Savings, Investments, Retirement Stats and Food for Thought

And remember too, that B&H, while a diversified company, is still a company. They own a lot of assets, but that doesn't make THEM a diversified INVESTMENT.

There are many ways to look at investing. You can look at "Sectors" such as technology, energy, healthcare, retail, etc. You can invest in the sector and make money even with competing companies. E.g. owning BOTH Coke and Pepsi; or Ford and GM. On the other hand, some people invest in a Sector and try to play BOTH sides of a technology. This will reduce your risk, but also your profit potential. E.g. Investing in both fossil fuels and green energy at the same time. That's like playing Roulette and putting $10 on Red and $10 on Black. You can play indefinitely, but you're not going to gain anything.

That's where actively managed mutual funds make their mark. They are diverse enough where winners out pace losers and you'll profit. But they also watch those losers and sell/buy based on the market and forecasts. Hopefully with the result of INCREASING the winners and reducing the losers. But if not, there will still be more winners than losers. Matter of fact; if held for 10 years or more, NO MUTUAL FUND has ever lost money.

Buying individual stocks; or even in a company that has multiple holdings; has a greater potential for loss. Yes, it also has a greater potential for gain, but you have to be very active with your management. And if you buy something like BRK and don't touch it often, the costs are indeed low. But if you trade it a lot, those costs will surpass the fees on a mutual fund. Especially considering that most mutual funds also deal in holdings that pay dividends and such.

So, i know that Badfinger has mentioned a number of times that he prefers investing in individual stocks over a mutual fund. All I'm saying is you can't make a blanket statement that one is better than another. For instance, in the last 5 years, BRK had returns of:

2012 2013 2014 2015 2016 YTD
BRK.B
17.56 32.17 26.64 (-12.06) 23.43 1.41

The Vanguard S&P500 fund as well as similar, had similar returns. The highs may not have when exactly as high, but the low (2015) wasn't nearly as low as BRK. (1.25% vs -12.06).

Bottom line: Mutual funds, won't experience the volatility of the market like stocks will. Including a company with numerous holdings. But in return for some higher safety, there will be some less profits.

And don't get me wrong. I invest in a very large variety of things. Some things I don't even call investments. Such as Silver and Gold. I only have physical silver and gold. And while it doesn't pay dividends, it preserves wealth extremely well. E.g. in 1964 the median average house cost approximately $19,000 or the equivalent in Silver of 15,000 ounces. Let's say 2 people; one had $19,000 in cash and the other had 15,000 ounces of silver, and BOTH were going to go buy a new house. They get in a car accident and are in a coma for 50 years. They wake up OK and said.... "What was I doing?" Oh yea, I was on my way to buy a house. Could the guy with $19,000 in cash buy a house today? No way. But the guy with the 15,000 ounces of silver could, because today, it's the same as $266,000.

The point is; everything is relative. You need to be truly diversified in your HOLDINGS. (Holdings include investments, real estate, cash, belongings, etc. ) FWIW: I consider silver and gold CASH. It's just a DIFFERENT CURRENCY. No different than the dollar, yen, euro, etc. Except, it's been around as a currency for about 6,000 YEARS. Anyway; even your investments need to be diversified. It's up to the individual to determine their balance and risk level. You CAN BE OVER DIVERSIFIED. Back to betting BOTH RED and BLACK on a Roulette table. Or no risk and having ALL CASH in your home safe. No interest and it loses value every year because of inflation.

My suggestion for the new officers: Look at my original post in this thread. I list the 4 types of savings you need.
#1 should be CASH. I recommend half dollars and half silver
#2 is your checking/savings account to pay all your bills and spending money
#3 should be in money markets, CD's, savings bonds, silver/gold, etc. Money you don't need tomorrow, but you don't want to tie up for 30-40 years like an IRA.
#4 Should be diversified around TSP/401K/IRA/529/etc. Diversified with mainly equities; both mutual funds and stock funds; some bond funds; etc.

You will find, that as time goes on and you have less expenditures and some of these 4 savings group outgrow themselves, you can move stuff around. E.g. #1 is an emergency fund. 3-6 months of income. But if your house is paid off and you don't have a lot of expenses, you may only need 2-3 months of emergency funds. You can move some into #3. Or, if you're taking in a lot more than you're spending, and #2 (Bank account) is getting too big, you can increase the amount going into #4. If you realize what EACH of those 4 savings are for, and realize how flexible or firm each can be, then it becomes very easy to diversify around those.

Have to disagree with your statement about trading fees surpassing mutual fund fees.

If you invest $25k in a MF that has a 0.4% annual fee, you will be paying $100 a year in fees. Fidelity only charges $4.95 per stock trade. You could make 20 trades a year and still not be to the fees of a MF. But it would be highly unlikely to make 20 trades if you only had an account balance of $25k. Now say your MF account balance is $500k, that would be 400 trades a year. Unless you are the absolute definition of a day trader, no way would you come close to incurring the same fees that MF companies charge. And that would hold true even if MF fees are only 0.2%. Obviously I am a person who prefers holding individual stocks (you would be shocked at what I do).

No doubt you are a conservative investor. Curious why you prefer silver over gold. Gold is so much easier to store (I can easily hold a pound in my hand..and you can buy coins less than one ounce). Your car crash example is all about timing...silver was over $100 an ounce in 1980. Today it is under $20 per ounce.

Bottom line, pay yourself first (save) and live within your means, and you will be ok.
 
I'm not as conservative of an investor as you may think. And as for making trades, I've done a lot of stock trading. Even quite a bit of day trading. As for 20 trades; I've done that in a month. I've done 10 in a single day. And for what it's worth, I still have some stocks in my portfolio. But those are long term stocks that pay dividends and I don't sell them. But as for equities, the vast majority of mine are in mutual funds. Some stock. And even a couple of ETF.

But we're talking about 22-25 year olds fresh into their first real income. The BASE of their retirement investments should be in funds. TSP and ROTH IRA. If they want to invest a small percentage in individual stocks, that's fine if they are comfortable with it. But for someone just starting out; with 40 years to go for compounding; and a career they are beginning and don't need to worry about their retirement fund; the TSP and ROTH IRA mutual funds would be the best bet.

As for silver vs gold. I'm seriously not being rude here; but if you base your preference of gold over silver because of it's weight and portability...... then you obviously know very little about precious metals. And that's ok. Most people don't know much about them. You could go to my blog and read up or do some research on your own if you want. But you'll find that even the "EXPERTS" agree that you always buy silver over gold. Without going into detail; the 2 main reasons for silver over gold:
1. Historically; silver should be at a 16 to 1 ratio to gold. Even in today's world, 30-40 to 1 would be acceptable. Currently, silver is at 73 to 1. Silver is WAY UNDER VALUED. And this ratio doesn't include #2 below.
2. Gold basically has 2 uses. Investment and Jewelry. Silver is the BEST conductor of electricity, is impervious to germs, and LITERALLY HUNDREDS of Industrial uses. From electronics, to the entire medical field, to solar energy, and literally hundreds of other uses. The potential for Silver to increase is so much greater.

You WON'T FIND ANY SERIOUS silver and/or gold buyer (Who takes physical possession) that would ever argue gold should be bought over silver. I do have some gold, but it's mainly because I like it's historical properties. I like the old $20 gold pieces; Krugerrand; and some other foreign currency. But for "Wealth Preservation, supplementing my retirement, part of my emergency fund, and for a couple of other reasons"; it's SILVER ALL THE WAY.

Oh, and as for my car crash scenario, the timing you speak of is short term. But NOT LONG TERM. You can go back 50-100 years or even 1000 years. You will find that you can basically buy today for an ounce of gold or silver, what you could buy with an ounce of gold or silver back then. Don't look a 1, 5, 10 year periods. Look at it historically. Silver and Gold maintain their purchasing power vs the economy. Unlike paper currency that has NOTHING to back it with.
 
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I'm not as conservative of an investor as you may think. And as for making trades, I've done a lot of stock trading. Even quite a bit of day trading. As for 20 trades; I've done that in a month. I've done 10 in a single day. And for what it's worth, I still have some stocks in my portfolio. But those are long term stocks that pay dividends and I don't sell them. But as for equities, the vast majority of mine are in mutual funds. Some stock. And even a couple of ETF.

But we're talking about 22-25 year olds fresh into their first real income. The BASE of their retirement investments should be in funds. TSP and ROTH IRA. If they want to invest a small percentage in individual stocks, that's fine if they are comfortable with it. But for someone just starting out; with 40 years to go for compounding; and a career they are beginning and don't need to worry about their retirement fund; the TSP and ROTH IRA mutual funds would be the best bet.

As for silver vs gold. I'm seriously not being rude here; but if you base your preference of gold over silver because of it's weight and portability...... then you obviously know very little about precious metals. And that's ok. Most people don't know much about them. You could go to my blog and read up or do some research on your own if you want. But you'll find that even the "EXPERTS" agree that you always buy silver over gold. Without going into detail; the 2 main reasons for silver over gold:
1. Historically; silver should be at a 16 to 1 ratio to gold. Even in today's world, 30-40 to 1 would be acceptable. Currently, silver is at 73 to 1. Silver is WAY UNDER VALUED. And this ratio doesn't include #2 below.
2. Gold basically has 2 uses. Investment and Jewelry. Silver is the BEST conductor of electricity, is impervious to germs, and LITERALLY HUNDREDS of Industrial uses. From electronics, to the entire medical field, to solar energy, and literally hundreds of other uses. The potential for Silver to increase is so much greater.

You WON'T FIND ANY SERIOUS silver and/or gold buyer (Who takes physical possession) that would ever argue gold should be bought over silver. I do have some gold, but it's mainly because I like it's historical properties. I like the old $20 gold pieces; Krugerrand; and some other foreign currency. But for "Wealth Preservation, supplementing my retirement, part of my emergency fund, and for a couple of other reasons"; it's SILVER ALL THE WAY.

Oh, and as for my car crash scenario, the timing you speak of is short term. But NOT LONG TERM. You can go back 50-100 years or even 1000 years. You will find that you can basically buy today for an ounce of gold or silver, what you could buy with an ounce of gold or silver back then. Don't look a 1, 5, 10 year periods. Look at it historically. Silver and Gold maintain their purchasing power vs the economy. Unlike paper currency that has NOTHING to back it with.


"Oh, and as for my car crash scenario, the timing you speak of is short term."

The timing in my example spanned 37 years. Hardly short term at all. My entire working career will not span 37 years. I did own a good chunk of precious metals a few years ago, sold it all on 22 August 2011 and have never considered buying it again. I know the price you buy and sell compared to the spot price (think I am using the right term there) equates to about a 5% fee. Seems rather high to me.

Everyone has different values, experiences and risk tolerances...but will have the same goal to make money!
 
1. The average cost to "Exchange" dollars for silver is between 3-5%. I don't find that high. E.g. Spot price is $17.50 and you can buy it for $18.00 - $18.50. The coin shop, distributor, or whoever you are getting the silver from is a business and they have to make money.
2. Unless you go to a pawn shop to trade back for dollars, most everyone gives you spot price. So there's no fee trading it back.
3. I agree that when it comes to investing, the ultimate goal by everyone is to "Make Money". I just need to clarify one thing. As for silver and gold, I consider that part of my "CASH". It's "Money". I DO NOT INVEST in Silver and Gold. There are some people who do. Most buy "PAPER" Silver and Gold and not the "Real Stuff". That's a BAD INVESTMENT. I don't INVEST or BUY Silver or Gold. I EXCHANGE DOLLARS for SILVER and GOLD. Just like I EXCHANGE Dollars for Euros, Pesos, Pounds, and Yen when I'm traveling. I'm simply EXCHANGING one CURRENCY for another. Just happens to be a currency that has TRUE VALUE and maintains it's value. Owning PHYSICAL Silver and Gold is simply a way to PRESERVE WEALTH.

But for the cadets considering a retirement fund for 40+ years down the road, it's important to start when you graduate the academy. If you take the $35,000 almost no interest loan; invest it in an S&P500 fund, continue to add to it the payments, you're going to do great.

The S&P500 has averaged 10% interest. But even if you take a more conservative approach and use 7% from the recent 10 years only, you get the following results:
$35,000 initial investment:
$600 added each month. (Same as the pay back, just keep it going being you're use to not having it anyway)
7% interest, compounded monthly
30 years: ( Age 53-55 - $1,016,060.01)
40 years: (Age 63-65 - $2,145,787.44)

Why did I put in 30 years and age 53-55? Because there's no law that says you HAVE TO WORK until you're 65. Nothing wrong with retiring early if you're able to; and enjoy life. But if you enjoy working, keep going. Or maybe at 53-55, you decide to start a new career, your own business, or a number of other choices.

But assuming you got out of the military after 20 years. You're 42 years old. Assuming you chose to keep the military retirement option for after 20 years. You're now sitting at 42 with a decent military retirement, and a new job. Do that for about 10-15 years; along with the over $1 Million from your investments; you could easily retire comfortably at 55 if you wanted to. Or work for 10 more years and really enjoy retirement.

I'm simply pointing out the importance of investing when you're young. And the $35K loan is great, because for 5 years you will be making payments to pay it back. In 5 years, you will have had 2 promotions and won't even notice that the $600 a month is even missing. If you let that $600 continue in there for another 25-35 years; along with the initial investment of $35,000; you'll be able to truly enjoy your life and the American Dream.

When you consider the AVERAGE NET WORTH of an individual 55-65 years old is ONLY $45,000 THAT IS SAD. That's why so many live on fixed incomes and rely on social security. Even the LOWEST JOBS like convenience store; if a person would simply put away $100 per month. (You can save that easily by reducing frivolous spending), earning 8-10% return will give them $350,000 - $630,000 after 40 years. But most people don't plan for the future.
 
Wow - this is such a helpful discussion. Thanks to you Christcorp and Badfinger...Full disclosure - I'm an attorney, not a finance guy....I don't do any active trading with my money. I have a DS who is entering USNA - he has been fortunate with some awards and such - no strings or limits on what he can use it for - can spend as he wishes. Probably around 20K - 25K total. I was going to set up an investment account for him as he enters the Academy - majority in a 'put it away and don't look at it for years kind of account' - I had thought that since it is not earned income, it would have to be in some sort of mutual fund; each year, while at Academy, he'd get a statement of profit/loss on fund's activity, and we'd deal with that on annual taxes. The above now causes me pause. Given that he enters the Academy in a few weeks, he will have earned income this year - how much on paper, reported to IRS, I don't know - have to look into that; but seems, based on what I have read here, that at a minimum, I should hold off on some amount - maybe as much as the $5500 number if his reported income is that much - and put that in an IRA for him? So it is tax deferred? If you had time and inclination, would love to hear your thoughts.
 
Wow - this is such a helpful discussion. Thanks to you Christcorp and Badfinger...Full disclosure - I'm an attorney, not a finance guy....I don't do any active trading with my money. I have a DS who is entering USNA - he has been fortunate with some awards and such - no strings or limits on what he can use it for - can spend as he wishes. Probably around 20K - 25K total. I was going to set up an investment account for him as he enters the Academy - majority in a 'put it away and don't look at it for years kind of account' - I had thought that since it is not earned income, it would have to be in some sort of mutual fund; each year, while at Academy, he'd get a statement of profit/loss on fund's activity, and we'd deal with that on annual taxes. The above now causes me pause. Given that he enters the Academy in a few weeks, he will have earned income this year - how much on paper, reported to IRS, I don't know - have to look into that; but seems, based on what I have read here, that at a minimum, I should hold off on some amount - maybe as much as the $5500 number if his reported income is that much - and put that in an IRA for him? So it is tax deferred? If you had time and inclination, would love to hear your thoughts.

Because your DS is young (long time horizon) and likely in a low tax bracket, a Roth IRA would allow ling term tax free growth, in exchange for paying the taxes up front. This would likely be more beneficial to him in the long run than a traditional tax deferred IRA.

In my opinion as a CFP, he will likely never be in a tax bracket this low again.
 
Skippers; you have have analyzed it correctly. Being your son WILL be making taxable income, I would split up the $20K among the four years, and put $5K each each into an IRA.

BUT; as AROTC Dad accurately points out, your son is in such a LOW TAX Bracket at the academy, that there are no real tax advantages to putting it into a TRADITIONAL Tax Deferred IRA. I recommend, as AROTC dad has stated, that it go into a ROTH IRA.

The best part of the ROTH IRA is it's 100% TAX FREE on the interest you make on it. SO,,,,,, if you put $5k per year for the 4 years at the academy; into an S&P500 fund, that has averaged approximately 11% over the last 40 years; "But I'll be conservative and say it will average 9% for the next 40 years"; even if your son didn't add 1 PENNY to the $20,000; in 40 years..... when he's 62....... it will be worth approximately $722,000.

Of course, it would behoove your son to obviously continue to contribute into TSP once he gets commissioned and is making a real paycheck. ALL of that TSP contributions, I would put into a TRADITIONAL IRA. Thus, taking the tax benefits now. Then, when it's time to retire, you can use the ROTH Money (The $722,000) as a lump sum or whatever he wants to do with it. TAX FREE. The Traditional IRA money, he takes out "X amount per month/year" (Around 4%) to supplement his income from other retirement, savings, social security, pensions, etc.

Best of luck. Mike
 
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