Windfall Help. Newbie to Taxable Investments.

StammesOpfer

Level 2 Member
Charity Forum Mod
Background:
Maybe not a true windfall but it feels like it. I accepted an offer on my house and should be walking away with $50k-ish. I should be getting a $50k-ish reenlistment bonus ($37k after taxes) early next year. I will also have significantly lower expenses than normal for the next 6 months meaning I can put away $3k/mo.

I don't know if I will be purchasing another house anytime soon but I have VA loan options and don't think I will be buying right away so lets not think about a down payment.

So where do I put this money. I plan on putting as much into TSP (military 401k) and IRA as I legally can this year and next. That still leaves me with a big chunk to do something with.

My only debt is a low interest car loan that I plan on keeping open.

I am trying to get smart on investments outside of standard retirement accounts. The general consensus of the internet world seems to be ETFs. I have done some reading. My problem seems to be I have no clue what am I looking at when I see composition, style, ratings, and some of the stats. Then things start getting even more complicated when these are held in a taxable account.

My current retirement accounts are target 2050 accounts and I think maybe I am supposed to change how those are invested if I start doing taxable investments too?

I have USAA (primary bank) and Fidelity (2% CC) accounts. I am ok with opening a Vanguard account (or something else) if the options are better.

Question:
Can you point me towards some reading that is at my level and/or provide some insight? I am not above talking to a pro either but not sure I need to.

I might stop working full time before age 59 1/2 and I plan on having a military retirement. Do those things factor into how I should allocate investments?
 

ENOTTY

New Member
The Bogleheads Guide to Investing is a good introductory book. Once you've read that you can browse their wiki or their forums for even more information. Their pages on the TSP and its funds are pages I refer all the time. The forums also have posts that discuss TSP occasionally.

I've found that anytime I Googled for TSP investment advice, I always got a lot of people talking about market timing with the TSP (except on Bogleheads). I ended up ignoring the timing sites (like TSP Talk) and learning a lot on my own.

With regard to retiring before retirement age, it is possible to use the Roth IRA to bridge that gap. Since the Roth IRA is composed of post-tax dollars, you can withdraw the contributions without any penalty. So if you time it right, you can begin to draw down your Roth IRA when you're younger than retirement age, but only drawing down the contributions so you incur no tax penalty.

One thing I found frustrating when I read about asset allocations is that authors seem to assume you have free reign to invest in whatever securities you wanted to in your investment accounts. That doesn't match the reality of TSP, which only lets you invest in a few classes of assets. Many asset allocation styles will use asset classes that aren't available in TSP, for example, emerging markets or REITs.

One strategy to deal with this is to consider an asset allocation across all of your investments. TSP is used simply as a way to make up the allocation for particular asset classes. The downside of this strategy is it might be difficult to consider timelines in your investment planning since none of the TSP money can be touched until retirement (aside from getting a TSP loan), but it provides the best possible vehicle (G Fund) for low-risk investment (ideal for saving for a big purchase in the next 1-5 years).

Another interesting problem arises because TSP grows so much faster than all the other retirement vehicles. If you contribute the maximum, TSP grows $18,000 a year and the Roth IRA grows $5,500 a year. That means if you include the more exotic asset classes, your asset allocation slowly grows out of whack. But this seems like a good problem to have.
 
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Matt

Administrator
Staff member
am trying to get smart on investments outside of standard retirement accounts. The general consensus of the internet world seems to be ETFs. I have done some reading. My problem seems to be I have no clue what am I looking at when I see composition, style, ratings, and some of the stats. Then things start getting even more complicated when these are held in a taxable account.

My current retirement accounts are target 2050 accounts and I think maybe I am supposed to change how those are invested if I start doing taxable investments too?
You don't necessarily need to change the retirement accounts - you could even invest the taxable in a 2050 fund if you like, though changing it to a slightly different fund (2045/2055 if target date) would be more favorable in the event that the fund declines in value, you'd be able to sell it out, but if you have retirement account contributions into the exact same fund you'd be creating a permanent wash sale and that is a bad thing.

Can you point me towards some reading that is at my level and/or provide some insight? I am not above talking to a pro either but not sure I need to.

You might not need to 'talk to a pro' in the sense that you need long term financial advice, but if you can find a pro who will give you honest advice (not selling you stuff via commission) then it would be worth it.

I might stop working full time before age 59 1/2 and I plan on having a military retirement. Do those things factor into how I should allocate investments?
Yes, they do. As do your goals from your money.

My personal approach is defensive. If you have enough income via the pension then you need something very safe for the assets, but if you need some income from the assets to make ends meet, then you need to bring in more 'risk'. Risk generally comes in the form of tilting towards equity within the portfolio.

I have some time next week if you want to talk it over on the phone.
 
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