Author Topic: Investment Money - Military Family  (Read 605 times)

sam123

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Investment Money - Military Family
« on: January 03, 2022, 05:09:24 PM »
I was looking for investment advice. 
Me and my husband are both in the military.  I do the max contribution to my TSP in a roth account each year which is about 20,000.  He does the same amount but does not have it set up as a Roth or a traditional IRA account.  Does anyone know if he could switch his money into a Roth or a traditional IRA?


Also, we have 120K in cash.  I have 50K in VFIAX (regular account, not an IRA) and I have 5K in BSC.

We do not have a mortgage or any debt.  We need to invest the 120K minus some amount for an emergency fund.  I was thinking of VTSMX for about 70K.  We are not planning on buying a house for a long time due to constant moving.

Apologies if these are stupid questions, this is difficult for me.  I would need index funds or something simple because I am not knowledgeable enough to do day trading. I have a vanguard and Schwab account.  I am really looking to do something Vanguard if possible.

We are in our mid-thirties with no Kids but are hoping for some soon.
« Last Edit: January 03, 2022, 05:18:01 PM by marie123 »

DoneFSO

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Re: Investment Money - Military Family
« Reply #1 on: January 03, 2022, 07:26:24 PM »
I am a federal employee with a TSP account.  Thank you for your service.  It is wonderful to hear that you and your husband are both maxing out your TSPs, have no debt, and have accumulated cash to invest.  You wrote that you are “not knowledgeable enough to do day trading.”  I think it is questionable whether anyone is knowledgeable enough to do day trading!

You didn't say exactly what your goal is, but it appears that you want to save for retirement.  You stated that you wanted index funds or something simple.  With that in mind -- and to make things very simple indeed -- you could choose a 1-fund portfolio (actually, technically a 2-fund portfolio):  Lifecycle 2040 (or whichever date is most appropriate for you) in TSP and VFORX (or whichever date is most appropriate for you) at Vanguard for your taxable/Roth IRA accounts.  And the nuts and bolts of your strategy could be as simple as maxing out TSP and Roth IRA contributions every year and putting as much into the taxable Vanguard account as possible.  I'm not saying you should do that, but it is an example of just how simple an IPS [one suitable for a wide array of situations] can be.

I like the plan to invest $70k or so of the $120K cash you have on hand, and to keep $50K or so in a bank account.  We live in uncertain times, and you wish to have kids soon, so the cash buffer would give you some peace of mind, as well as money to throw at problems that arise.

I do not understand this:  “He does the same amount but does not have it set up as a Roth or a traditional IRA account.  Does anyone know if he could switch his money into a Roth or a traditional IRA?”  Do you mean he contributes to his TSP like you do?  What do you mean by “switch” his money into an IRA?

MustacheAndaHalf

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Re: Investment Money - Military Family
« Reply #2 on: January 03, 2022, 07:31:58 PM »
Your TSP offers some very low cost funds, especially the international "I fund".  If you compare it's expense ratio (0.025%) with Vanguard's VXUS (0.080%), you'll see the "I fund" is a much better choice.
https://www.tspfolio.com/tspifund
https://investor.vanguard.com/etf/profile/VXUS

The gap is much smaller between the "C fund" (0.025%) and Vanguard's S&P 500 ETF (VOO, 0.03%).
https://www.tspfolio.com/tspcfund
https://investor.vanguard.com/etf/profile/VOO

In your situation, if nobody would judge me for it, I'd have all of my international allocation in the "I fund".  The expense ratio savings are more dramatic there.  At Vanguard, I actually prefer the total stock market (VTI) fund with the same 0.03% expense ratio as the S&P 500 ETF.  You get ~3700 stocks for that low annual cost.

MustacheAndaHalf

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Re: Investment Money - Military Family
« Reply #3 on: January 03, 2022, 07:35:00 PM »
As to your more general question of how much of $120k to invest and how much to keep in an emergency fund... your 70k/50k split sounds reasonable.

The key thing isn't the "$50k" amount, it's how many months of emergency expenses it covers.  A typical emergency fund covers 6 months, but I personally prefer more.

Telecaster

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Re: Investment Money - Military Family
« Reply #4 on: January 03, 2022, 07:35:50 PM »
Apologies if these are stupid questions, this is difficult for me.  I would need index funds or something simple because I am not knowledgeable enough to do day trading. I have a vanguard and Schwab account.  I am really looking to do something Vanguard if possible.

Not stupid!  We are all noobs once and the risk is in not asking these questions.  First, index funds are what the knowledgeable people use.  The usual recommendation is a broad, low cost index fund, like Vanguard's VTSAX.  Just doing that alone is about 95% of what you need to do.  You can refine things later, there is no rush. 

@Nords is our military retirement expert.  Hopefully he'll see this and can provide some insights. 

sam123

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Re: Investment Money - Military Family
« Reply #5 on: January 03, 2022, 10:04:03 PM »


I do not understand this:  “He does the same amount but does not have it set up as a Roth or a traditional IRA account.  Does anyone know if he could switch his money into a Roth or a traditional IRA?”  Do you mean he contributes to his TSP like you do?  What do you mean by “switch” his money into an IRA?

Thank you so much for your advice!!  Sorry I got that part wrong.  He also maxes out his TSP and he has a Roth and a traditional IRA in the account.  Most of his money goes in the Roth, but what the government matches go into the traditional IRA. I have the legacy type of TSP and the government does not match for me.

Yes, good point about the goals.  I don't know what our goals are because we don't need anything right now, and I am not sure when we will be able to buy a house.  But it might be good to have some long-term goals for retirement or other things.  I think it is easier to save when you are saving for something.

sam123

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Re: Investment Money - Military Family
« Reply #6 on: January 03, 2022, 10:06:11 PM »
Thank you all for your time, replys, and advice.  It is very helpful.

Nords

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Re: Investment Money - Military Family
« Reply #7 on: January 04, 2022, 08:42:31 AM »
@Nords is our military retirement expert.  Hopefully he'll see this and can provide some insights.
Thanks, @Telecaster!
Yes, good point about the goals.  I don't know what our goals are because we don't need anything right now, and I am not sure when we will be able to buy a house.  But it might be good to have some long-term goals for retirement or other things.  I think it is easier to save when you are saving for something.
Welcome, @marie123.  You're getting good advice.  In addition to maximizing your contributions in both of your TSPs (Roth TSP and the traditional TSP match) and in both of your Roth IRAs, you could continue to save and invest more in taxable accounts. 

I agree that you don't want to buy a house while you're on active duty:
https://the-military-guide.com/dont-buy-home-active-duty/

Instead you could invest for your financial independence and for your eventual transitions out of the military.  While you're doing that, it's easier to put your money to work once you've chosen your asset allocation.  You can probably continue to invest your TSPs in long-dated L funds like the L2065 or directly into the C, S, and I funds.  Vanguard's S&P500 index fund or their total stock market index fund are also great for your IRAs and taxable accounts.

You can read more about choosing your asset allocation at the Bogleheads Wiki:
https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Asset_allocation
https://www.bogleheads.org/wiki/Military_finances

For example you could choose to invest your TSPs in the C & S funds while investing your IRAs and taxable accounts in the Vanguard total stock market index funds.  It's more important to have a plan for your asset allocation than it is to decide whether you're going to invest 100% of your TSP contributions in the C fund or 70% C fund and 30% S fund.  Both of those asset allocations will work, and the critical part is picking one that you're comfortable with to get started on the next step.

The key to choosing your asset allocation is automating your investments to your TSPs, IRAs, and taxable accounts so that you maximize your contributions and put every dollar to work in an index fund.  That way you'll have more time to focus on life & career without having to spend a lot of time every month deciding what to do with your savings or how much to invest.

sam123

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Re: Investment Money - Military Family
« Reply #8 on: January 04, 2022, 08:55:41 AM »
Nord, thank you very much for all of the advice.  I actually found out I was confused. I thought the Roth IRA and the Roth TSP were the same thing.  I didn't realize we could both have a Roth IRA outside of the TSP.  I think that is the next thing that we should do.  I will call Vanguard and see if they can help set it up.

Nords

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Re: Investment Money - Military Family
« Reply #9 on: January 04, 2022, 10:26:31 AM »
Nord, thank you very much for all of the advice.  I actually found out I was confused. I thought the Roth IRA and the Roth TSP were the same thing.  I didn't realize we could both have a Roth IRA outside of the TSP. 
That confusion is very common. 

The 2022 contribution limit on IRAs is $6000, so if you decide to maximize your IRA contributions it works out to an automatic monthly deduction of $500 for each of you.  Vanguard will be happy to help you with that too.

The deadline for 2021 IRA contributions is 15 April 2022, so if you're really pushing to maximize your IRA contributions then you could each contribute $6000 to your IRAs for 2021 and another $6000 to your IRAs for 2022. 

But after you put your excess cash to work in your IRAs, the long-term process is to put those contributions in autopilot.