Pie Chart with starter loan allocation breakdown

New Officers and the USAA Career Starter Loan

The USAA Career Starter Loan offers newly commissioned officers an opportunity to borrow up to $25,000 to start their career. This includes students in the ROTC program, those attending a military academy, and newly commissioned officers coming out of Officer Candidates School (or the equivalent in other services).

You can take the loan out up to a year before you commission, or a year after. In order to take it out before commissioning you’ll have to get your command at the academy, or ROTC, to sign some forms to show USAA they have counseled you.

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Vanguard 500 Index Fund

Index Funds As A Preferable Alternative To Mutual Funds

I have already expressed my opinion about mutual funds, but I have yet to provide a viable alternative. The reality is that most of us aren’t going to have enough time to actively manage our own stock portfolio. You should still try to find good long term stocks to own, but you aren’t going to be able to keep a very close watch if you are deployed and have 10+ stocks to worry about. Index funds are an incredible alternative to mutual funds that can add diversity to any portfolio.

The first index fund was establish in 1975 by the creator of Vanguard, John Bogle. Index funds utilize computers to automatically buy and sell shares in a manner that complements the marketplace (e.g., the S&P 500). If a stock represents 3% of the S&P 500, it is going to signify 3% of the index-fund. Such funds need almost no care whatsoever, and operate in a manner that is both tax-efficient and inexpensive. Put simply, index funds are merely sets of shares that computers handle in order to mirror the marketplace whether it by the S&P 500, or something else such as real estate.

Every mutual fund manager claims he is able to overcome the marketplace. They constantly engage in new trades, and utilize information along with elaborate analysis to bolster their advertised results. The real outcome is high trading costs and taxation, which, when along with the expense ratio, makes it practically impossible for the typical trader to overcome. Bogle acknowledged the shortcomings of mutual funds, thus offering index funds as a favorable alternative.

Currently, index funds are a simple and effective strategy to create a substantial investment return. Nevertheless, the index funds will follow the marketplace. If the stock exchange falls, your assets will likely fall. There may be times of hardship but, as history has revealed, ,markets will almost certainly rise back over the long term.

There will always be positives and negatives associated with any investment. Here are some key points to note when considering investing in an  index fund.

Yes! Invest in an index fund

  • Tax-efficient
  • Inexpensive
  • Simple to manage

No! Stay clear of index funds

  • You will generally have to invest in multiple index funds to properly allocate assets in a diversified manner
  • Managing several index funds will require some time re-balancing assets

Index funds definitely have some advantages over buying mutual funds. If you wish to create and manage the precise make-up of your collection making use of their reduced costs, they’re an outstanding option. Still, it may not be the best choice for everyone. If you aren’t willing to take at least a little bit of time (once a year at the least) learning proper asset allocation and researching the various index funds then you may need a different investment vehicle to hop in.

Humvee Photo

Mutual Funds Are Like Humvees. Less Exposure But More…

The marketplace is run by some very intelligent people. Those individuals are quite cunning when it comes to creating investments for those they serve. Mutual funds were concocted in 1924 as a way for investors to alleviate the burden of picking stocks themselves. The idea was to give the average person a chance to simply choose from a variety of funds and let their money sit. Mutual funds come in all sorts of flavors for you to choose from: large-cap, mid-cap, small-cap, biotech, 3D printing, social media platforms, Asia, Europe, and whatever other category you can throw together. Many find them favorable due to a greater level of diversification. Instead of picking 5 stocks to invest in 3D printing, you could choose to buy a mutual fund that holds all of the best players. In this manner, you are investing in a sector, rather than a specific company. Mutual funds are also commonplace in investment accounts such as an IRA, or a 401(k).

Little risk? More diversification? Hands off? What’s the catch? The mutual fund investment vehicle has been popular and profitable for decades and loved by Wall Street. Simply put, the catch is that money managers are going to charge premium fees for their services. The money spent paying the big guys to pick your stocks is going to cut into your overall profits and retirement income. The amount you end up paying up will vary depending on the fund. There are some low-fee funds, but for the most part you can expect to get knifed in the wallet by the guys taking care of your money. In some cases, higher fees will be justified. If you are getting good returns and not having to worry too much about losing all of your savings then you might as well ride this one instead of doing nothing.

Yes! Invest in a mutual fund.

  • Less to worry about when you don’t have time to manage your investments (especially during deployments and field training)
  • Diversified portfolio of stocks

No! Stay clear of mutual funds

  • Fees … Fees … more Fees. You could end up paying tens of thousands over the course of a lifetime
  • Funds do not always beat the market so you end up paying heavy fees and losing capital
  • If you own multiple funds they may contain similar holdings which means you aren’t as diversified as you thought

The main thing you need to know if that mutual funds definitely have their place when it comes to investing your money.  If you have some time to manage your own portfolio then I would limit investments in these funds and try to beat the market on your own. However, as Marines we are always going to be busy doing what we need to do. Don’t let your investments detract you from taking care of your Marines. A mutual fund may be the peace of mind you need. Know yourself and decide what works best. I would also like to suggest index funds as a great alternative to mutual funds.

Marine Corps Officers must teach Marines about investing

The Roth IRA Investment Vehicle For Marine Corps Officers

Marine Corps Officers MUST be knowledgeable when it comes to investing. Not simply for their own benefit, but more importantly for the Marines whom they teach financial management. The Roth IRA should be one of the first things you teach your Marines. The Roth IRA is an retirement account that offers a future tax-free retirement income. The idea behind the Roth IRA is that you pay taxes now in order to free yourself of such a burden later on. The investment account is a sensible option for those who expect to be paying a higher tax rate during retirement. If you are not making a whole lot of money now you can minimize future taxes by paying up-front at your current lower rate.

Marines and Marine Corps Officers Are Eligible

There are eligibility requirements for the Roth IRA. However, given that you have chosen a career in the military you likely won’t be making enough money to warrant exclusion from this investment option.

Here is the official Amount of Roth IRA Contributions That You Can Make for 2014

If your filing status is… And your modified AGI is… Then you can contribute…
married filing jointly or qualifying widow(er)

< $181,000

up to the limit

> $181,000 but < $191,000

a reduced amount

> $191,000

zero

married filing separately and you lived with your spouse at any time during the year

< $10,000

a reduced amount

> $10,000

zero

single, head of household, or married filing separately and you did not live with your spouse at any time during the year

< $114,000

up to the limit

> $114,000 but < $129,000

a reduced amount

> $129,000

zero

More to Know

As I explained, the main benefits to having a Roth IRA is the future tax benefits you will receive. There are some additional considerations you should take into account.

  • You have a 15 month window to contribute (e.g., January 1, 2014 to April 15, 2015)
  • You can’t contribute any more than you make (e.g., if your income is only $2000 for the year you can only contribute $2000 of the $5500 max)
  • Age is not a factor to eligibility
  • There is no requirement to start withdrawing (with a traditional IRA you have to start withdrawing at 70 ½)
  • If your spouse doesn’t work you can contribute to their Roth IRA

Early Withdrawals

It is incredibly important for Marine Corps Officers to educate their Marines about how early withdrawals work with the Roth IRA. In most cases, withdrawals from a Roth IRA before 59 ½ will be subject to a penalty.  One could end up paying a 10% early withdrawal fee + taxes on the Roth’s earnings + income tax. There are ways to avoid some of these penalties such as disability, death, medical expenses, first-time home purchase (up to $10,000), higher education expenses, and ironically to pay taxes owed to the IRS.

There is no doubt that a Roth IRA is a solid investment choice for Marine Corps Officers and the Marines they lead. The retirement account affords you a wide variety of investment options such as mutual funds, brokerage (stocks, bonds, and other securities), CDs, and more. I encourage everyone to do their research and compare the varying opportunities in order to find the best option for you.

Marines and investinig

3 Solid Ways For Marine Corps Officers To Invest…

It is not an easy task managing money. After all, the education system in many ways neglects to teach children early on how to be smart with money. Unless you graduated college with a business, economics, or accounting degree, money may still be something you are uncertain about. My goal is to provide some quick options for you to consider. Investing is the greatest tool at your disposal that can help build wealth and financial stability. Responsible money management early on in life will carry forward for years to come. I believe every Marine Officer must be competent when it comes to finances. Not simply because it will benefit themselves, but more so the Marines under their guidance.

Stocks

Owning a share of stock represents a proportional share of ownership in a company. The price of a stock changes depending on the value of the company. Companies with huge growth potential are more likely to have an increase in stock price. Other companies with less growth potential will pay out a dividend. In those cases, you will receive a portion of the companies earnings based on how much stock you own. Historically, stocks have had the most upside compared to other investments. I personally favor stock investments over mutual funds, bonds, CDs, etc. However, it is important to weigh in your ability to manage stocks. For instance, if you aren’t going to be able to watch the market for weeks at a time then stocks may not be the best option. It doesn’t take a huge amount of time to manage stocks, but at least a few hours a week is going to be necessary.

Mutual Funds

Buying into a mutual fund is similar to owning stocks. The main difference is the fund manager will be choosing what stocks to buy and sell. Essentially, you are throwing your money into a pool that the managers can use to invest. If the mutual fund does well you will be rewarded, if not you are out of luck. I’m not a huge fan of mutual funds because there are many managers that underperform the market indexes. If the fund doesn’t do well the money you invested is lost, but the money managers are still profiting off of the commissions you pay them. If this is the vehicle you choose to put your money in, I suggest doing research just as would do for stocks. Make sure the fund handling your money is reliable and has a proven track record of making investors money.

Exchange-Traded Funds (ETFs)

An ETF is a fund that trades similarly to stocks. These vehicles for investing may contains hundreds, or even thousands of companies, commodities, or bonds that are unified by a specific theme. For instance, one may choose to buy in ETF that tracks companies in the solar energy industry, or perhaps 3D printing companies. There is an ETF for just about anything (bonds, countries, market sectors, etc.). There are definitely various pros and cons to investing an ETFs. If you are interested I would suggest learning all you can and researching extensively.

I truly believe that it is critical for Marine Officers to teach financial responsibility to their Marines. There are dozens of ways to invest money. The important things to remember is to always do plenty of research beforehand. It was not easy earning the money you have saved up so don’t give it up too hastily.