Like many service members, I diligently saved up during my time in the military. Now I'm trying to build a nest egg, and I am mostly watching it get eaten away by the financial services industry.
What are your specific recommendations for veterans with preparing for retirement?
Answers
One key area, Philip, is your age, and I do not see that. Depending on your age you may be conservative or aggressive. The contributors have all offered good advice as far as financial instruments. That is, pay attention to fees. While a 2% fee may not sound like much when the investment is small, it can be significant when investment is large. An area not mentioned is rental property. While I have a good pension, my investments in rental real estate have provided far more in net worth than my 35 years of 401K contributions. It is also providing me with significant income that continues to grow with the increase in rents, while my pension is fixed. Rental property also gives you leverage. You can have $500K of assets appreciating for only $100K of your investment (20% down). Also, today, interest rates are at historic lows and would be a good time to borrow. With a 15 year loan, you can have an earning asset free and clear in 15 years. When the real estate industry collapsed, my property values dropped significantly. However they are higher today and note that during the collapse, my rental income not only kept coming in, but increased. Be aware that renting has drawbacks in that it will take some work and has hassles with tenants and all the issue of maintenance. However, as I look at the amount of work and issues I deal with, compared to the return, it was clearly a very good choice. I also know a number of military people who have done this and they are extremely happy they chose to invest in rental property. Be careful where you buy. Stay close to growing metropolitan areas for best appreciation. Stay away from homes (too high maintenance cost) and focus on property that was built for renting. Try to buy as many units in one building as possible so a vacancy has less of a cash flow impact. Buy close to where you live you you can drive to see the property as issues happen. I see you live in San Diego. Do you think the population of San Diego area will grow in the future? If so, they will need more places to live. Find someone or some company that is in the rental real estate business to further discuss ups and downs and possible good areas to buy. Good luck.
If you are retiring, you probably have saved your dough systematically, if not religiously, right?
I did too, in my time, and then in my post activity duty employments. It helped that I spent so much time in awful isolatd places, and couldn't spend my pitiful dough on anything of real value. Nice duties...
What I did financially in those lovely places was two things....
I did not trust and still don't trust most of those financial advisors and their houses to give me
Due diligence. So I took about 30% of my monthly savings and I stuck into conservative stock buying programs, directly from the company...the two I did that with were Duke Energy and its gas spinoff known as Spectra Energy.. The rest of my savings allocation I just stuck into my USAA savings account (at the time, in the late 's and early 70's...yeah in th last century...USAA did not have the formalize financial planning house and system that it now has...). that is I just allocated a . certain percentage of my gross to a USAA savings account... Separate from a checking account. My wife did the same with hr dole from her separate civilian employment.
Then,I forget when, I think the late 70's or early 80's...anyway just when we got the Space Shuttles flying fairly routinely, USAA went into a full financial services mode with various stock funds, mixed funds, sectorized funds, etc...but USAA is only open for membership from service and former service members AND THEIR FAMILIES...and their fees are considerably lower than their "civilian" counterparts who are largely after your buck for themselves...such is my opinion.
This sounds like an advertisement, but it is not... USAA has taken care of four generations of my military family during thick and thin...when I was deployed in awful places like SEA, A-Stan, Pakland, MidEast, and garden spots like the Aleutians, W Europe, and Siberia (yeah, really, but as a civilian)... They were one cell phone call. (Or its precursors) away. They have taken care of my family in those difficult deployments. Now, as an Olde retired dufus they still do.
One other point about them...they do full services financial service. When your savings and investments or whatever each some sort of level, I forget what it is... 200 or 300K, I forget which, you will be invited into the Wealth Managemnt Group where you have ONE personal financial divisor assigned to you for monitoring your goodies, advising you, and being available for you and your situations and opportunities at your call. That is continuity.
I cannot even imagine doing biz with a standard bank, CU, financial warehouse, or vulture after my experience with these folks. Give them a call and probe into their doings deeper, on your own account(s) and opportunities...they are finely tuned to handling service folks.
Regards, Mike H
Stay out of the markets and financial companies. Find something you love to collect and have a good depth of knowledge, and buy investments your keep yourself safe. It could be coins, art, classic cars, rare books, but not just junk. Buy smart as you can, treat all purchases as investments. In this way, you OWN your nest egg, not some geeky-sleeky on wall street. Other idea is to buy and improve and sell real estate, and I am not talking "flipping". Buy a fixer upper and spend 2 to 3 years tuning it up and then sell to buy up to something better that needs some work. Do this for 10 years and I guarantee your investment will beat the street.
I am a retail investor and at times a speculator. Do not leave all your dollars in the bank. After taxes and inflation, the bank overtime, will give you a negative return. Diversify. You can Google the following: Roth IRA, Self-directed IRA, Exchange Traded Funds- ETF's. You may want to use some of these vehicles for investing for retirement. I agree with Sarah above, use no-load mutual funds. I have 3 rules on investing: (1) Don't use the mortgage money. (2)Place "stops" on your investments so they have a limited amount of loss. (3) Run, do not walk when you hear stock tips from your friends and then sell your holdings....this means the market is over- bought and will then plunge. Good luck. Luck plays a big part in how your investments turn out.
Hi Phillip,
I know you work hard for your money so take care of it. First you should know what you have & understand it. There is a non profit organization which their primary mission is to educate America in a non solicitous advice, they don't work in one company nor a captive agent so you are confident that what they teach you through the best of your interest. If you're interested I can get you more info .
You can email me at joel2412@icloud.com
What do you want to do with your life? What is important to you? What to you want to accomplish personally, professionally and for your family? Without a deeper understanding of what is important to you it would be inappropriate to offer advice.
1. make maximum permissible contributions to your retirement account (IRA ir 401k)
2. open a non-retirement brokerage account and put something, no matter how small, into it every month.
For 1 and 2 above, put 2/3 of the money into an S&P500 index mutual fund. The remaining 1/3 into federsl govt bond fund. if you want to trade stocks use only an amount you would be ok losing. As you get within a decade of retirement, put more into the bond funds and less into S&P500.
3. only pay cash for your cars, and get the least expensive one that is safe and durable, and keep it a long time. no car payment over years is an incredible amount of money saved.
4. never finance anything if you can help it, except your home mortgage.
5. if you accumulate savings acct money you wont need right away, buy US i-bonds to diversify your portfolio. they outperform savings acct interest, cds and money markets, tax free interest, and very safe investments.
6. spend less than you earn
Peter,
There are good Financial Advisors and bad ones, like anything else. You can always go to a Fidelity or Vangaurd who can provide you with some guidance on how to allocate your savings and diversify.
Many people make the mistake of investing in multiple mutual funds and don't realize the funds all own the same equities, so they are not diversified at all.
The vast majority of active managers do not beat the returns of the S&P 500, so investing a bulk of your money into the S&P 500 is probably your best bet. You can diversify into some fixed income and leave some cash as well.
My personal opinion:
You are starting at a funny time, which I don't think is going to be funny for much longer. The markets are at all time highs, economic growth is weak and the global central banks are pumping money into the system. The financial markets seemed to be completely centrally planned, which means they are not trading on fundamentals they trade based on what the central banks say and do, so they are being "managed".
My advice is to take what you have, go to Fidelity or Vanguard and do not go all in at once. You can go in incrementally over time and not be overweight into any single asset class.
Just be careful, be patient and take your time with entry and do not put all your money in at once.
If you are smart you will buy gold, silver and ammo. The dollar will go down soon and be worthless. I know a lot of people will argue but check out the alt. news sites and see for yourself.
When the SHTF you will need a backup. Gold, silver and ammo are barter items and will be worth something. Your paper dollars and stock papers you can wipe your butt with.
Have someone who can show you, how to build a proper financial foundation , there's an organization
Called HIFE- Heartland Institute of Financial Education, they're non profit organization 501 (c)(3), whose mission is to promote financial literacy across America
If you have more questions you can email me, I know someone in your area who used to be in the navy who's doing this, educating people
The FINRA Investor Education Foundation’s Military Financial Readiness Program delivers free, unbiased financial education tools and training to servicemembers, their spouses and on-base financial educators through a variety of programs and public awareness initiatives. In collaboration with the U.S. Department of Defense Financial Readiness Campaign, the program’s primary goal is to help military families manage their money with confidence.
Hi Philip,
I also lost money using financial advisers. My wife and I grabbed the bull by the horns and manage investments ourselves. I agree with some of the above, but be careful. You did not mention your age (guess, mid-twenties?) or background, so here are some ideas - check in with a for-fee (not percent assets or commission) investment guy to cross check:
**Bank with USAA - I have used other banks and investment firms, these guys are good, fees are reasonable - many employees are ex-military, treat me (long ago Sergeant) with respect.
**Hard assets (like rental properties) are good, stable, long term wins. This does not mean your home or land is an investment.
**Learn about money - start with this book (Rich Dad, Poor Dad) - is basic, makes sense http://smile.amazon.com/s/ref=nb_sb_ss_i_1_17?url=search-alias%3Dstripbooks&field-keywords=rich+dad+poor+dad&sprefix=rich+dad+poor+dad%2Cstripbooks%2C135&rh=n%3A283155%2Ck%3Arich+dad+poor+dad. I have not read this next one, but the index looks good and it's cheap enough http://smile.amazon.com/Military-Veterans-About-Personal-Finances-ebook/dp/B00M677RMO/ref=sr_1_14?s=books&ie=UTF8&qid=1422378205&sr=1-14&keywords=learn+about+money
**DO NOT think you can "beat the market" or make fast money -there are many scams out there, be careful. Managing individual stocks is tough to do.
**Index mutual funds were the only type I bought for years and are the only ones that consistently made money - USAA has low cost funds USSPX and USNQX, check them out.
**follow your invested assets closely, Be satisfied with results.
**Give back to your buddies - I support special ops warrior foundation scholarship fund.
Take care, best of luck.
(1) A house is not an asset, it is a liability.
(2) If advisors knew what they were doing, you would not be able to find one to talk to, They would be in their happy place, sucking down drinks and watching the sunset.
(3) Follow Buffet's rule. Put whatever money you want for retirement into an Index Fund, like Vanguard and leave it alone..
(4) How much money do you have in your emergency fund? 3 months? 6 months? Depending on your age, your likelihood of becoming disabled far exceeds your chances of making it to retirement. I have a year's worth. Because I know why it is important now.
(5) "Collectibles" are not investments. They are hobbies. They are worth only what someone is willing to pay. Lesson learned #2.
Funny how you mentioned that your savings were being eaten away by the financial services industry - and most of the answers that you have gotten to this point have been from the financial services industry. One guy even said that luck was a part of the equation. You might want to look into insurance. Insurance companies insure your car, your home, your life, but some have no clue that they insure your retirement as well. The safety that is offered in this industry is unrivaled. Keep in mind that risk and reward travel together, and you have to ask yourself how much risk have you taken on to this point versus how much you continue to take on with Wall Street (if this is what you are doing via Mutual Funds, Stock Funds, etc). If your idea is to shift your thinking away from risk, then returns will obviously be affected. But the guaranties being offered in the insurance industry are great, and you should consider educating yourself in this industry. I have!
In a nutshell, retain as much control over your egg as you can by choosing "vehicles" with the following attributes:
* Low transaction costs (minimal buying and selling fees)
* Reasonably liquid (plenty of buyers & sellers creating enough volume for you to get in and out with ease)
* Not a derivative of the underlying investment (own the actual shares of equities, not funds that can go poof if everyone wants out at once)
* Avoid a ticking clock (avoid opportunities that expire or are subject to a margin call)
* Choose opportunities that the average investor is likely to think that the average investor sees as a bargain, based on their own analysis of the fundamentals. (Nothing too complicated for Joe Shmoe to explain to a buddy.) (a.k.a. momentum)
You MUST learn how to read basic financial data, or else be prepared for heartache when you pay someone else to do it for you. Learn what a current ratio is, for example. But take care not to rely too much on analysis of fundamentals.
Investing is as much spiritual as mathematical. Fully 50% of what happens is out of your control.
For example, you can't predict hedge fund manager mood swings, which can cause a perfectly "good" stock to plummet and stay there for years because they have a "position" to unwind.
No one is successful without getting lucky (or dodging bad luck). Be skeptical of everything: banks go poof, as do insurance companies, and companies of any size. Even the currency could go poof, though very very unlikely. We live in uncertain times. There is no safe place to run, but there are relatively safe choices. However, for me personally, conservative choices have cost me way more money in the long run than risky ones. Stay as nimble as you can. Use guerilla tactics = don't follow the herd.
Make a practice of controlling knee-jerk impulses and listening carefully (to your gut, to advice from others, to The Universe) with humility. The stock market is just a big poker table, and often the players with most of the chips are trying to bluff you into folding.
Thank you for serving this great land of opportunity! Feel free to reach out if you want to chat further.
-Dave
Hello Philip --
I've read all the answers, and much of it is quite good. A few counterpoints, however:
1. No one has yet spoken of Asset Allocation and Re-balancing of your portfolio. That's where a financial planner (maybe Vanguard or Fidelity, or other fee based) helps you target what %'s of your assets should be in stocks, bonds, cash -- and all the sub-categories of conservative, aggressive, income, growth, value, hi-yield, etc. Then, as you move through time and markets change, sticking to your allocations forces you to sell certain categories as their percentages exceed the allocation, and buy others as they drop: typically, this results in selling high and buying low.
2. Depending on your geography, income real estate is not for the faint of heart. If your savings are somewhat limited, I suggest sticking with asset allocation using no-load, low cost, index funds.
3. Forget individual stocks: you'll never do as well.
4. Buying a home, in most locales, is not an investment: it's shelter. If it happens to grow in value, consider yourself lucky.
5. Continue saving! Adding cash to your investments funds allows for having assets when it comes time to re-balance your portfolio (usually quarterly, or whenever market conditions experience significant change).
I can offer 40 years of business and investment experience, all learned by doing it.
I am not a veteran; I am typically in awe of those who sacrifice to serve the rest of us, so thanks.
And good luck!
USAA is an insurance company that caters to military personnel and has various financial tools. Take a look at its web site to see what it can offer you. It's run by ex-military and can be trusted. You need to read up on financial planning and investing- go to your local library and perhaps ask a reputable mutual find company like Vangard to send you some literature on funds. Low cost mutual funds are a good way to invest in the stock and bond market since they do well over time and don't eat your saving away in commissions. Does your base or station have any financial planning services or classes you can access for advice? Any nearby community college have such classes in which you can enroll.But above all, start reading up on money management and investing so you have a better handle on what is going on. Good luck and Semper fi. Laurence Schnabel, USMCR-R 1963-1966, USNR-R 1966-1985 ( AB Stanford, JD UCLA Law School , JAGC CDR. retired).
Howdy,
I answered this question on what to do with one's savings before, but I have something to add that took me several days to retrieve. The question was, "What do I do with my life savings.". I responded what I did with my own allocation and how it grew up.... What I was looking for and had to retrieve out of my recycle bin was a recent section of the WSJ....Wall St Journal.... That source you may find more neutral, more objective than just confining your considerations to this very wonderful venue of chats from experience folks who have all shares the same boat at one t ime or another.... Anyway, the reference that I would point you and other service members to is Section R of the Tuesday, 6 Jan 2015 of the WSJ. That Section is 12 pp long, pp. R1-R12. It is entitled, "Brains, Bots or Both? Finding a Financial Adviser".. Obviously it won't be on the newsstand now, but you should be able to find it and read it or copy it at your local public library, community college library, or university library. I expect that reading and/or copying that Section will give you more confidence in making your decision(s). The fun is in the hunt... Ciao, Mike H.
First, thank you for your service!
Billionaire investor Warren Buffett's advice... "Put 10% in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers."
After all, Buffet is 83 now. Sooner or later, someone will take the reins at his firm, Berkshire Hathaway, and that person will pick up the mantle of his amazing performance over the years.
They will be tough shoes to fill. Buffett racked up nearly a 20% annualized return through 2012 from 1965, turning a foundering textile mill into a holding company for ventures that span the globe and run the gamut from consumer goods and newspapers to industrial giants and railroads.
He flatly endorsed a simple portfolio of inexpensive index funds for his own survivors.
Put your money in index funds and move on, he told them. "Seriously, you'll do better. In fact", he said, "that's what I plan to do with my own money once I am gone."
Here's the quote, from page 20 of his most recent annual letter to Berkshire shareholders, dated Feb. 28. After all of his Berkshire shares are distributed to charity, take the cash, Buffett says, and just buy index funds:
My advice to the trustee couldn't be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.
What's fascinating about this letter isn't that he favors passive investments. That much we already knew. Nor that he believes in stocks, as a 90/10 split clearly implies.
What's fascinating is that he doesn't want his executor to keep the money in Berkshire, where presumably his influence would continue on for at least a few years. Nor does he want his surviving family to bother with Wall Street and active money managers.
Time is on your side, seek to invest for the long-term, leave the money to grow and retire comfortable and younger than most.
Unless you want to try to manage your portfolio yourself, which can be challenging, I recommend that you go with a fee only financial advisor. Instead of those other financial advisors who get a commission from selling you financial products which may or may not be good for you, a fee only advisor only makes a % on the value of your total package. So, it is very much in his/her best interest to make your portfolio grow. That makes it a win-win situation.
Re investing it in other than financial market products, the biggest single financial investment you can make is in a home/house. 65% of Americans own their own home/house, whether it is a condo or separate home. Home ownership is not for everyone. Yes, houses tend to rise in value over time. But they are a big cash drain, and unless you go into this with your eyes wide open, and are in it for the long pull, home ownership may not be the best idea. That is especially true if house mortgage payments eat up a large part of your cash flow. The housing market has seen a very big increase in value since March, 2009 when the financial markets hit bottom, but they are starting to level off now, and I do not hear predictions of major value escalation on the horizon. Renting is a relatively safe option especially when you are in the years when you need to begin putting money aside for retirement. And by that I do not mean that retirement is close. The best retirement savings are made when you are young and you can see the investment achieve huge increases over the decades leading up to retirement.
You need to understand the difference between managed and index/Exchange Traded Funds as Morgan indicates the compounding of the expense fees destroys much of the gains and exacerbates the losses of managed funds. Most managed funds LONG TERM under perform indes/ETFs. Be sure to balance your portfolio to your risk tolerance between stocks and bonds. As a relative rookie in the investment world, you should shy away from commodities, gold, annuities, etc. as they really are specialty investments. Take a course in investment at your local community college or university to get you up to speed on the lingo and techniques. T Rowe Price, Vangard, and Fidelity all have low cost funds. I don't invest in any fund with an expense ratio over .25%, that is one quarter of one percent.
Consider Jennifer's first two paragraph advice as mine. A next level approach over sanguard etf with same cost saving is wealthfront, see https://research.wealthfront.com/whitepapers/investment-methodology/ & https://www.wealthfront.com/
Time does matter, imagine this was Jan 1999 (boom for next 18 months) or Jan 2000 (bust 5 months away), if just starting, keep 50-70% invested and invest rest in equal parts in next 4 years
Amit
Vanguard index funds. A very low expense ratio. Jennifer mentioned these. Their expense ratio is usually under .25%. Opposed to actively managed funds taking somewhere in the 2-3% range. It also ensures your cash moves with the overall economy.
Index funds are also available through USAA and other banks.
So long as you are consistently putting money into a long term savings, you will win in the long run: some of your investments will be put in at market highs but some will go in at market lows. It is a long term, low stress investment plan based on the principle of market efficiency.
Morgan
If you have a sum of money saved you could diversify by buying a rental property in an area with a stable housing market. It would be a long term investment but over time you could be charging rent that is several hundred dollars more than your mortgage. You can take that money and add it to a 401k or Roth IRA each month. When you go to retire you can either keep the property or sell it for a profit.
If you have a head for finance, research no-load mutual funds and then invest your savings.
No-load means the company does not charge a fee for transactions. If finance gives you sweaty palms, then take a course and learn how to invest sensibly. My husband manages our mutual funds through a couple of these types of companies and he learned how to do it by just "doing it". As a result we both live comfortably. Not rich–not poor–but in comfort in San Diego, like you, in one of the most expensive states in the US. Chart your own future as inexpensively as you can to yield the greatest results. For most Americans, including vets, retirement is a long way off, if it is ever reached. Good luck!
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