taught by those with more experience. They told me what I'd done right, and what I'd screwed up on.
Sometimes you take bigger chances if the stakes are right or the mission is critical. Unfortunately, sometimes inexperienced aviators can't objectively analyze the odds. They become target fixated and sometimes fly a perfectly good airplane into the ground.
So, what does all this have to do with money? I think there are a lot of similarities, but also some striking differences.
1) How much training have you had in dealing with money?
2) What are your overall objectives?
3) What sort of reserve do you have available if you are delayed in reaching your destination?
4) Do you have a mentor who can give you honest and sometimes painful feedback on your progress?
5) Have you set deliberate go/no-go points when negotiating a major purchase like a car, a house, or even a college education? If you reach the no-go point, are you able to pull out of the deal in time or do you go through with it even if it's out of line with your ultimate objectives?
Everyone comes to NetworthIQ with a different set of objectives and experiences. Some are wealthy people who want to help other achieve success. Others are people struggling to get out of debt or to save up enough to close on their first home.
As for me, I'm a 42 year old husband and father of 2 sons. I'm saving as much as I can to augment my military retirement and ease my transition back to civilian life. I can't take the kinds of risks that a 24 year old bachelor can take.
Will I be rich? Not in a material way, I think, but in terms of experiences and pride in our family's accomplishments, I think I already am.
CBS
While flying sometimes I encounter something unexpected. Things change enroute to my objective, and I have to decide if the changes will prevent me from completing my mission or if I still have a realistic chance for success.
Before I strap into the plane, I've had years of training, flown similar missions or more difficult ones in the simulator, and been taught by those with more experience. They told me what I'd done right, and what I'd screwed up on.
Sometimes you take bigger chances if the stakes are right or the mission is critical. Unfortunately, sometimes inexperienced aviators can't objectively analyze the odds. They become target fixated and sometimes fly a perfectly good airplane into the ground.
So, what does all this have to do with money? I think there are a lot of similarities, but also some striking differences.
1) How much training have you had in dealing with money?
2) What are your overall objectives?
3) What sort of reserve do you have available if you are delayed in reaching your destination?
4) Do you have a mentor who can give you honest and sometimes painful feedback on your progress?
5) Have you set deliberate go/no-go points when negotiating a major purchase like a car, a house, or even a college education? If you reach the no-go point, are you able to pull out of the deal in time or do you go through with it even if it's out of line with your ultimate objectives?
Everyone comes to NetworthIQ with a different set of objectives and experiences. Some are wealthy people who want to help other achieve success. Others are people struggling to get out of debt or to save up enough to close on their first home.
As for me, I'm a 42 year old husband and father of 2 sons. I'm saving as much as I can to augment my military retirement and ease my transition back to civilian life. I can't take the kinds of risks that a 24 year old bachelor can take.
Will I be rich? Not in a material way, I think, but in terms of experiences and pride in our family's accomplishments, I think I already am.
CBS
Best Deals Everyday!
Most military members I know like electronics and gadgets. If you look at passwird.com everyday you'll see some simply amazing bargains. There's something for just about everyone here, including restaurant coupons, discounted household goods, and some great deals on electronics.
Tuesday, June 3, 2008
1000+ Military Discounts
Check out Military.com for a list of more than 1,000 discounts offered to military members.
Here are a few examples:
Free admission to Busch Gardens and Sea World. http://www.herosalute.com/
10% off online orders at Blue Nile.com
Free Admission at Tropical Gardens in Maui
Present your military id and enjoy our 4 acre botanical garden tour at no charge. Mahalo for your service!
Store/Facility Location:
200 Iao Valley Rd
Wailuku, HI 96793
20% OFF Any Fairways Vacation Home Rental
Fairways vacation villas are situated in the new and sought after communities in the Disney Orlando area. We have villas in the award winning Southern Dunes Country Club, the popular Emerald Island and Indian Creek communities, the delightful subdivisions at Westhaven, The three Ridges; Tuscan Ridge, Sunset Ridge and Westridge. The beautiful Legacy Park, Calabay Parc, and Solana. We also have the gorgeous Hampton Lakes, Highgrove and Orange Tree communities and now available the new Aviana Resort.
Save 20% for Military Members at ICE.com
ICE.com, the leading online jeweler, is dedicated to bringing you jewelry for every day. ICE.com is committed to providing their customers the best value, quality, service and selection of jewelry in the world. Each piece in their fabulous collection is designed and made with quality and style in mind. ICE.com offers savings up to 70% off retail.
Tour the Rock Hall for $17.00!
The Rock and Roll Hall of Fame located in Cleveland, Ohio is the non-profit organization that exists to educate its visitors, fans and scholars from around the world about the history and continuing significance of rock and roll music. It carries out this mission both through its operation of a world-class museum that collects, preserves, exhibits and interprets this art form as well as through its library and archives and educational programs.
Present your valid military ID at the box office to receive this special rate. Offer not valid during special events.
Store/Facility Location:
1100 Rock and Roll Blvd.
Cleveland, OH 44114
And that's just a few. Don't miss the discussion board on unlisted deals! Check it out.
Here are a few examples:
Free admission to Busch Gardens and Sea World. http://www.herosalute.com/
10% off online orders at Blue Nile.com
Free Admission at Tropical Gardens in Maui
Present your military id and enjoy our 4 acre botanical garden tour at no charge. Mahalo for your service!
Store/Facility Location:
200 Iao Valley Rd
Wailuku, HI 96793
20% OFF Any Fairways Vacation Home Rental
Fairways vacation villas are situated in the new and sought after communities in the Disney Orlando area. We have villas in the award winning Southern Dunes Country Club, the popular Emerald Island and Indian Creek communities, the delightful subdivisions at Westhaven, The three Ridges; Tuscan Ridge, Sunset Ridge and Westridge. The beautiful Legacy Park, Calabay Parc, and Solana. We also have the gorgeous Hampton Lakes, Highgrove and Orange Tree communities and now available the new Aviana Resort.
Save 20% for Military Members at ICE.com
ICE.com, the leading online jeweler, is dedicated to bringing you jewelry for every day. ICE.com is committed to providing their customers the best value, quality, service and selection of jewelry in the world. Each piece in their fabulous collection is designed and made with quality and style in mind. ICE.com offers savings up to 70% off retail.
Tour the Rock Hall for $17.00!
The Rock and Roll Hall of Fame located in Cleveland, Ohio is the non-profit organization that exists to educate its visitors, fans and scholars from around the world about the history and continuing significance of rock and roll music. It carries out this mission both through its operation of a world-class museum that collects, preserves, exhibits and interprets this art form as well as through its library and archives and educational programs.
Present your valid military ID at the box office to receive this special rate. Offer not valid during special events.
Store/Facility Location:
1100 Rock and Roll Blvd.
Cleveland, OH 44114
And that's just a few. Don't miss the discussion board on unlisted deals! Check it out.
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