Batcall @Nords
Thanks,
@happy!
Hello,
I have finished 8 years of active duty military service in the navy and decided to get out primarily to be there with wife and child(1 year old). I need some financial advice as to what to do with my money as I have 110k cash but its sitting in a CD earning 3% dividends per year in my bank which I was going to use to pay for a down payment for a home in either Texas or Arizona(still need to visit) in the next 2-5 years. Maybe the money can be used somewhere else to earn more money but don't want major fluctuations as this is the money for the home. I currently reside in Hawaii and my wife works a government position which she should be making 50k a year in the next few months after her raise. She has a 401k account called a TSP which does matching to 5% of your base salary and has low management fees but am not sure how much I should allocate towards it because it seems to me the market is valued high at this time so I only have about $300 a month going towards that to take advantage of the matching which I just started now. I will be making about 3k a month going to school using the veteran benefit that pays for housing which Hawaii is notorious for expensive housing. My monthly expenses are low and am saving a good chunk of money each month but just unsure what the best route is to invest the money. Any thoughts would be greatly appreciated.
Welcome to the forums,
@mak123.
It looks like you’re doing fine with your home down-payment fund. Money that you expect to use on a house in the next few years should be in a CD-- you don’t want to risk stock-market volatility or even take much risk in a bond fund. It’s frustrating to earn “just” 3% APY but chasing a higher yield in a short term (less than five years)is not worth the risk of loss of principal. You could keep an eye on the CD rates at NFCU and PenFed but 3% right now seems pretty compelling.
https://thefinancebuff.com/cd-vs-bond-fund-five-years-later.htmlWhen you buy your home, your biggest returns on your savings will come from having a large down payment and a high likelihood of financing. Those are both good ways to negotiate a lower sale price. In addition when that $110K is at least a 20% down payment then you can avoid private mortgage insurance and perhaps have a small fund left over for maintenance & repairs.
When you search for that home, don’t try to buy it like you’re blowing into town for a new duty station. It’s more hassle to rent for a few months at your new location, but research shows that nearly half of veterans only stay at that first location for two years. You’d hate to buy a home and then start the bridge career, only to find out 18 months later that you’re moving again.
http://the-military-guide.com/dont-buy-home-leave-active-duty/The best way to put that money to work when you find the home you want is to use a mortgage broker. A VA loan might seem like the easy answer but you may find a better loan through a broker, and the VA loan has stringent habitability & sanitation requirements (on the home inspection) which discourage some sellers. A mortgage broker can find different loans (from the same lenders) which might have better terms than the VA requirements.
The markets go up about 2/3 of the time. They were higher a couple months ago, and they’ll be higher 10 years from now, but nobody knows where they’ll go in between. The best way to deal with the emotions of stock-market volatility is to have an asset allocation plan. You’re already saving for a home (with a pretty good down payment), you’ll have several years of cash flow from the GI Bill, and you have a pretty good savings rate. Pick an asset allocation which lets you sleep well at night, put it in autopilot, and sleep better at night. The savings & investments that you’re making now (for >10 years in the future) are your foundation of financial independence.
If you’re not happy with the TSP’s L2050 fund or even 60%/20%20% in the C,S, & I funds then you could maximize your Roth IRA contributions in a stock-market index fund with low expense ratios from Vanguard or Fidelity. (Roth IRA contributions can be withdrawn any time for any reason with no taxes or penalties... they’re a good option for an emergency fund.) The important part of the FI plan is picking the asset allocation which lets you sleep at night and then setting up the deductions to get the money in there. You can read more about the Bogleheads investment policy statement and picking an asset allocation at their wiki:
https://www.bogleheads.org/wiki/Getting_startedhttps://www.bogleheads.org/wiki/Asset_allocationI'm a retired submariner, my spouse is also retired Navy, we've been on Oahu for nearly 30 years, and our daughter was born & raised here. I’m up in Mililani. Let me know if you have more questions or want to get together for a cup of coffee to dig into more financial details.
