Posted: 2/4/2016 2:39:31 PM EDT
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Short background-
28 y/o, mil. Maxing Roth tsp annually. I am paying myself 1000/mo for a rainy day fund and vacation fund. Goal is about 9000 saved for each. Additionally I want to start saving ~300-500 a month for a house. I don't plan on buying until I'm out of the military so I have about ~15 years to put that money aside. Owe about 6000 on a car that I pay 700 a month on, but it's through family so interest is minimal. My question is: for saving for the house, I want to put my money into something that will work harder than a standard savings account. I understand a CD and most bonds barely meet inflation. Where should I put that $30-500 per month to work the hardest for me. |
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Quoted:
Short background- 28 y/o, mil. Maxing Roth tsp annually. I am paying myself 1000/mo for a rainy day fund and vacation fund. Goal is about 9000 saved for each. Additionally I want to start saving ~300-500 a month for a house. I don't plan on buying until I'm out of the military so I have about ~15 years to put that money aside. Owe about 6000 on a car that I pay 700 a month on, but it's through family so interest is minimal. My question is: for saving for the house, I want to put my money into something that will work harder than a standard savings account. I understand a CD and most bonds barely meet inflation. Where should I put that $30-500 per month to work the hardest for me. Ally savings account. 1% interest risk free. But, if you'r really not going to touch it for 15 years, it would be better to put it into a total market etf until about 5 years out. |
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What I'm leaning towards is one of USAAs tax exempt intermediate funds (USATX).
Any input on this? I realize USAA has slightly higher fees than if I were to go with say fidelity, but I do most of my other banking with them so there would be some slight advantages in that respect. |
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Quoted:
What I'm leaning towards is one of USAAs tax exempt intermediate funds (USATX). Any input on this? I realize USAA has slightly higher fees than if I were to go with say fidelity, but I do most of my other banking with them so there would be some slight advantages in that respect. Use Vanguard. It may only be a difference of .6%, but that will equate to thousands in the long run. |
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Unless you are in the highest income tax bracket, tax exempt funds aren't efficient; you're better off in normal/taxed funds (it's better to make 10% and pay 30% than make 3% and save 30% [generic example]). If that is the case, then look for a "double tax free" fund: one that buys municipal bonds in your HOR state so that you won't pay federal or state taxes.
I would (have/did) stick with basic stock funds. Build a core/base (size is relative) with the S&P500. When you feel comfortable assuming more risk then start adding other funds like mid and small caps, developed foreign, emerging (foreign), etc. As stated, if you wanted to do just one fund forever and forget it, see if USAA has a "Total Market Index" fund. We just had a big discussion about market timing versus buy and hold in this thread. Maxing out your TSP and your side savings will make you a millionaire in short order. |
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Also, out of curiosity what funds are you in for TSP? Edit: Forgot to congratulate you for going against the grain, it's easy to blow every paycheck in the military, but good for you putting 18K+ away a year. Right now about 90% C and 10% G. I've been moving from G to C on the dips. |
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Right now about 90% C and 10% G. I've been moving from G to C on the dips. Quoted:
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Also, out of curiosity what funds are you in for TSP? Edit: Forgot to congratulate you for going against the grain, it's easy to blow every paycheck in the military, but good for you putting 18K+ away a year. Right now about 90% C and 10% G. I've been moving from G to C on the dips. I'd have to double check, I think I'm 5% G 5% F 70%C, 10% S and I respectively |
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Biggest mistake I watch military guys make is waiting to get out to buy a house. At that point in your life you want your house paid off... You are losing a HUGE chunk of free money if you are waiting 15 years to buy.
Buy a small house when you get a new assignment, dump your BHA on it and then sell when you transfer. roll the profits into a new house when you get to your next place and do it again. assuming you are single get a mil. roommate, the navy guys around here get someone who is on a different boat so they are on different schedules for deployments. figure 3 rotations you could have an extra 100-150k more if you get a roommate. |
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Saving for a house that isn't going to be purchased for 15 years? Stock market for sure... as you get closer to retirement/getting out start to move that money into progressively more conservative funds to conserve value if there happens to be a market "dip" near the time you're buying a house. That will protect you.
As the poster above me said though, why not buy now? Interest rates are dirt cheap, if you have the steady paycheck and need a place to live, IMHO you cannot afford to not buy a house. When you are renting every single rent check is money pissed away. Just look at all the threads in this very forum about people "makin' bank" on rental properties. There is a lot of money to be made in rentals; that money is made at the expense of the renter that for various reasons, doesn't want to buy a home of their own. |
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Quoted:
Biggest mistake I watch military guys make is waiting to get out to buy a house. At that point in your life you want your house paid off... You are losing a HUGE chunk of free money if you are waiting 15 years to buy. Buy a small house when you get a new assignment, dump your BHA on it and then sell when you transfer. roll the profits into a new house when you get to your next place and do it again. assuming you are single get a mil. roommate, the navy guys around here get someone who is on a different boat so they are on different schedules for deployments. figure 3 rotations you could have an extra 100-150k more if you get a roommate. Tell us these tales of free money? Don't forget to compare annual average house appreciation after maintenance, interest, and transaction costs vs average returns from the market. Show me some math to support this "HUGE" loss you speak of. |
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Tell us these tales of free money? Don't forget to compare annual average house appreciation after maintenance, interest, and transaction costs vs average returns from the market. Show me some math to support this "HUGE" loss you speak of. Quoted:
Quoted:
Biggest mistake I watch military guys make is waiting to get out to buy a house. At that point in your life you want your house paid off... You are losing a HUGE chunk of free money if you are waiting 15 years to buy. Buy a small house when you get a new assignment, dump your BHA on it and then sell when you transfer. roll the profits into a new house when you get to your next place and do it again. assuming you are single get a mil. roommate, the navy guys around here get someone who is on a different boat so they are on different schedules for deployments. figure 3 rotations you could have an extra 100-150k more if you get a roommate. Tell us these tales of free money? Don't forget to compare annual average house appreciation after maintenance, interest, and transaction costs vs average returns from the market. Show me some math to support this "HUGE" loss you speak of. rough numbers In this area, say a condo 135k, 30 yr mortgage with zero down at 3.875% you are looking at $635 add in insurance and taxes you might be looking around $850/mo +150 condo fees so right at 1k. In 4 years you will owe 124.5k, say 10% fees when selling. so 124.5 + 13.5 you need to sell at a min of 138k to break even. After 2.5% you are making a profit. say homes go up 2% per year you are looking at around 148k (my house has gone up ~9% over the last 2.5 years) 8k profit if it works out like that... toss in a roommate at 5-600 a month 10 months out of the year, an extra 5k per year x 4 years = 20k Incentives you can get from USAA etc, $650 cash using their agents cash towards down payment etc. So far we are at right around 30k Maintenance will be offset by condo fees if you get house. But condos work if you are single and run a chance to be deployed. Change out the carpet and paint everything white before you move out ($1800) but that will be offset by tax incentives for buying a home. So, 0% down with a roommate and you are looking at 20-25k and you can still be putting the money from the roommate into the market. skip a realtor you can save yourself 3-6% (4-8k) down payment assistance programs that military is eligible because most of their pay is counted as benefits vs income is another 10-20% (stipulations but its out there) So yeah, 20k low end 45k high end and you can still be putting 500$ a month into the market and roll the dice there as well. Thats a 30yr mortgage, can probably improve your odds if you get a 15yr mortgage with a little down. I have seen guys buy larger houses or houses with lofts in the garage and made a killing. Then there are the guys who start a family and stick around in the area for most of their career and when they get out they have a 250-300k home paid for. Or if you are handy, buy fixer uppers. I guess after typing it out I see it depends on the area you are stationed and your life style but you can make a house work for you. If you rent a room (for yourself) and put the surplus in the bank you could be looking at 25-30k, + market gains on either... I might not have picked the best example for a property but it is an example. No other factors than buying vs renting a home by yourself, you will end up losing money renting (1200$ rent vs $1000+ cost of selling at the end). It is the same risk be it housing market or stock market. |