Military Finance Report

Thursday, April 20, 2017

Betterment Investing Review

I’ve been investing with Betterment for nearly two years and I’m very pleased with the service. I wrote a quick initial review when I first opened the account and was impressed even back then. I noticed that military members like the traditional military retirement, because it’s easy and doesn’t require any involvement on the military member. Betterment makes investing easy.

The service I’m truly impressed with is the transparency of its advisory fees. Since I first opened the account, Betterment has lowered its advisory fee and removed the minimum balance tiers. On your activity statement the advisory fee is listed (see below) and you can click on the link to read more about it. This is awesome because most mutual funds and exchange traded funds keep the fees buried.

A quick way for me to instantly bore my readers is to talk about portfolio asset allocation. This is a fancy way of describing having the right amount of money in the right investments for your age and goals. Betterment does that automatically for you using algorithms. You simply set your stock-to-bond ratio and Betterment does the rest for you. The best part is that you can adjust it anytime you want (see below).

Betterment then uses low-cost Vanguard mutual funds and invests your money for you. My portfolio is invested in 10 mutual funds, which are diversified automatically for me based on the ratio I chose. After nearly two decades of missing my financial goals by trying to time the market, I decided to put all my money in a single mutual fund, a Total Stock Market mutual fund and ALSO invest with Betterment. I allow Betterment to manage the different mutual funds for me (see below).


I’ve discussed taxes on my social media a lot. One of your main financial goals should be to avoid taxes, regardless of your political ideologies. You have to be financially literate to avoid taxes properly, but Betterment’s algorithms do it automatically for you. Betterment uses advanced methods like optimizing tax lot selection, tax-aware re-balancing transactions, and employing tax-loss harvesting.

For anyone wanting to put their portfolio on auto-drive and not worry about re-balancing portfolio allocations (or don’t even  understand what I just wrote), then I highly recommend Betterment. I’ve placed a referral link every time I mentioned Betterment. If you sign up with Betterment using the link, then I’ll get 30 days with no advisory fee and you’ll get 60 DAYS with no advisory fee.

Monday, February 6, 2017

USAA Limitless Rewards Card - 2.5% Cash Back REVIEW!



Actual Review - Not a Paid Post
After running in a pilot program, the USAA Limitless Reward card is available to USAA members with direct deposit to a USAA account (of at least $1,000). I was able to sign up for the program in the pilot phase because Louisiana was one of the four test states. The states available keeps increasing, so call USAA and see if your state is available. The card has no annual fee and offers 2.5% cash back on all purchases. It's been 60 days and the card works as advertised.

Prior to this card, I had a MasterCard through the Air Force Morale, Welfare, and Recreation (MWR) fund. There was an $11 monthly fee, and 2% cash back on all purchases on a military installation and 1% on all other purchases. Personally, I believe the military (especially the Air Force) has lost its emphasis on MWR programs, so by switching credit cards, I saved the $11 monthly fee and I don’t feel too guilty. Additionally, we did very little shopping on base, so on average I was only getting 1.1% back on all purchases-- approx. $30 a month, less the $11 monthly fee; only $19 in monthly rewards total.

Since the USAA Limitless Reward card has no fee and offers 2.5% on all purchases, I've been able to increase my monthly rewards to approx. $80. I maximized it by placing all purchases and bills on my rewards card too.

Many cards offer a 5% cash back on different purchases like gas, restaurants, groceries and then rotating commodities, and then 1% on everything else. 5%/1% sounds better, but it typically doesn't offer the same return as a flat-rate on all purchases program. 2.5% is one of the highest rewards plan that I've seen and it's limitless. Also, many credit cards offer other rewards instead of cash back. I've never been a fan of using credit card rewards for anything other than cash back. Typically, you're paying 1-for-1 the cost of the commodity (airlines, Amazon gift cards, etc.) so it's technically the same as cash back. Also, it's encouraging you to spend money by pigeon holing you into one option.

Other-than cash-back rewards are great when the cost of the commodities are cheaper by using the rewards. For example, when you can buy $100 worth of airline rewards for only $75 worth of "cash value" rewards; or a $25 Amazon gift certificate for only $20 of "cash value" rewards. The disadvantage is typically that you can only use these types of cards for airline rewards or a specific company's gift cards.

Another thing I like about USAA accounts is when I pay off the credit card every payday from my checking’s account, it brings my balance to zero and the payment is taken out of my checking’s immediately. With previous credit cards outside of USAA, the payment would take one or two days before both transactions were displayed.

BL: 60 days in and I highly recommend the USAA Limitless Rewards card. I recommend you check your current credit card, calculate what your monthly reward rate is (less the annual fee if you have one), and see if it beats USAA's 2.5% cash back amount. If not, then I recommend you switch to the USAA Limitless Rewards card.

Friday, December 16, 2016

You can’t save your way to a million dollars


There’s a common personal finance saying that’s incredibly relevant to military members and it’s, “You can’t save your way to a million dollars.” You simply can’t stash your money away in a simple savings account earning less than 1% interest—you must invest your money in a way that earns a positive rate of return. The decision not to invest can literally cost you hundreds of thousands of dollars.

I calculated a non-prior enlisted officer’s 20-year pay chart, excluding BAH (explained in the assumptions below), at different savings rates and different annual returns. To reach a million dollars at 20 years, an officer would need to save 20% of his or her paycheck for 20 years, at a 12% annual rate-of-return, and then he or she would have approximately $1M. If you save 50% of your paycheck and choose not to invest it, after 20 years you’d only have $785K—a loss of nearly $225K AND I imagine that almost no one can reasonably live off only 50% of his or her paycheck. 

For most of us, a 20% savings rate at a guaranteed 12% return rate is unlikely—closer to improbable. After 2 decades of helping people with finances, it’s difficult to convince people to save at least 10%. While reaching $1M at 20 years is an aggressive goal, reaching $1M by 65 is definitely attainable for ALL of us.

You may not become a millionaire by saving for 20 years, but you’ll set the foundation for guaranteed millionaire status during retirement by following these recommendations:

  • Start Right Now – Unless this is your first day in the military, then you may already be behind the power curve. My assumptions track an officer starting to save the first month of his or her active duty. If you’re saving 0% right now, then try going to MyPay and at least put 1% towards your TSP. I can almost guarantee that 99% of people can live without that 1%.
  • Increase Your Savings Rate – Probably the one step that’s mostly in your control, is to increase how much you save. Assuming a 10% annual return, a 10% savings rate after 20 years, would give you $426K, while a 20% savings rate with a 10% return would give you twice the amount of $852K. Considering the “real” inflation of nearly everything we buy, we must consider saving more than 10%.
  • Increase Your Rate of Return – Keeping your money in cash will cost you thousands of dollars in just 20 years. At today’s interest rates, most banks pay less than 1% in interest, compared to 4-12% that many Total Stock Market mutual funds are able to return. The difference between a 10% savings rate at 1% at 20 years and 10% in 20 years is nearly $254K ($426K vs. $172K). By the time, you’re 65, the difference will be several hundreds of thousands of dollars. To increase your savings rate, I typically recommend that investors under 55 should be invested in Vanguard’s or *Fidelity’s Total Stock Market mutual funds. If you’re in the TSP, I recommend getting out of the “G” fund (the default fund) and move into the appropriate LifeCycle funds.
  • Make Your BAH Work For You – In my assumptions for calculating the rate of return, I purposely did not include BAH because you must choose to make it work for you, and it’s not always entirely within our control. When you correctly use your BAH (by buying your homes or renting less than your rent and utilities), the portion that is going to buying down the principal or excess BAH (if renting) should be added to your savings rate. If you save $800/month in investments and $200 of your mortgage payment going towards principal or excess rent, then you’re actually saving $1K. If you rent above your BAH or live on base, then $0 can be counted towards your savings rate.

BL:  Not saving, or just putting your money into a savings account will cost you hundreds of thousands of dollars and will force you to work well into your retirement years. You can’t save your way to a million dollars—you must invest it. Start today, save more, invest better, and consider making your BAH work for you. You can easily have $1M by the time you retire.

Assumptions:

  • My assumptions did not include the “theoretical value” of our military retirement because that’s dependent on the interest rates (or inflation rate) when you retire. I’m simply looking at how much extra you could earn by investing your money versus just saving. You can see the “theoretical value” of a military retirement here.
  • I used standard promotion rates (a.k.a. “In the Zone”[Air Force]) to calculate future savings rates. There will be variances. For example, I know Marines promote to O3 (Capt) later than other services which would impact the calculation rates.
  • I did not include inflation, because this is a simple calculator. But it’s worth noting that inflation will destroy your savings even further if not properly invested. As such, all future promotions were based on the 2016 Basic Pay Chart.
  • As already explained, I did not include BAH rates in my calculations. There are too many probabilities that would prevent an apples-to-apples comparison of saving and investing.
  • I didn’t calculate all the way until 65 on purpose. 1) My goal is to help people retire by 55 and 2) A twenty-year career is easier to grasp than a 65-year old goal. It’s hard enough getting people to forecast 30 days into the future, so I try to keep it simple.

*Full Disclosure: After nearly 15 years of inconsistently beating the stock market, I’ve put most of my portfolio in Fidelity’s Total Stock Market mutual fund (FSTVX).

Wednesday, November 2, 2016

Click Paralysis - Start Your Financial Journey Now

While deployed, I tried to motivate people to reach their financial goals with their deployed entitlements. They left my office with motivation and excitement and by the time they got to their office, they had lost all motivation. I gave them a lot of options and ideas to think about and, instead of empowering them to start, it created paralysis.  I think most people just want to be told exactly what to do. So against my own philosophy, I created this post with the most vanilla information to jump start your finances.

Disclaimer:  No matter what I write, please do your own research. There are a lot of variables you need to think about, but I know those variables are what causes the paralysis, so each recommendation will be followed up with more research to do if you want to do it.  This post also assumes that you have little to no debt.  If you have too much debt, then get rid off it first.

1.  Start an emergency savings account.  Go to CapitalOne 360 and open an account using this link.  Start the account with more than $250, and this referral link, and we both get $20 for opening a new account.  You should put no less than $5K and no more than $10K in it.
  • For more research, go to www.bankrate.com and look for the best savings account to get the highest yield for your cash.  I know for sure CapitalOne 360 is no longer the type yielding savings account.  You should have 6 months worth of expenses saved up, so the $5K-$10K is just super generic.
2.  Start a ROTH IRA.  Leave a comment on this post with your e-mail or send your e-mail to bjone6@gmail.com and I'll send you a referral link to Fidelity.  Once you get the referral link then open a ROTH IRA online.  Or go to www.vanguard.com if you don't like Fidelity.  You can put $5,500 a year into an IRA ($11K a year if married, regardless of spouses employment).  Once the money is in the account, put all your money in FSKTX (VTSMX for Vanguard).  Once you have over $10K, you'll be automatically enrolled in FSTVX (VTSAX) for Vanguard.  Contribute to FSTVX (VTSAX for Vanguard) every year, reinvest all dividends, and don't sell out until retirement.
  • For more research, check out www.vanguard.com and www.usaa.com before opening an IRA with Fidelity.  Both companies offer Total Stock Market mutual funds with different performances and fees.  Also, depending on your age and personal tax situation, you'll need to decide if a ROTH or a Traditional IRA is the right thing for you.  Lastly, you'll need to determine your risk profile to see if a pure stock portfolio is the right risk allocation.  MOST people would benefit from just sticking to the Total Stock Market mutual funds listed above.
3.  Military members, start your TSP.  Go to Mypay (https://mypay.dfas.mil), figure out how much you can afford a month, and then start contributing.  Then go to www.tsp.gov, sign up, get your PIN, log in, and put all your money into a Lifecycle fund that matches when you want to retire from work (not the date you plan on retiring from the military).
  • Not many people have money left after starting an emergency fund and maxing out an IRA.  If you do, then that's great, so you'll definitely want to take advantage of the TSP.  You don't want to put 100% of your money into retirement accounts so you can save for short- and medium-term goals.
4.  Civilians, max out your 401(K) matching contributions.  Find out how much your employer matches for your 401(k) and then contribute enough to get the max matching contributions.  It's free money.  Just walk into your HR department and they'll give you instructions.
  • Just like for military members, you'll definitely want to make sure you're not putting 100% of your savings into retirement accounts.
5.  Go to your emergency savings account bank and open up a new bank account for your short- and medium-term goals.  Regularly put money into these accounts.  An example of a short-term goal is a vacation.  Open an account called Vacation.  Decide how much and by when you want to save it and start putting money into the account.

Hopefully I helped take some of that click paralysis away.  Just do exactly what I wrote here and you'll be ahead of 90% of the population in your income bracket.   

Monday, August 8, 2016

Maximizing Deployment Entitlements

Dealing with deployment entitlements as a finance officer was stressful; even with the ability to significantly influence the process.  I can't imagine how the rest of the military manages it.  Through my travels, I created a small checklist to help you maximize your deployed entitlements.  By implementing these changes, you can ensure you get the most out of your entitlements during your time of sacrifice and duty.
  • Review your deployment orders prior to deploying.  After talking to many people at my Joint deployed location, it seems like all the services struggle with getting Contingency, Exercise, and Deployment (CED) orders completed in a timely manner. Many of us receive our deployment orders within 3 days of flying/shipping out. It is imperative that you fully review your deployment orders and ensure they are correct. Talk to your deployed sponsor and review your reporting instructions.  Ensure the per diem, rental car, lodging, passport, etc. information is all correct and applicable. Getting timely and accurate reach back support is difficult. I strongly believe in treating every day like an interview...and many of these Air Force Finance shops are not doing well. Your orders determine what you're authorized, so make sure they're correct before you depart.
  • Get your deployment entitlements started as soon as possible. I'm the J8 Director at my deployed location, and it took nearly 60 days for my deployed entitlements to start; for the other Air Force, it took over 60 days.  We're in our 4th month and one Air Force member's entitlements still haven't started yet.  That is unacceptable.  Find out who at your deployed location processes your deployed entitlements and then complete whatever actions you need to.  The quicker you start earning those entitlements, the quicker you can start saving, investing, or paying down debt.  Over the course of your 4-12 month deployment, having the money sooner can provide more money by gaining more interest, dividends, or paying down your debt balances.
  • Increase/start your ROTH TSP while deployed.  If you're at a deployed location, you will earn income TAX FREE, then it will be placed and grow in your ROTH TSP TAX FREE, and then when you withdrawal the money, it will be TAX FREE.  This is probably the best thing about a Combat Tax Zone Exclusion (CTZE).
  • Start the Savings Deposit Program (SDP).  I found out that the different services manage this program differently as well.  In the Navy, you can deposit the whole $10K with a cashier's check to begin earning maximum interest (10% APR).  Other services only allow a certain amount each month from your paycheck.  This is probably the best rate of return you can find given that it's theoretically risk free.
  • Review your DTS accrual vouchers (SPPs) and amend them monthly.  Thoroughly review your deployed orders in DTS (or whatever system is used) and amend them monthly to add any expenses you've incurred not originally in the main orders.  Some deployments require almost no amendments and others require monthly to add actual rental car expenses or forward-deployed expenses.  Also, check to ensure you've accurately disbursed enough to your Government Travel Card (GTC) to pay it off, but the rest to your personal account.  It took 5 business days to move the additional funding from my GTC to my personal bank account.  By correctly splitting the disbursement, you can minimize the way from transferring from your GTC.
  • If you have the cash to accommodate, consider using your personal credit cards instead of the GTC.  The GTC charges foreign currency conversion fees.  IAW the Joint Travel Regulation, Appendix G, these foreign currency conversion fees are reimbursable; however, many finance offices will want you to individually list the fees.  This would require frequent amendments and copies of your GTC statements.  I have a Chase credit card and a USAA debit card and neither charge a foreign currency conversion fee.  USAA allows you to temporarily increase your ATM Withdrawal limit.  I have to pay rent on my deployment, so I get it all out at once without having to pay any foreign currency conversion fees.  If your accruals aren't paid promptly, then you can be building up a balance on your GTC.  Again, the quicker you can get your money and put it in use, the better.
Please let me know if you have any other suggestions so I can frequently update this "living" list.

Monday, January 18, 2016

Blended Military Retirement System

Under the new “blended” retirement system, military members may be able to save more than the current system; however, it requires action on the service member and an exposure to market risk—both concern me.

The current retirement system allows us to retire at 20 years, and is called a defined benefit retirement system.  If we serve less than 20 years, we get nothing.  The value of the current retirement is abstract.  It is calculated at 50% of base pay, with an extra 2.5% a year, up to 75%.  We can also contribute to the Thrift Savings Plan (TSP) up to the maximum contribution limit ($17,500 in 2016).  Check out my blog post here where I explain how much a military retirement is worth.  I compare it to a 30-year bond.  Right now, the interest rates (and inflation) are low, making the current value of a military retirement valuable.  When inflation rises, our retirement loses value, or in economic terms, we are exposed to inflation risk.  The main reason for a change is to escape the “all or nothing” scenario, where a military member honorably serves for 1-19 years and 11 months and gets nothing if he or she gets out. 

I also feel that this change is designed to cost costs since the American public sucks at saving money.  The blended retirement system requires action on us, which after nearly 2 decades of helping people with finances, concerns me a lot.  It also pours money into the stock market through the TSP funds, and what government wouldn’t want more control over the financial system right?


For members entering service after 1 Jan 2018, the blended retirement reduces the defined portion of the retirement to 40% at 20 years.  No government system would be complete without the corrupt misguided option of offering us a lump sum payment.  We have the redux under the current retirement system.  A lump sum payment is a way for the government to save money, by not inflation-adjusting the payment.  You’d have to put that lump-sum payment to serious work to ensure you keep up with inflation.  I still haven’t met someone who took the redux and made that $30K earn more than a traditional retirement.
The Department of Defense (DoD) will put 1% of every military member’s paycheck into the TSP.  We will be auto-enrolled into 3% of our pay, which we’ll have to update annually.  The 4%, the 1% DoD and 3% auto-enroll, will be ours, and we keep that portion if we were to separate before 20 years.  A 4% retirement-savings rate is not ideal but at least it will “force” military members to start saving for retirement.  The best part of the blended system is that we’ll finally get a matching TSP contribution.

I refuse to share any graphic created by the DoD that shows a comparison between the two retirement systems because the DoD assumes an unstainable rate of return from the stock market.  While the stock market generally goes up, a good portion of our retirement is now reliant on the bond and stock market.  Additionally, I’ve spent nearly 2 decades trying to get military members to save more for retirement, and it’s not happening quickly.  For this new blended retirement system to be “better”, we must save more and hope for good market returns.
Should you opt-in?  If you know, with all your heart that you’ll be separating before hitting 20 years then yes.  But remember, like nearly everyone I met still serving after 10 years, I was only supposed to be in for 6 years, and now I’ve been in for 16 years.  The current system is still superior thanks to the 50% plus 2.5% each year (versus 40% and 2% each year) and the TSP contributions.

Friday, January 1, 2016

2015 New Year's Resolution Breakdown


2015 was not a great year for my personal finance goals.  Here’s a quick rundown of my 2015 financial resolutions and how I plan to meet them in 2016.
1.       Max out my IRA.
a.      Accomplished.  It’s the first thing I do every year so I have money to invest with.
b.      2016:  This is always my first goal, so I’ll definitely accomplish this.

2.      Save $X in my savings account.
a.      Accomplished.  This is the second thing I do every year now that I have a house, to cover large maintenance expenses.
b.      2016:  This will come second after my IRA, and I have no doubt I’ll accomplish this.  I plan to buy a car in cash this year too, so this near-term goal will be a primary objective.

3.      Save at least $X every paycheck.
a.      Not accomplished.  We had some large expenses this year, and we basically took 3 vacations.  We went back home for two weeks, Vegas in December for two weddings, and my in-laws came to my house for the holidays.  I came close though; just needed one more paycheck in the year.
b.      2016:  I’ve already implemented some routine deductions in expenses throughout the year.  This should help balance some of the larger expenses like car and housing maintenance.  I’m also going to try and publish blog posts more frequently and build some side income.

4.      Increase 2015 passive income (dividend/interest/mutual fund distributions) by 50%.
a.      Not accomplished.  I waited too long in my investing career to focus on passive income from investments—which explains the goal of trying to reach a 50% increase.  There were several factors contributing to me not reaching my goal in 2015.  The first was a reduction in end-of-year mutual fund distributions.  There weren’t a lot of short- and long-term gains with the market dropping this year.  Additionally, some of my dividend stocks gained quickly and I sold the profit.  For example, WWE offered a 5% dividend when I bought it a low of $9, but then it skyrocketed to $18—doubling my money, and I sold it.
b.      2016:  I’m going to put more money into mutual funds during large market drops.  I will also put more money into large dividend payers whose industry isn’t doing well like oil companies and Real Estate Investment Trusts (REITs).  I have a solid chunk of money in bonds, so I’ll need to keep a close eye on the bond market and make sure that I don’t take a huge capital loss by keeping my money in those bond mutual funds just to get a passive income.

5.      Net assets of $X on 31 Dec.
a.      Not accomplished.  I rarely reach my net asset goal, mainly because the percentage increase is always higher than the market average.  I’ve also never measured my progress monthly or quarterly.  I guess I just hoped I would land on the arbitrary amount at the end of year.  The main reason for not meeting my goals this year was the massive loss I took trying to get quick money.  I invested in some speculative, risky, short-term investments and underestimated how quickly I could lose money. 
b.      2016:  I’ll need to split the goal into monthly and quarterly goals and work harder if I’m not meeting those goals.  I won’t make those same risky investments I tried in 2015 either.
I have a feeling that 2016 will be a great year for those prepared and ready to take advantage of it.  What are your 2016 New Year’s goals?