Author Topic: 10% on $10k, or add $10k to portfolio?  (Read 5544 times)

Travis

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10% on $10k, or add $10k to portfolio?
« on: April 20, 2014, 02:47:33 AM »
I'm now deployed and I may have the opportunity to place $10,000 in the Savings Deposit Program after I've been here a month.  The SDP provides a 10% annual return compounded quarterly for a year.  They made a few changes here so we won't know if we qualify for a couple weeks, but I'm trying to figure out the math on whether to use the program or put the $10k in my Vanguard portfolio.  I use the Total Index and International Index funds and have about $190k combined.  I could put the entire $10k into Vanguard today.  I'm trying to decide whether to use the SDP or just add the money to my current investments.

warfreak2

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Re: 10% on $10k, or add $10k to portfolio?
« Reply #1 on: April 20, 2014, 03:49:08 AM »
Guaranteed 10%?

That's like the stock market but with no risk. I'm not seeing the downside.

Travis

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Re: 10% on $10k, or add $10k to portfolio?
« Reply #2 on: April 20, 2014, 06:20:13 AM »
From my quick math, a 1% market gain over the next year on $200k would be more than the 10% I will gain on the $10k on its own.  Am I thinking about this correctly?

danclarkie

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Re: 10% on $10k, or add $10k to portfolio?
« Reply #3 on: April 20, 2014, 07:39:51 AM »
From my quick math, a 1% market gain over the next year on $200k would be more than the 10% I will gain on the $10k on its own.  Am I thinking about this correctly?

No.

The only way it would make sense not to take up the offer is if there is a some lock in period that is too long for you, or if you can be sure that your porfolio will perform >10% in the next year.

Currently you have a $190k portfolio and $10k to add somewhere.


If you place the $10k in the SDP it will be $11,038.12 after 12 months having compounded at 2.5% each quarter
Your remaining $190k growing at 1% over 12 months would be: $191,900

This would make a total of:

$191,900
+
$11,038
=
$202,938

If you put the $10k into your portfolio it would be $200k, if this grew at 1% then it would be worth: $202,000

A net loss of $938.

Even if we imagine the portfolio grows at 9.5% in the next 12 months:

$190k growing at 9.5% =

$208,050
+ SDP Return ($11,038)
= $219,088

Adding the $10k to your portfolio:

$200k growing at 9.5%
=$219,000

A net loss of $88.


The only way it make sense not to use the SDP, everything else being equal, is if your portfolio will gain more than 10% in the next 12 months.
This is unlikely.


Fitzy

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Re: 10% on $10k, or add $10k to portfolio?
« Reply #4 on: April 20, 2014, 03:40:11 PM »
I like this math!


Joel

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Re: 10% on $10k, or add $10k to portfolio?
« Reply #5 on: April 20, 2014, 03:51:27 PM »
What you do with that 10k has nothing to do with your money elsewhere. A guaranteed 10% return is unheard of with no risk. Put as much money as possible into that investment.

GoldenStache

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Re: 10% on $10k, or add $10k to portfolio?
« Reply #6 on: April 24, 2014, 07:19:09 PM »
Do the 10Ků I wanted to do it myself but was too busy paying off some debt.  In hindsight it would have been better if I paid the min and got the 10% but I was too eager to see the debt disappear. 

Nords

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Re: 10% on $10k, or add $10k to portfolio?
« Reply #7 on: April 26, 2014, 08:46:11 PM »
Am I thinking about this correctly?
No.  I get this question all the time through the blog and from servicemembers.

Leave your $190K where it is, invest your $10K in the Savings Deposit Program, and take the government's guaranteed 10% interest.  A year from now you could be thinking "2014 sure was a sucky year in the stock market, but I'm glad I got my SDP!"  I doubt you'll be thinking "Dang, the market went up more than 10% in 2014 too!!"

The SDP is zero risk (unlike the stock market) and it's your government compensation for the very real physical risks that you're going through. 

By the way, you're allowed to put up to $52K tax-free in the Thrift Savings Plan when you're deployed to a combat zone. 
https://www.tsp.gov/planparticipation/eligibility/contributionLimits.shtml

Sure, do the $10K SDP because it's a guaranteed return better than any of the TSP's funds, but then try to max out your TSP contributions.  Don't put anything into your IRAs or Vanguard until you've maxed out these other benefits.

Kierun

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Re: 10% on $10k, or add $10k to portfolio?
« Reply #8 on: April 30, 2014, 09:09:16 PM »
I've taken advantage of the SDP everytime I deployed.  Are there still limits on how much you can contribute per month?  Depending on your rank it could take a bit to get it up to the 10k max. 

Travis

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Re: 10% on $10k, or add $10k to portfolio?
« Reply #9 on: May 01, 2014, 08:22:39 AM »
I think the contribution limit is your base pay.  For me I can meet the limit in a couple months.  The issue at this point is my deployment location is losing its Hostile Fire Pay status next month which is a requirement to participate in SDP.  They're clarifying the policy up at OSD to see if contributions will be cut off or if we'll be grandfathered somehow.  I haven't been here a full 30 days so I haven't been able to even start yet.

Nords

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Re: 10% on $10k, or add $10k to portfolio?
« Reply #10 on: May 01, 2014, 09:06:40 PM »
The issue at this point is my deployment location is losing its Hostile Fire Pay status next month which is a requirement to participate in SDP.
Do the bad guys know that your location is about to lose its "hostile" status?

Travis

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Re: 10% on $10k, or add $10k to portfolio?
« Reply #11 on: May 02, 2014, 01:33:43 AM »
The issue at this point is my deployment location is losing its Hostile Fire Pay status next month which is a requirement to participate in SDP.
Do the bad guys know that your location is about to lose its "hostile" status?

In principle I don't mind losing that particular special pay considering where I'm at.  This is my fourth trip to this part of the world so I figure it's my turn.

Kierun

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Re: 10% on $10k, or add $10k to portfolio?
« Reply #12 on: May 02, 2014, 01:49:16 PM »
The issue at this point is my deployment location is losing its Hostile Fire Pay status next month which is a requirement to participate in SDP.
Do the bad guys know that your location is about to lose its "hostile" status?

Probably.  <1 minute on google.  And I agree with the removal of many of those designations as imminent danger pay locales.

As of June 1, service members deployed to these areas no longer qualify for the $225 monthly imminent danger stipend.

What areas no longer qualify? Locations affected include the land areas and airspace above Bahrain, Kuwait, Qatar, Saudi Arabia, Serbia and Montenegro. Also on the list are East Timor, Liberia, Haiti, Oman, Rwanda, Tajikistan, United Arab Emirates, Kyrgyzstan and Uzbekistan.

Also removed are the water areas of the Arabian Sea, Gulf of Aden, Gulf of Oman, and the Red Sea, and the water area and airspace above the Persian Gulf.

danclarkie

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Re: 10% on $10k, or add $10k to portfolio?
« Reply #13 on: May 04, 2014, 06:33:04 AM »
The issue at this point is my deployment location is losing its Hostile Fire Pay status next month which is a requirement to participate in SDP.
Do the bad guys know that your location is about to lose its "hostile" status?

Probably.  <1 minute on google.  And I agree with the removal of many of those designations as imminent danger pay locales.

As of June 1, service members deployed to these areas no longer qualify for the $225 monthly imminent danger stipend.

What areas no longer qualify? Locations affected include the land areas and airspace above Bahrain, Kuwait, Qatar, Saudi Arabia, Serbia and Montenegro. Also on the list are East Timor, Liberia, Haiti, Oman, Rwanda, Tajikistan, United Arab Emirates, Kyrgyzstan and Uzbekistan.

Also removed are the water areas of the Arabian Sea, Gulf of Aden, Gulf of Oman, and the Red Sea, and the water area and airspace above the Persian Gulf.

Funny that Dubai would be considered a "Hostile" location.