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

[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)

[herkbier]

2 hours ago, BFM this said:

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)

If you’re under the new retirement system.. this is bad advice. If you front load your TSP, you lose out on some of the government match (5% max) in the remaining months of the year. 
 

To maximize dollars, you need to make plan out what you’ll make during the year and set a consistent percentage that allows you to hit the max during the final month of the year. OR, front load, like described above, but ensure you can contribute 5% yourself for all remaining months of the year.

[nunya]

11 hours ago, Lord Ratner said:

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

You're really taking this leveraged thing seriously. The dude's not taking out a second mortgage for a million and risking his house. It's a piddly $25k. It's an excellent way to start a nest egg towards the elusive first $100k. Yes, it's leveraged, but it's going to be $450 a month, FFS. A couple maxed out IRAs and a bunch in FZROX at 22 for $450 a month? Yes, please.

 

[brabus]

Copy leveraged vs. not. If he can’t afford/doesn’t want to pay the monthly back to USAA from his AF paycheck, then he shouldn’t be taking this loan at all, for anything. So with the assumption that he’s not retarded enough to take out a loan he can’t pay back from his primary income source, he’s been given lots of good ideas.

[Biff_T]

Just by the God damned Corvette already.  You could be banging strange instead of listen to old dudes give financial advice.  

[Lord Ratner]

2 hours ago, brabus said:

Copy leveraged vs. not. If he can’t afford/doesn’t want to pay the monthly back to USAA from his AF paycheck, then he shouldn’t be taking this loan at all, for anything. So with the assumption that he’s not retarded enough to take out a loan he can’t pay back from his primary income source, he’s been given lots of good ideas.

That's not true at all. If he can't afford to make the payments back of he loses it, for whatever reason, then his original idea is financially sound. Take the loan, put it into a high-yield savings account, and then pay the loan off using the savings account.

 

[HossHarris]

3 hours ago, Biff_T said:

Just by the God damned Corvette already.  You could be banging strange instead of listen to old dudes give financial advice.  

$25k doesn’t go very far in the world of corvettes that attract strange. 

[uhhello]

2 minutes ago, HossHarris said:

$25k doesn’t go very far in the world of corvettes that attract strange. 

$25k won't buy a Kia now days

[brabus]

4 hours ago, Lord Ratner said:

Take the loan, put it into a high-yield savings account, and then pay the loan off using the savings account.

Still risky because now we’re assuming savings accounts paying > 2.99% will exist for the next 5 years (assuming that’s the USAA loan term). Savings accounts could be paying max of .5% in 2 years for all we know (or maybe not, but point is nobody knows). But it’s kind of a moot argument anyways, because even a 2LT can afford a $450 payment, unless they have specific, negative financial circumstances out of their control. So assuming he can pay the $450 out of the paycheck, he’ll make way more money over time doing something other than a savings account.

[Lord Ratner]

26 minutes ago, brabus said:

Still risky because now we’re assuming savings accounts paying > 2.99% will exist for the next 5 years (assuming that’s the USAA loan term). Savings accounts could be paying max of .5% in 2 years for all we know (or maybe not, but point is nobody knows). But it’s kind of a moot argument anyways, because even a 2LT can afford a $450 payment, unless they have specific, negative financial circumstances out of their control. So assuming he can pay the $450 out of the paycheck, he’ll make way more money over time doing something other than a savings account.

I know you're just trying to make a point, but you're wrong here. In that scenario you could just pay off the loan early. Zero risk.

 

Like I said, it's been so long since the Fed wasn't fucking around with artificially low interest rates that we have forgotten how a market acts in time of limited liquidity.

[Biff_T]

4 hours ago, HossHarris said:

$25k doesn’t go very far in the world of corvettes that attract strange. 

Yeah.  Good point. 

Get a $25,000 go kart and tell the ladies you're a professional race car driver .

[brabus]

2 hours ago, Lord Ratner said:

that scenario you could just pay off the loan early. Zero risk.

Yep, valid, my bad. Personally I just don’t see the point of not investing for greater ROI (assumption that LT is going to fork over the $450 monthly payment out of his paycheck). But I suppose if he’s unable to do that due to extenuating circumstances, copy shot. But if there aren’t extenuating circumstances and he’s just choosing to spend the $450 on dumb shit while collecting minimal interest, then I still think that’s a overall not a smart choice.

[AC&W]

12 hours ago, HossHarris said:

$25k doesn’t go very far in the world of corvettes that attract strange. 

$25k down payment with a 6.9% interest rate over six years though, that's chump change for the paycheck...make sure to put a big offensive decal on the back window too.

[Unknown_Rider]

So the Taiwan 2027 timeline...is it a ridiculous idea to start cashing out in anticipation of a 1929-1959 DJIA-style round trip?  No $h!t-posting or hyperbole intended here...assuming I'm not dead by the time the dust settles, I'd rather not spend the golden years wishing I was.

[FourFans]

18 hours ago, Unknown_Rider said:

So the Taiwan 2027 timeline...is it a ridiculous idea to start cashing out in anticipation of a 1929-1959 DJIA-style round trip?  No $h!t-posting or hyperbole intended here...assuming I'm not dead by the time the dust settles, I'd rather not spend the golden years wishing I was.

Cashing out what specifically?  Are you trying to see how you can ride out WWIII investment wise?  If so, it's a complete crapshoot.  It all depends on how and if the US decides to get involved.  All the markets will take a hit, but it's possible that riding it out IN the market will be just as profitable as riding it out OUTSIDE (meaning cash) the market.  War is big business these days and a LOT of companies will profit.

My tealeaves prediction: if Biden is president all bets are off, as nuclear war is definitely on the table due to his complete ineptitude.  If Trump is president, I'll bet the US profits bigtime off this war.

Edited March 22 by FourFans

[ClearedHot]

Another month another higher than expected inflation report...All that free money...As Biden attempts to buy younger votes with student loan forgiveness, inflation goes up.

The Consumer Price Index (CPI) rose 0.4% over the previous month and 3.5% over the prior year in March, an acceleration from February's 3.2% annual gain. 

Anyway, bonds are way up, the 10-year Treasury yield gained as much as 14 basis points on Wednesday morning, touching above 4.5% for the first time in 2024.

[Biff_T]

2 hours ago, ClearedHot said:

...As Biden attempts to buy younger votes with student loan forgiveness

They will fall for his lie again.   My prediction, he will not fulfill his promise to pay off all of those studit loans.  He'll just pay off a few for show....again.  He's gonna die before those loans get any forgiveness.   

 

Edited April 10 by Biff_T
Spelling bee failure

[HeloDude]

3 minutes ago, Biff_T said:

They will fall for his lie again.   My prediction, he will not fulfill his promise to pay off all of those studit loans.  He'll just pay off a few for show....again.  He's gonna die before those loans get any forgiveness.   

 

And here I thought SCOTUS ruled he couldn’t forgive student loans without going through Congress?  But yet Trump is threat to democracy…

[nsplayr]

Hey y’all is BO.net a better place now that literally almost every single thread is a political circle jerk?

I for one vote no.

My investing advice is VTSAX and chill plus don’t buy too much shit you don’t need. There is little need to go beyond that unless more complicated & time-consuming investing is a hobby you personally enjoy.

Most of my portfolio is up ~26% in the last 12 months so life is good there. No trading, no crypto, no art/wine/startups/etc. just DCA into index and move on living life. Literally the easiest path to comfortable wealth available given enough time and some modest inputs, especially if made early on in your life.

Also if your parents can be rich I’ve seen (but not personally experienced) that it helps tremendously 😄 Next time around I’d like to try that route out.

[ViperMan]

8 hours ago, ClearedHot said:

Another month another higher than expected inflation report...All that free money...As Biden attempts to buy younger votes with student loan forgiveness, inflation goes up.

The Consumer Price Index (CPI) rose 0.4% over the previous month and 3.5% over the prior year in March, an acceleration from February's 3.2% annual gain. 

Anyway, bonds are way up, the 10-year Treasury yield gained as much as 14 basis points on Wednesday morning, touching above 4.5% for the first time in 2024.

Sounds like it's time to cut to me!

22 minutes ago, nsplayr said:

Most of my portfolio is up ~26% in the last 12 months so life is good there. No trading, no crypto, no art/wine/startups/etc. just DCA into index and move on living life. Literally the easiest path to comfortable wealth available given enough time and some modest inputs, especially if made early on in your life.

Bruh, a pair of jeans at the BX now costs $50+. For Levis. So I'm glad you have 26% more dollars in your account, but will it buy 26% more? A "nice" shirt at the NEX costs $99 - for a Lucky flannel. $99. At the NEX.

Here, read about this phenomenon: https://en.wikipedia.org/wiki/Inflation

[nsplayr]

Just now, ViperMan said:

So I'm glad you have 26% more dollars in your account, but will it buy 26% more?

I mean if inflation is around 3.5% YOY and my investments are up 26% over that same time, my purchasing power increased about 22.5%, which is incredibly good! I will take years like the last 12 months economically every day and twice on Sunday.

The “one weird trick” of investing is DCA into a broad index of equities, and literally do nothing else.

[BashiChuni]

Are you purchasing anything with your investments? I don’t Think you’re using the term purchasing power correctly but open to hear your thoughts. 
 

also curious how the Biden admin is pushing forward with a plan found unconstitutional by the SC like HeloDude said. 
 

 

[nsplayr]

29 minutes ago, BashiChuni said:

Are you purchasing anything with your investments? I don’t Think you’re using the term purchasing power correctly but open to hear your thoughts.

Not yet, but I plan on it one day! That’s the idea of “real return.” Real = adjusted for inflation.

If stocks are up 7% for the year and inflation was 3% that year, your real return is 4%. My purchasing power for the same basket of goods is 4% higher.

With round numbers historical S&P 500 yearly return (last 50 years) is about 11%, and historical yearly inflation (last 50 years) is about 4%, so your average real return investing in the S&P 500 on that time frame is about 7%. This is why investing in large US corporations has been very good in the long-run, you make sizable real returns.

This kind of modeling is where you get rules of thumb like the 4% rule, meaning you can safely withdraw 4% of your portfolio yearly in retirement and never run out of money. Under that rule of thumb you’re counting on at least 4% real returns each year, which is conservative given the above numbers that arrived at 7%, but then again you likely don’t have a 100% equities allocation while retired, so less volatile assets usually = lower real returns = a lower safe withdrawal rate. 

Bottom like: save 25x your desired annual spend, DCA into (mostly) equities indexes while working, slowly adjust to more fixed assets as you age & retire, profit. Save all the extra brain bites way too many folks burn on day trading and complex real estate deals and crypto for learning how to paint or build a canoe or fix old cars or play with your kids & grandkids.

Example: I want to spend $100K annually in retirement, I should save & invest to have a $2.5m portfolio at retirement. Take your current age, your desired retirement age, and an annual compounding of approx. 7% per above to figure out how much you need to save & invest annually to reach the target on time. Play with the assumptions as you see fit and model something you are comfortable pursuing. Build in multiple layers of conservative estimates…I’m always a fan of under-promise / over-deliver and you can do that for your future self as well.

This is all separate from any social security, VA disability payments or pensions, all of which can significantly lower the size of the retirement investment portfolio you would need to support the lifestyle you want.

As always YMMV, but if more people did the above and resisted the siren song to do anything more complex, they’d be better off.

Edited April 11 by nsplayr