Rising Interest Rates and Military Retirement Impacts

Last week, Russia raised its key interest rate 17% to 10.5%. (Bloomberg, 2014) While I personally believe raising the interest rates would be good for America’s economy and long-term economic success, I do recognize the rise would impact our military; specifically, our military retirement plans. Rising interest rates will make our military retirement less valuable.

Our military retirement is fixed; which means the variables do not go up and down. Our retirement is based on what rank we retired as and how many years we served. Our retirement doesn’t change based off of America’s interest rates; only the annual inflation adjustment.

We can see the impact to our retirement plan using my “Military Retirement Value” calculation blog post. A Major at 20 years (I use this because it applies to me) will receive $3,715 a month in retirement.  By comparing it to the yield on a 30-year bond (3%), the retirement is worth $1.5M. If interest rates rise to 4% then the retirement would be worth $1.1M; 5% is $892K. The reason why is because civilians can invest their retirement and gain from higher interest rates, while a fixed military retirement suffers because of rising interest rates.

I personally believe the economy will see inflation and America will be too slow to raise the interest rates to slow it down. The costs of normal consumer goods and borrowing money will rise. Groceries will be more expensive and your credit card interest rates will rise while your retirement will stay the same and you’ll have to wait for the lagging annual inflation adjustment.

What can you do to reduce the impact?

The first thing to do is eliminate all adjustable-rate credit sources. These will increase when the interest rates rise while your income will probably not.

Next, take advantage of the rising interest rates. When then interest rates increase you can find safer investments then stocks to get the same yields. Most people won’t have the flexibility to take advantage unless you’ve been a long-time reader of this blog.

If you’ve been a long-time reader, leave me a comment.

Source: http://www.bloomberg.com/news/2014-12-15/russia-increases-key-interest-rate-to-17-to-stem-ruble-decline.html

2015 Military Basic Pay Charts and BAH Cut

Last night, the government passed the $1.1 trillion budget, known as an "omnibus" for the federal government. The bill includes a 1% basic pay increase for all military members except for Generals and Flag Officers which are still in a pay freeze and a 1% cut to our Basic Allowance for Housing (BAH). Here's a link to see the proposed 2015 Military Basic Pay Charts, though the site is not the official DFAS site.

Although I've attached the link, you can simply look at your LES and add 1% to your basic pay while decreasing your BAH by 1%. For me, this equates to a net .07% pay increase. That's less than a 1% pay raise. The main reason for cutting the BAH was the Pentagon and Congress don't feel that renter's/homeowner's insurance should be part of our BAH.

How does this make you feel? For me, I've noticed a significant reduction in personnel with an increase in the amount of work. Not being fully compensated makes it a more difficult burden to bear. Leave me a comment on how you feel.

Sources:
http://www.military.com/daily-news/2014/12/02/congress-agrees-to-troop-pay-bah-cuts-in-budget-compromise.html

2015 Thrift Savings Plan (TSP) Contribution Changes

In 2015, there will be big changes to our retirement contribution limits. For military members and our civil servants, our Thrift Savings Plan limit will be $18,000 up $500 from $17,500 in 2014. For those 50-years or older and that are eligible for TSP Catch-Up contributions, it will increase to $6,000 up $500 from $5,500 in 2014. This is great news. This $500 increase will allow us to put more money into tax-sheltered investments. If you do the Traditional TSP, you will be able to contribute an additional $500 pre-tax money to grow tax free and then be taxed when you withdrawal. If you do the ROTH TSP, you will be able to contribute an additional $500 of post-tax money to grow tax free and then will be tax free when you withdrawal. 2015 contributions will remain the same.

http://www.afpc.af.mil/news/story.asp?id=123433265

Another great change in 2015 is a larger saver’s credit amount. For our junior enlisted that meet the income qualifications they will see higher credits.

http://money.usnews.com/money/retirement/articles/2014/01/13/tips-for-claiming-the-retirement-savers-credit

BL: If the government gives you an opportunity, then you should take it. When funding your retirement, you should max out an IRA and then max out your TSP. This allows you to invest up to $23K in 2014 and $23.5K in 2015 in tax-sheltered accounts.

Full Disclosure: I’m a conspiracy theorist who believes there is a widening social gap and the government will look to the middle class to support the rich like some future dystopia movie. The investors who took advantage of government-offered programs will be better protected.

A Major Collapse is Coming

In July of 2001, I had just received my enlistment bonus and had been in the military for less than 2 years. I had $800 in Lucent stock and $500 in other stocks; totaling $1,300. I had less than $300 in an emergency savings account. Several months after the stock market had collapsed from the 9/11 attacks, my $1,300 portfolio was nearly worthless.

In 2007, I had become politically aware and more knowledgeable about the economy. Some of the political websites I followed started to discuss how bad the economy really was despite the media and the politicians saying the economy had never been better. All the data suggested the economy was perfectly fine yet some people had noticed the problems at the base. I began selling my stocks at 52-week highs. I looked foolish for several months preparing for the drop. Starting in October of 2008 the stock market began crashing, losing 18-20% in one week. By March of 2009, the major stocks indices dropped 50+%. I started buying back some of the stocks I had originally owned. Several years later I had many stocks double on me.

Now, in 2014, news articles are saying the economy has never been better and stock markets have never been higher. I believe there are significant problems at the base again. The national debt, almost $18T, Russia growing its empire and China doing the same are all world problems that soon, will impact America’s economy. Instead of worrying about a recession/depression like we’ve been doing for too long, we’ll see inflation come like a hurricane through our lives. Once the crash happens, the recovery, like always, will be on the backs of the middle-income taxpayers. The rich will come out unscathed and the poor will see little impact to them. By design, most of the people in the military are middle income and will be “punished” the most to help the economy recover. Over the past year, I’ve been preparing for the stock market to collapse and once again I look foolish, sitting on the sidelines while everyone is making money in the stock market. If you believe a crash is coming, like I do, then here are some of the investments I’m doing to prepare.

·         Emergency Savings Account: I’ve been increasing my emergency savings account. Even though I have no real debt, I believe having available cash will give me flexibility to take advantage of a stock market collapse by buying stocks at cheaper prices which have crashed with the economy but there’s nothing wrong with the company.

·         Eliminate all consumer debt: Except for a mortgage, and perhaps low-interest rate student loans, you should eliminate all consumer debt. As interest rates rise to help protect against inflation, your credit cards and other loans will also rise leaving you in a bad spot if you have limited flexibility in your paycheck.

·         Start selling stocks as they reach higher levels: If you own individual stocks or mutual funds, then sell portions of your gains as they go higher. Like me, you may look foolish when others are making money; but if they never sell, they miss the opportunity to realize those gains. If you solely invest in the Thrift Savings Plan (TSP) you can request an Interfund Transfer (IFT) and/or you can change your allocations on www.tsp.gov to “sell” out of the stocks funds and move into the “G Fund” to protect your TSP portfolio.

·         Gold: It may make sense to buy and hold gold through the collapse, but I recommend only holding gold for the initial panic. Gold has dropped from a high of $1,800 to less than $1,200 (a 30% drop). Gold will rise again when the stock market drops rapidly but if inflation rears its head, interest rates will rise and all the money currently in gold will go towards bonds to earn a “safer” rate of return. In 2003, an average high-yield savings account was earning 5% and Gold was less than $300. It may not go down that low for a long time, but it will go below $1,000. Gold will remain high as long as our national debt is at 100+% of our Gross Domestic Product (GDP), currently at 103%.

·         Dividend stocks: As the stock market collapses, many companies will offer a higher dividend yield as the stock prices fall in relation to its dividend. Some companies will be just fine and recover nicely. If you had invested in them at the bottom, then you’d have a very nice dividend yield. In his book, Getting Back to Even, Jim Cramer calls these stocks “accidental high yielders”.

If you are using different strategies or you disagree about my prediction, please let me know by leaving a comment.

Stocks to Consider (November 2014)

I’ve made most of my returns through sound value-investing principles. Buying stocks at cheap prices because of temporary weakness, either in the company or the sector, has provided me the best returns. I’ve lost the most money by using other investing principles and ended up buying at the high point and then having to sell at a loss. In my opinion, a good value strategy in this rising market may be Solar Energy stocks.

The two companies on my watch list are First Solar (FSLR) which is the industry giant and SunPower (SPWR) Corporation which has a huge presence in the deserts of California. FSLR once hit close to $180 in Feb/Mar of 2011. As of 13 Nov, its 52-week high is at $75 and is currently trading at $48. SPWR once hit $130 in 2008 and its 52-week high is at $42 and its currently trading at $27. SPWR has been on a tremendous run since the end of 2012, being as low as $4 in November 2012, as it gains more momentum in the industry.

The Solar Energy industry was the darling of the stock market when Al Gore’s “Inconvenient Truth” swept through the world; putting alternative energy options in the spot light. Ever since then, politics have shied away from the Climate Change debate, focusing more on the struggling economy.

The alternative energy is politically dependent. As the Republicans take over the House and Senate, I imagine the industry will suffer and stock prices will go lower, providing ample opportunities for value investors. In 2011, the solar-cell company, Solyndra, filed bankruptcy after receiving a huge grant from the American Recovery and Reinvestment Act. The company was a major donor to President Obama’s presidential campaign. Once the company filed for bankruptcy, the administration dodged all implications of corruption costing the taxpayers $385 million, once/if the projected $142.8 million is recouped. The executives all received “golden parachutes.” Instead of the administration taking the hit, the solar energy industry took the blame and climate change discussions were halted.

These temporary political weaknesses may give us an attractive buying opportunity this year and into 2015. I think the industry will continue to expand with or without political support. Once the support has returned, the stocks should skyrocket. It’s also satisfying to invest in industries you feel good about. As always, be careful taking stock advice from any blogger.

DISCLOSURE: As of this writing, I’m not currently invested in FSLR or SPWR but will most likely buy soon.

Big Thrift Savings Plan (TSP) Returns

In my previous blog post titled, Active TSP participation, I recommended taking advantage of the recent market dip by changing your portfolio allocation or by doing an Interfund Transfer (IFT). In less than two weeks, you could have earned over .5% in most of the funds besides the “G” and “F Funds”. Considering that the national average for the ANNUAL return of savings accounts is less than .5% (http://www.bankrate.com/checking.aspx), then you could have made more in two weeks than all year in a typical savings account while keeping your money in your TSP accounts.

Date	L Income	L 2020	L 2030	L 2040	L 2050	G Fund	F Fund	C Fund	S Fund	I Fund
14-Oct-14	17.11	21.98	23.55	24.84	14.00	14.55	16.71	24.66	32.31	23.94
22-Oct-14	17.24	22.38	24.11	25.53	14.44	14.56	16.68	25.63	34.15	24.35
Gain/(Loss)	0.74%	1.79%	2.32%	2.72%	3.04%	0.06%	-0.20%	3.78%	5.38%	1.67%

*Data as of 23 Oct 14

You don’t have to be passive when it comes to major market swings and the Thrift Savings Plan (TSP). I understand most people want to invest and forget when they participate in the TSP. “Dollar cost averaging” or investing at regular intervals can earn you average results compared to the market; but by taking a passive approach to investing, you can achieve above average results.

Active Thrift Savings Plan (TSP) Participation

In the past week, the DOW Jones has dropped 1,000 points (6%). If you're like me, then you should get excited when you see quick market drops because they offer better buying opportunities. It's like your favorite pair of shoes went on sale. Even if 100% of your retirement savings is in the Thrift Savings Plan (TSP), you can still take advantage of stock market dips and rallies.

The easiest way is to log into www.tsp.gov and change the percentage you contribute to each month. The default fund is the "G Fund" which is the safest but offers the least return. It's very important to check that you don't have 100% of your retirement savings in the "G Fund"; especially if you're under 40-years old. When the stock market dips for a couple of months, you can increase the amount of money you have from each paycheck into the C, S or I Funds. When the stock market rallies, you can reduce the percentage if you're uncomfortable with the risk.

Another way of taking advantage of stock market dips and rallies is to request an Interfund Transfer (IFT). This changes the percentage of your overall portfolio by moving the selected percentage into a different fund. You can increase the percentage to the C, S, or I Funds during stock market dips. TSP has a limit to only 2 IFTs a month. You can request an IFTs by logging onto www.tsp.gov or you can call the TSP ThriftLine. (https://www.tsp.gov/planparticipation/interfundbp/IFTs.shtml)

Budgeting Made Easy

For most people, being on a budget feels like being on a diet. The first thing people think of when they consider a budget is restrictions. Having a budget isn’t about restricting; it’s more about knowing where your money is going and knowing where your money goes is one of the most crucial steps to financial planning. I recommend doing the 30-day spending challenge I wrote about here: 30-day Challenge to track your expenses. Creating a simple budget is easy. Here’s how I recommend starting.

1.       Income. On the left side of your excel sheet or piece of paper, list how much you make in a month. Then on the right side, list your bills.

2.      Fixed bills. Start with listing your fixed bills. These are the bills that never change regardless of how you conduct your life and/or the minimum payments on installment loans. This typically includes rent/mortgage, insurance, car and student loan payments and sewer/trash bills. Generally speaking, you have no control over these bills.

3.      Variable bills. Next, list your variable bills. These are bills where if needed, you can reduce them if you need additional money. This typically includes gas, food, cable, phone, electricity, water, etc. When people come to see in dire financial need, it’s easy to reduce fast food consumption or simply downgrade current internet and cable service freeing up additional income to get out of their predicament. Use an average or use the last month’s bill to keep track of the amount.

4.      Take your income less your fixed and variable bills. Subtract your bills from your income and see how much “discretionary” funding you have available. The amount you have left will determine how you should proceed with your budget.

5.      Credit Card debt. Always list your credit card debt as a bill last. It is important to understand the negative impact of credit cards. Depending on your financial situation, you may only be able to pay the minimum payments from your available funding. If you have more money after you pay the minimum payments, then put more towards your credit card debt to help pay it off sooner.

6.      Savings. After paying your bills and credit card debt, the rest can be put to whatever savings strategy you are pursuing.

Creating a budget is that simple. It doesn’t require complex excel knowledge, a mathematics degree or expensive apps. If you get a promotion, you can quickly see the impact so you can increase your credit card payments or your savings. If you get into financial trouble, you can start reducing how much you pay towards your credit cards or you can put more money towards your variable bills. One quick tip: Don’t round your bills. People who round their bills, miss an opportunity to focus fire on financial objective. That being said, here’s a sample budget.

Income (Step 1)	Fixed Bills (Step 2)	Variable Bills (Step 3)	Income – Bills (Step 4)	Credit Cards (Step 5)	Savings (Step 6)
$5,000	-$1,500	-$500		-$200
	-$750	-$250		-$150
	-$250	-$200		-$75
$5,000	-$2,500	-$950	$1,550	-$425	$1,125

Travel Policy Changes

Starting 1 Oct 14, there will be significant changes in authorized reimbursable expenses. The Joint Federal Travel Regulation (JFTR) and Joint Travel Regulation (JTR) has been merged and the changes have been made. In my opinion, the JFTR/JTR are very complicated to read and analyze. Here's a quick update from what I can see. Full details can be found here: (http://www.defensetravel.dod.mil/site/news.cfm?ID=29).

BL: ATM Fees, CONUS laundry fees and transportation tips are now covered in the FY15 incidental rate and are no longer reimbursable.

Most customers tend to be very familiar with Appendix G of the JFTR and significant changes have been made to clarify what will be covered in the Incidental portion.

Starting 1 Nov 14, the long-term TDY rate has been significantly lowered. The reason behind significantly reducing the rates is quoted here.

"The commercial lodging industry considers stays greater than 30 days to be “extended stays” and typically offers reduced rates to ensure occupancy.  Travelers may also consider furnished apartments or similar types of lodging which are typically cheaper than room rates in commercial lodging.  Data analysis demonstrates the flat rate per diem adequately covers lodging, meals, and incidental expenses, more accurately reflecting actual costs incurred."

During times of fiscal constraints, it's important for the Department of Defense to identify cost savings but are these cost savings at the expense of travelers on mission-critical TDYs? What are your thoughts on this?

Military Retirement Plan

A majority of the people I've helped with their finances have been military members within 5 years, or even days, from retiring. They're concerned about only receiving 50% of their basic pay and not receiving BAH or BAS anymore. Anytime is a good time to start getting your finances settled but the earlier you start in your military career the better.


If done correctly, military members can retire from working at 40 years old. Imagine not having to work at the end of a 22-year career and only being 40 years old. When military members retire, after 20 years in the military, we get 50% of our basic pay (only basic pay) and an additional 2.5% each year after. If you start at the beginning of your career, you can have enough to make up the remaining portion of your basic pay when you retire.


For example, an E-8 at 22 years makes $5,115.30 a month (in 2014). The E-8 is entitled to 55% of his or her basic pay in retirement. 50% for twenty years and 2.5% for both years after. This would be $2,813 every month for the rest of his or her life, or $33, 756 annually and if you start saving now, you can earn enough income to get paid like you did when you were in active duty. You can potentially make enough to earn what you were getting in Housing Allowance (BAH) and Food (BAS).


To make up the remaining pay the E-8 would have to save up $552K and earn 5% when he or she retires. This may seem like a lot of money to save up, but by starting your Thrift Savings Plan (TSP) right away, investing in an Individual Retirement Account (IRA), buying real estate, living within your means and keeping debt to a minimum you can easily save this much money (or near it). $552K earning 5% a year would earn you $27,624 a year.


This discussion is theoretical because you can't withdrawal those savings from your TSP and IRAs until you are 59 1/2. But the point is, starting early and saving as much as you can will put you in a prime retirement position.

30 Sep End of the Fiscal Year is Coming

It's getting close to 30 Sep and, for us Department of Defense finance folks, that means it's time for the end of the Fiscal Year. For some people, conversations about the military budget may sound like a foreign language but regardless of your rank or position in the military, it's a language worth learning. Understanding the budget process can help you immensely in your career from the lowest ranking enlisted member to a 4-star general. Here are some common terms you may need.

• Fiscal Year - Our fiscal year goes from 1 Oct to 30 Sep. So FY14 started 1 Oct 13 and will end 30 Sep 14.
• Appropriations - These are the different types of funds we receive from Congress. Article 1 of the U.S. Constitution states, "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of Receipts and Expenditures of all public Money shall be published from time to time." This means we can only spend the money given to us by Congress; no more, no less. 
• "O and M" - Your Operations and Maintenance (O&M) appropriations are the types of funds that 90% of the military use in their day-to-day operations. There is also Procurement, Investment and R/D.
• Obligations - An obligation simply means we've spent the money given to us. You may also hear "commitment" which means we've committed to spending money but we haven't actually completed the transaction. By 30 Sep, the DoD must be 100% obligated which means in the month of September, a lot of End-of-Year spending happens. Some of this spending may get frivolous as each level or organization ensures it doesn't have to return the funds given to them. For tips on how to prevent this frivolous spending, check out my post earlier this year. End of Fiscal Year Discussion
• Bona Fide Need - This is a law that states we must have an immediate need for something when we purchase it. So you can't use FY14 funds to buy something you know you won't need until March FY15. The law allows us to purchase some items that have lead time so we have necessary supplies and equipment the first couple months of the new FY. 
• Form 9 - Certain requirements need to be purchased through your Contracting organization. In the Air Force, we call this a Form 9. I'm not sure what the other services call it but this is the Form your resource advisor will help you create to get the requirement you need. It can take a significant amount of lead time, so if you need something, get the leg work done sooner than later. 
• MIPR - This is an intra-agency form we use to send other agencies money to execute a requirement for us. If you have a requirement that will require a MIPR, then you'll have to get with your Resource Advisor to find out what information you'll need.
• "CRA" - Continuing Resolution Authority (CRA) is a temporary, yet restricted, authority to spend money until Congress passes the budget. Starting 1 Oct to the time the budget is passed, the DoD is under CRA which means you'll be restricted in how much you can spend and you're unable to start any new projects. Many units become risk averse and severely restrict spending during this time.
• Initial Distribution - Once the budget has been passed, each organization will eventually get its Initial Distribution, which just means it will get its budget for the whole year and normal spending can resume.

Hopefully, this helps you understand some of the conversations you'll hear this month. A lot of military members get bogged down with arguing and fighting how the system has been set up, but the successful ones learn the system. If there is a term you hear that you want explaining please leave a comment and I'll explain it.

Started from the Bottom Now...Wait..I'm Still Here

 A lot of my readers really enjoyed one of my previous blog posts, "Started From the Bottom", where I quoted a famous hip hop song by Drake. The target audience was for young junior enlisted, but was general enough for anyone just starting out in the finance world. But some readers reached out to me and they were concerned about being over 30-years old and having very little flexibility to start improving their finances. They felt like they were at the bottom and couldn't go anywhere. Here are some steps to take if you're at the bottom and nearing the breaking point with your finances.

• Find flexibility. Most people feel like they have no flexibility with their finances. They've reached a point where there is no money left over between paychecks and they may even be adding more to their credit cards each paycheck just to get by. This is the standard negative snowball effect which will ultimately lead to bankruptcy. You must stop this process. A good way to find additional savings is to track everything you spend for 30 days. Inevitably, you will find some savings; whether it is: not going out to eat one night, reducing your cable or phone bill or finding a cheaper alternative to a routine expense. Use the flexibility you find to stop using your credit cards each paycheck.
• Finding this flexibility is the single most important step. A lot of people start to feel "suffocated" about their financial position and they ignore it making it worse. Track everything for 30 days and find the flexibility. I know it's there. Contact me at bjone6@gmail.com anytime and I'll help you find the flexibility (for free, I'm not selling anything, absolutely free). 
• Pay down your credit cards. Some people find themselves having no money after they pay their normal bills and their credit cards. You must pay down your credit card debt quickly, even if it's only adding $5 to your minimum payment. This extra $5 will go straight to the principal and it will start building momentum to paying of the credit cards quicker. You'll start noticing the minimum payments go down and you'll start to open positive options in your financial life.
• Seek assistance. If you're a military member, go see your First Sergeant or your service-specific Family Readiness center. The Family Readiness Centers are an underutilized benefit we all have in the military. They employ or have access to professional money managers who could help you with your finances for free. Financial advice in the civilian world could cost $50-$200 an hour.  If you're financial situation is really bad, they can grant you a no- or low-interest loan to help prevent bankruptcy.

Starting from the bottom can be difficult but there are many ways to get out. If you're staying up late at night because you're worried about your finances then you need to find help. Finding flexibility and paying down your credit cards can be a slow process but it'll be worth it when you can finally say, "Started from the bottom, now I'm here."

Why I'm Not a Billionaire Yet...

To date, I’ve been unsuccessful at “beating the market” and becoming a self-made millionaire/billionaire through investing. In some years, I’ve beaten the market and professional investors; however, over 12 years of investing myself, I’ve managed to barely get a decent return compared to inflation. If I had put all my money into an Exchange Traded Funded (ETF) and have done no research or any active managing, I would have a significant higher rate of return. Here are some lessons and some recommendations I’ve learned which I’m hoping could help other self-managing investors.

·         Investing takes time. To be successful at investing, you must do a significant amount of research, all the time. You have to read books, stay current on events and research all types of market patterns, ranging from coffee prices, labor disputes, droughts in Russia to major political changes. The more you know about an investment’s “circle of influence” the better you’ll be at making a decision on when to buy. Personally, I do not spend the appropriate amount of time it takes to be extremely successful. Those who are successful make it a priority in their lives.

o   Recommendation: I recommend going to SeekingAlpha.com, Fool.com and Morningstar.com and Marketwatch.com to keep you updated.

·         Investing takes patience. One of the causes of losses in my portfolio has been a lack of patience. I jump into investments without sufficient data because I was impatient and was hoping to “get rich quick.” Or conversely, I’ve sold out of stocks because I was impatient with the slow rate of return. You have to be able to shut down your emotions while making investment choices. My obsession with becoming a millionaire has stopped me from being able to shut down my emotions. I recently joined some young people doing quick options and penny stocks and my emotions got the best of me and I jumped in without controlling my emotions. I’ve lost quite a bit of money doing the same thing with other investments.

o   Recommendation: Don’t jump into any investment unless you are fully prepared. Know where your entry and exit points are. Know how much you expect to profit from each investment.

·         Investing takes persistence. Gone are the days when individual investors can invest and forget. If you are going to manage your own investments then you must be active. This doesn’t mean day trading but it does mean spending a lot of time each day evaluating your investment objectives. I don’t have persistence and if I do, it’s inconsistent. If I pick some good investments, I start to become complacent. If I lose too much money, I’ll become disheartened and turn away from investing. My lack of persistence has left me on the sidelines during bull market runs and left me holding on while all my stocks dropped during bear markets.

o   Recommendation: I recommend checking your news sources daily and then focus on your strategy’s results on the weekends. Utilize trackers to measure your performance and compare to the market or similar investments. You may have earned a profit but was it less than a passively-managed strategy? This persistent evaluation will keep you on track with your goals and help make minor corrections at the correct time.

·         The power of dividends. For almost a decade, I had ignored the power of dividends. I spent most of my time trying to find the next Apple (AAPL). Many investors who focus primarily on dividends may never see their portfolio totals skyrocket in a couple of days or months, but over time they will consistently match or exceed the market because the dividends are reinvested during bear markets and then the stock rebounds giving you more capital gains and more dividend income. Many “boring” companies also increase their dividends throughout the years. So your $1,000 investment earning a 4% dividend 10 years ago but would now be getting an 8% dividend because the company kept increasing its dividend yield.

o   Recommendation: When using stock filters always consider dividend yield and dividend growth. If you are investing in mutual funds, consider high-yield or income based funds.

 If you are looking at becoming a self-made millionaire/billionaire in the stock market, then I hope this has helped you. But even for those just starting out, I hope this information has helped.

The Four Letter Word Killing Your Finances...Fees

In 2013, banks charged over $30 billion dollars in overdraft fees and were caught posting the highest charges first, to expedite the overdraft situation.[1] While overdraft fees can be controlled by closely monitoring the balance in your bank, what about other fees? Every January and July you should go through your financial statements and see if you’re being charged any fees you might not know about. Eliminating fees and maximizing rewards, where you can, should be a semi-annual task for your finances. Here are some common fees to look for.

• Overdraft fees – Overdraft fees are the worst. You inherently don’t have money and then you have to pay even more money if you were to find yourself in that situation. The fees can be over $30 regardless of the amount overdrawn. Imagine if it were an interest rate. You could have to pay $30 for a $3 charge leaving you with an instant 1000% interest rate. The best way to avoid these fees is to monitor your bank account daily or weekly. You don’t have to balance to the penny, but checking your online account daily can be very helpful to make sure you don’t overdraw your account.
• Minimum balance fees – Ever since the financial crisis of 2008, these fees have become rare. But a lot of times people won’t read the fee breakdown or the bank simply won’t make it easy to find the fees. Reviewing your statements monthly can help you identify the fees. If your bank is currently charging you those minimum balance fees, then change banks immediately. Most banks no longer charge those types of fees, so finding a new one shouldn’t be a problem.
• ATM fees –USAA doesn’t charge a bank fee for using other ATMs and will refund you up to $15 a month in ATM fees (USAA serves military members and their dependents). A lot of people may be getting double charged and may not know it. If you use a non-bank ATM, the ATM may be charging you a fee and then your bank may be charging you a fee also. Some people can be losing $4-$7 each time they take out $20. This will quietly, yet quickly, drain your account and you may find yourself with overdraft or minimum balance fees because you weren’t tracking the ATM fees. To avoid these fees, find banks that don’t charge these fees or try to utilize your bank as much as possible to avoid the fees.
• Statement fees – In an effort to do the right thing and “go green” many banks will charge upwards of $3 to send out paper statements. It’s marketed as a positive initiative, but I assure you, it is a money-making scheme. You may have to go paperless with your bank to avoid these fees.
• Annual fees – These are common with credit card companies. Some credit cards offer fantastic rewards while charging an annual fee. You’ll have to do the math to determine if you’re making a profit with the rewards after the annual fee. If not, then switch credit cards to avoid those annual fees. That being said, I pay more in annual fees because I have the Air Force Club card which donates money to the Morale, Welfare and Recreation Fund. Also, when I first joined the Air Force, it was considered a professional courtesy for NCOs and Officers to be club members. But generally speaking, you should try and find a credit card without an annual fee.

There are many types of fees you should avoid. A quick search through your financial statements can help you identify these fees and then eliminate them. I helped one Airman (E2) recapture $25 a month by reducing all the fees. This was several years before the 2008 financial crisis, so hopefully everyone saw a decrease in the fees they were paying.

---

[1] http://www.forbes.com/sites/greatspeculations/2014/05/29/banks-hike-overdraft-fees-after-regulatory-clampdown-hits-revenues/