Cow Loan and "get rich quick"

Timely topic for me... my father passed away last month at 87. He was an Army officer and retired as O6 at 27 years. He never worked for money a day after he retired. He was always a very conservative investor (S&P type funds), but steady eddy investing with every paycheck. With just his "lowly" military pay he left a low 8 figure estate. It can be done on a military salary and simple, steady, compounding investment. You don't need to be on wall street to live well. Oh, and my Mom never worked for money ever. They were a 1 income family that raised 3 kids. That is what they should teach in a military finance class.
 
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billyb said:
Timely topic for me... my father passed away last month at 87. He was an Army officer and retired as O6 at 27 years. He never worked for money a day after he retired. He was always a very conservative investor (S&P type funds), but steady eddy with every paycheck. With just his "lowly" military pay he left a low 8 figure estate. It can be done on a military salary and simple, steady, compounding investment. You don't need to be on wall street to live well. Oh, and my Mom never worked for money ever. They were a 1 income family that raised 3 kids.
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Absolutely it can. Key is: 1. proper asset allocation 2. Extremely low costs 3. Buy, hold-rebalance 4. Dont sell when the market crashes-thats a time to buy-equities on sale.
 
rickdunnjr said:
A new car is not an investment either. Better to buy a 2-3 year old car. I wish I had not purchased so many new cars when I was young.
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Heck, I'm 58 and have once owned a new car. Prefer the rambling wrecks.
 
Biggest surprise of a luxury car buyer - one year later when you check the trade-in value on Edmunds, Carfax, etc. 😧
 
Another piece of advice: Do not get the Military Star retail credit card offered by AAFES, no matter how great the sales people tell you it is - long story on this one. Short answer - Amex Platinum Card (Annual fee waived for military)
 
DD has been considering the starter loan. I’m glad that she hasn’t rushed into any rash decisions. Couple personal-finance concepts I’ve tried to instill in her:

One, never borrow money to buy a depreciating asset. With one exception, and that’s a car — but always buy used, undamaged and reliable. A house and higher education, I’ve told her, are almost always good long-term investments.

Two, use simple math to determine the opportunity cost. For example, if deciding to pay off a loan early rather than investing in equities, compare the two rates of return, e.g the loan’s interest rate vs. the stock’s long-term projected growth. Whichever has the higher number is where your money should go.

I wish it was mandatory in college to learn simple concepts such as compounding, asset allocation and investor psychology.
 
AROTC-dad said:
+1
It is the old "be greedy when others are fearful" adage.
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I call it buying at the markdown table. I am always appalled when I hear of people stopping their monthly IRA or TSP allotments when they are “losing money.”

The Career Starter Loans offered by USAA and NFCU grew out of a car loan that used to allow additional money to be borrowed at a very low rate, back when kids having their own cars in HS was still a relative rarity. The interest rate ranges from .5% to 2.75% as I recall, with no payments due until 3 months or so after commissioning, 36 month (I think) payoff, no penalty for early repayment, and the only requirement being Direct Deposit of military pay to a USAA checking account and auto-pay. The full amount does not have to be taken. It usually becomes available 2/c year. I don’t know what the max is - perhaps north of $30k?

Ideally, the mid or cadet pays off higher-rate consumer debt, buys a good used car if needed, fully funds their IRA for last year if still eligible and current year, invests in long-term growth mutual funds, tops up an emergency fund, earmarks some cash for uniform expenses (especially Marines) and perhaps sets aside a little pot of graduation fun money for a trip during basket leave.

For the most part, the mids we have observed in our sponsor family have done sensible things with the money. We had one who came from a very low income family, who just handed it over to his mom and dad for his little brothers and sisters, and said he would cheerfully pay off the debt if it helped his family. I bit my lip, but he knew what he wanted to do. He lived on a Spartan budget at USNA, took 13 hour Greyhound bus trips instead of flying, never had a car, ate with us a lot. He is a successful financial advisor today with his own firm, interestingly. Another mid went crazy buying Louboutin shoes (look ‘em up) and expensive bags, blowing half the cash, which she had simply put in her checking account. 😱 👠 Her parents had done her no favors by not educating her on the basics of personal financial management, and since she “wasn’t costing them tuition,” they gave her a credit card with no strings they paid for, paid for all her airfare home and other trips, added cash to her accounts, paid for her phone. She was clueless about money. We saw a few more men and women like that.
 
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jl123 said:
Biggest surprise of a luxury car buyer - one year later when you check the trade-in value on Edmunds, Carfax, etc
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A car is the most heavily depreciating asset you'll ever own. We drilled that into our son from the time he was little along with "pay your future self first" out of every gift, windfall, and paycheck by fully funding all savings vehicles (piggy bank, TSP, Roth, etc.). Try to live on 50% of your income--a dollar for savings, a dollar for you. We also told him a car was a privilege, not a right, and we would never buy him one, so he started a car fund when he was around 8. At 21, he paid (very little) cash for his first car, a 2005 Mustang, that he rebuilt from the ground up. He LOVES that car, and we don't see him ever parting with it even if he's eventually forced to buy a grocery-getter when life catches up with him.

I believe he took the full Cow loan ($35K?) and used it to establish credit, an emergency fund, and top off his Roth Cow and Firstie years. He opened the Roth when he turned18, and we helped him top it off each year until he was able to do it on his own. The repayment is painlessly automatically deducted from his paycheck. He doesn't miss the deduction, and the remaining amount is there should he need it. He bought a house last summer, and I'm sure he used some of the funds for that lawnmower he didn't realized he needed.
 
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I started teaching my kids about investing before they were in high school. They'd received small amounts of stock early on
from my parents and my ex and I invested some of the gift money that they received as well in addition to #1 son's modeling
money from when he was 6 and 7. They did not have big portfolios but I showed them what they had and how it worked. My
boys partnered together and bought some high tech company stocks with their allowance money but that did not turn out well and
I showed them why. Now they are in their 20's and 30's and all have money put away in a variety of investments that they manage
themselves. The biggest is probably the younger son who has been able to invest nuke bonuses and the like and seems to have
done well.

The most important things that I stressed to them were to start early - time value of money and to avoid single company stocks
as my view is that well managed mutual funds were a much safer and surer bet over the long term and further to diversify
further with other funds as opposed to individual stocks. I do hold a few individual stocks and one in particular did very very
good things for me but I believe that to be an outlier. I've also showed them rating/analysis tools like ValueLine and Morningstar
which I hold to be a much better guide than advertisements.
 
OldRetSWO said:
I started teaching my kids about investing before they were in high school. They'd received small amounts of stock early on
from my parents and my ex and I invested some of the gift money that they received as well in addition to #1 son's modeling
money from when he was 6 and 7. They did not have big portfolios but I showed them what they had and how it worked. My
boys partnered together and bought some high tech company stocks with their allowance money but that did not turn out well and
I showed them why. Now they are in their 20's and 30's and all have money put away in a variety of investments that they manage
themselves. The biggest is probably the younger son who has been able to invest nuke bonuses and the like and seems to have
done well.

The most important things that I stressed to them were to start early - time value of money and to avoid single company stocks
as my view is that well managed mutual funds were a much safer and surer bet over the long term and further to diversify
further with other funds as opposed to individual stocks. I do hold a few individual stocks and one in particular did very very
good things for me but I believe that to be an outlier. I've also showed them rating/analysis tools like ValueLine and Morningstar
which I hold to be a much better guide than advertisements.
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I'm not dispensing advice here, but the last book I read advocated for index funds will little management, over mutual funds, because of management fees and transaction costs.
 
OldRetSWO said:
I started teaching my kids about investing before they were in high school.
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Same here. That car fund I mentioned upthread was started with all the birthday money, etc. that our son had squirreled away in his little savings account. After the 2008 crash, my brother bought him some Ford stock for his birthday, and he decided he wanted to start investing. We introduced him to our broker, allowed him to attend our meetings with her, and encouraged him to talk to her and ask questions on his own. By the time he entered high school, he had his own business relationship with her. By the time he graduated from West Point, he had a very healthy portfolio for someone his age. She's the one who helped him open the Roth and advised him to take the full Cow loan and how to benefit from it while not risking it.

I believe that understanding how money works, the time value of money, the miracle of compound interest, and how to build wealth should start as soon as they learn to count. (I'm a banker's daughter; my dad taught me and my brother to count using money.)
 
OldRetSWO said:
... start early - time value of money and to avoid single company stocks...
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Some of the most important things to understand. Isn't it funny that sales-people don't show prospects how their fees help flatten out the TMV curve! I actually think many of the financial services sales people are not that competent regarding personal finance...a few are.
 
LineInTheSand said:
I'm not dispensing advice here, but the last book I read advocated for index funds will little management, over mutual funds, because of management fees and transaction costs.
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YMMV but I am not a fan of index funds as they include ALL in that index with no ability to make alterations for obvious changes in the economic landscape. For instance Sears and JC Penney have long been on a downward trend with little conceivable way to halt the slide. An index fund would continue to hold and even buy more stock in them (as investors buy more of the index fund) as opposed to putting the money into more timely investments. To put it another way, compare the return on a Dow Index fund to the performance of "The Dogs of the Dow" investment strategy which I believe can also be found in fund form.
BLAB: People can write books, even learned people that I don't agree with.
 
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OldRetSWO said:
YMMV but I am not a fan of index funds as they include ALL in that index with no ability to make alterations for obvious changes in the economic landscape. For instance Sears and JC Penney have long been on a downward trend with little conceivable way to halt the slide. An index fund would continue to hold and even buy more stock in them (as investors buy more of the index fund) as opposed to putting the money into more timely investments. To put it another way, compare the return on a Dow Index fund to the performance of "The Dogs of the Dow" investment strategy which I believe can also be found in fund form.
BLAB: People can write books, even learned people that I don't agree with.
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This was especially pronounced during the pandemic last year. Many firms continued to maintain their holdings, whereas others executed small tactical adjustments to increase holdings of stocks that stood to benefit (tech, e-commerce, etc.) from the lock-down. Those firms made significantly more money than those who stuck to "passive indexing."

Indexing is great for keeping expenses low, but sometimes active management makes a difference.
 
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