Financial Independence Asset Allocation – My 2014 Portfolio

2014 marks the first year I’m on pace to max out my Roth TSP and Roth IRAs. For the Thrift Savings Plan, I setup automatic deposits on myPay at $1458 per month, which will result in $17,496 invested over the course of 12 months ($4 short of the maximum $17,500 contribution).

For my Roth IRAs, Vanguard offers an excellent “maximum my contribution” service which calculates exactly how much you’ll need to contribute each paycheck to maximum your Roth IRA contributions by years end. If you do the math, it should come out to about $230 per paycheck per Roth IRA account. So to maximize both my wife’s and my own account, it’s about $460/paycheck. This withdraws automatically from my checking account on the 1st and 15th.

Because of these contributions, as well as starting to invest in a taxable investment account, I find myself with a sizable retirement investment which I recently reallocated in accordance with my investment strategy. I’m using Personal Capital to keep track of my Roth TSP, two Roth IRAs (my wife’s and my own), my taxable brokerage account, and my SDP account. It’s free and easy to keep track of all my investments so I only need to login once, instead of on to multiple websites.

Asset Allocation for a CGO

I like the idea of taking more risk when I’m in my 20s and 30s (by being 90-100% invested in stocks) and then slowly becoming less risky over the years as I approach financial independence. The general formula I’m using is:

120 – (my age) = (% of portfolio in equities)

  • Age 20: 100% stocks, 0% bonds
  • Age 30: 90% stocks, 0% bonds
  • Age 45: 75% stocks, 25% bonds (Permanent portfolio)

My permanent portfolio will be a 75% stock, 25% bond mix, which I will reach at age 45. After that, I’ll just rebalance my portfolio annually or if the allocation gets off by more than 5% to maintain the 75-25 stock-bond mix.

This is a bit more aggressive than what many financial advisors recommend (60-40 stock-bond seems to be the norm). But, because the majority of my investments will be locked in the TSP and Roth IRA accounts, I won’t be able to touch most of my investments until 20 years after financial independence. Therefore, I’ll stay more risky to give the capital the opportunity to grow.

While I haven’t had to stomach a major economic downturn yet, I’m confident in my ability to remain calm during another market collapse like 2008. I’ll see if I can still say that when I lose hundreds of thousands of dollars.

My asset allocation as of 2014, as a young (but getting older) company grade officer (CGO) for my Vanguard Roth IRA accounts is:

  • 74% Total US Stock Market (VTI)
  • 19% Total World Stock Market Minus US (VXUS)
  • 7% Total Bond Market (BND)

For my Roth TSP account, I hold all five funds in the following ratios:

  • 59% C Fund
  • 15% S Fund
  • 19% I Fund
  • 3.5% F Fund
  • 3.5% G Fund

TSP Permanent Portfolio

Here’s the same permanent portfolio, one in TSP Funds, the other in Vanguard ETFs. I like Vanguard Admiral shares for their low expense ratios, but the ETFs have easier to remember ticker symbols. Both the ETFs and the Admiral Shares contain the same assets. I currently have both my wife’s and my Roth IRA accounts with Vanguard, as well as our taxable brokerage account.

It’s the same 75% stocks, 25% bonds mix. You have to get a little creative in the TSP to match the VTI Vanguard Total Stock Market Index Fund, but if you want to match it just hold 4x the amount of C Fund as you do of S Fund. This will mirror the VTI fund almost perfectly.

Vanguard-permanent-portfolio

 

There are several things I like about this asset allocation.

  1. It’s simple. Only three Vanguard Admiral Share Funds to invest in. TSP makes interfund rebalancing easy and automatic contribution investment easy. Rebalancing takes 15 minutes a year. I don’t try to time the market or pick winning stocks. I just let the market work for me.
  2. It’s diversified. I own shares in the 5000 largest publicly traded companies in the US. I own shares in Canada, Europe, Asia, emerging markets, all over the world. My bond funds cover the full spectrum of government and corporate debt. I have a portion of my portfolio in the G fund, a unique US government debt asset.
  3. It’s cheap. The TSP expense ratios are 0.027%, or $2.70 per year for every $10,000 invested. The three Vanguard Admiral Shares average at 0.09%, or $9 per year for every $10,000 invested. With these extremely low expense ratios, even a modest return is put into your pocket, rather than your fund managers’. See Vanguard’s research on why keeping costs low matters.
  4. It’s automatic. My investments happen every month, without any action on my part. myPay whisks the money from my paycheck into the TSP and Vanguard plucks it out of my checking account before I even notice it’s there.

Disadvantages to my portfolio:

  1. No exposure to real estate. I prefer my real estate to be tangible. I don’t like REITs (Real Estate Investment Trusts) and would prefer to invest in real estate by buying property and turning it into AirBnB.

The most important part of any asset allocation or investment plan is to stick with it for the long haul. Constantly trading in and out of stocks, chasing performance, or going after whatever the latest investment fad is fine for maybe 1-5% of your portfolio, but the majority of your retirement savings must be invested prudently and wisely.

Fear is also a major killer of portfolios. Selling too early, selling at the bottom, or buying high can kill your performance and savings. Better to invest methodically, with an eye on the very long term, and ignore CNBC and the daily market news. Don’t try and time the market.

How about you, reader? What is your investment strategy, especially if you serve in the military? Have you thought about an asset allocation plan and how to follow it? Any problems you see with my portfolio?

Posted in Investing, TSP | 20 Comments

How to Get Cash and Make Money on Your TDY

So far this year I have spent 3 weeks out of the past 4 months at my home station. The rest of the time I’ve been TDY or deployed to a dozen different countries. While I’m travelling, the topic of money and paying for things on TDY/TAD always seems to come up at least once a trip. Everyone seems to have their own system worked out, whether they use credit or debit cards, the Government Travel Card (GTC), ATMs, or money exchangers.

After a few years of TDY travel, I’ve made myself a system that

  • Minimizes all fees, for myself and the government (foreign transaction, ATM, credit card)
  • Keeps my cash in my bank account
  • Allows me to get credit card reward points

It’s an easy system that minimizes your risk to stolen cash, foreign exchange rates, and stolen credit or debit cards. It also maximizes your credit card reward points, for spending that you have to do anyways.

Here’s the most optimal system I’ve found for paying for things on TDY:

  • Hotels, rental cars, and commercial air travel on your GTC
  • Take cash out of ATMs with your GTC
  • Pay for everything else (within reason) on your no foreign transaction fee, reward points or cash rewards credit card, like the Chase Sapphire Preferred or Barclaycard Arrival World MasterCard

The Government Travel Card

government-travel-card-gtcThe first thing to note is that there are some Department of Defense rules and laws concerning official government travel. Most of these rules are contained in the DoD 7000.14-R Volume 9 Chapter 3. When you are issued a GTC, you sign paperwork agreeing to abide by these rules. The consequence of not following the rules can be serious!

For military personnel, you can be prosecuted under Article 92 of the Uniform Code of Military Justice (UCMJ) for “failure to obey a lawful order or regulation” if you violate the rules of GTC use. Willful misuse of the card may be a Federal crime. The most important thing to remember is: DO NOT use your card for personal expenses outside of official government travel. If you’re not traveling on TDY orders, don’t use the card.

When to Use your GTC – Lodging, Rental Cars, Air Travel, Cash

The most important expenses to put on your GTC are lodging, rental cars, and commercial air travel. If you don’t use your GTC for these expenses, you run in the risk of not getting reimbursed for the expenses. This will cause you to have a lot of headaches. However, sometimes the card does get locked out or simply won’t swipe when you get to your hotel. A quick phone call to Citibank will usually fix this.

Using your GTC for officially authorized rental cars is important as the GTC has built in rental car insurance. When you rent a car under official orders, make sure you decline all the insurance options offered, as you WILL NOT be reimbursed for them.

Use Your GTC for ATM Withdrawals

The second most important function of your GTC is cash withdrawals. There are several reasons why you want to use your GTC to get cash out when on TDY/TAD.

First, it’s actually the way you’re supposed to do it when travelling on official orders. Back in the 80s and 90s, military personnel would get thousands of dollars in cash advances from the base finance office before departing for TDYs. Now, you’re supposed to go to an ATM and withdraw cash from your GTC. This is a safer system (you’re not walking around with a thousand dollars/euros) and it keeps you from overspending (you can just hit the ATM every couple days for another $100 or 100 Euros).

Second, if you don’t take cash out on the GTC, you’ll need to use a money exchanger, your own credit card, or your own debit card. Money exchangers, especially in airports, offer horrible exchange rates. Never use them. Cash advances on personal credit cards are NEVER a good idea. The outrageous cash advance fees and interest rates are even more excessive than the regular 29% credit card interest rates. Also, you never receive cash or reward points for credit card cash advances. So there’s no reason to use your personal credit card.

Using your personal debit card overseas has several disadvantages. The first is most banks charge an overseas ATM withdrawal fee. Even USAA, my favorite military bank, charges a 1% international ATM withdrawal fee. The second reason is credit card skimming and debit card theft is much more rampant outside the United States, especially against cards that don’t have Chip-and-Pin. By using your debit card overseas, you are potentially opening your checking account to identity thieves and debit card hackers. Not a good idea.

Also, why should you have to put your checking account money up front for official government travel? When Uncle Sam sends you away from home, it gives you the tools to get cash advances, so your money can sit safe in your checking account. Do not use your own money for TDY travel.

Finally, when you use your GTC to withdraw cash, you get the best available exchange rate for that day. The ATM service fee will show on your GTC statement and you can claim reimbursement for that fee easily on your DTS travel voucher. Using your GTC to withdraw cash is the safest, simplest, and cheapest option available to the international US government traveler.

“Do you want to be charged in Euros or Dollars?”

Here’s a pro-tip: Be careful when withdrawing cash in foreign countries that you don’t withdraw in your home currency. I saw several ATMs do this on a recent trip to Berlin, Germany. The ATM will ask you something to similar to “Do you want to be charged in Euros or Dollars?”

There will be two options, one where you are charged 100 Euros, the other where the ATM charges your GTC in dollars but spits out 100 Euros. The correct answer is charge me in Euros! The exchange rate you are given for being charged in dollars is often 10-20% off the actual exchange rate. Citibank will give you the best available exchange rate for that day on your GTC. Don’t be suckered in to charging your GTC in dollars. Charge it whatever the local currency is and save yourself money.

Why Get Cash on International TDYs

I find that often times using cash is easier overseas. While Europe does have a well established and ubiquitous credit card network, their use of the Chip-and-Pin system and lack of trust in the magnetic swipe system can make using an American issued credit card difficult. Plus, the language barrier and trying to explain that you don’t have a Chip-and-Pin card is not easy.

I’ve found that cash is the easiest way to pay for food and goods in Africa, Europe, Central Asia, Japan, and the Middle East, as a TDY traveller. Until US banks finally start issuing Chip-and-Pin cards (and NOT Chip-and-Signature, or just magnetic strip), cash will be easier in most locations around the world.

If your TDY in the States, you usually won’t need as much cash, as credit cards are much easier to use here. If you bank with USAA, you’ll get the first $15 of any ATM fees in the US refunded, so there’s no worry using your USAA debit card on Stateside TDYs.

How to Pay for Everything Else on TDY

While your GTC is can be used for all expenses related to TDY travel, you’ll be losing money if you use it for every expense. Besides the big expenses of lodging, rental cars, and commercial air travel, if you minimize your use of the GTC while TDY you can make a substantial amount of travel reward points or cash back points using no foreign transaction fee credit cards.

The two cards I prefer are the Chase Sapphire Preferred and the Barclaycard Arrival World Mastercard. Both these cards offer 2 points per dollar spent on travel and dining expenses, so they are perfect for all the eating out you’ll be doing while you’re on the road. With the Sapphire, you can use the points for cash back bonuses or statement credits, or transfer the points to the airline of your choice. For the Barclaycard, you can apply your points to any travel related expenses you charge to the card. If you sign up now, you could be eligible for 40,000 bonus points, worth up to $440.

Both these cards come with a no foreign transaction fees benefit, which is essential for the international TDY traveller. If your card does have foreign transaction fees (and many of them do), you could be losing 1-3% every time you swipe the card, which can quickly negate any reward or cash points benefits. If you are using a card with foreign fees, switch now and start earning points!

When You Don’t Need to Use your GTC

Here’s what the actual regulations say about when you don’t need to use your GTC. Use this information to maximize your credit card reward points while travelling, but still staying within the rules and regulations as set out by the DoD.

According to DoD 7000.14-R Volume 9, Chapter 3, the regulation that covers GTC usage:

“The Department of Defense (DoD) policy is that the Government Travel Charge Card (GTCC) will be used by all DoD personnel (military or civilian) to pay for all costs related to official government travel.”

However, there are always exceptions. In section 030602, the DoD exempts the following classes of personnel from using the card:

  • Military members or DoD civilian personnel as approved by the Head of a  DoD Component during: (1) a period of war, (2) a national emergency declared by the President or the Congress, or (3) mobilization, deployment, or contingency operations.
  • DoD personnel (military or civilian) traveling to or in a foreign country where the political, financial, or communications infrastructure does not support the use of the travel card.
  • DoD personnel (military or civilian) whose use of the travel card, due to operational, security, or other requirements of a mission, would pose a threat to national security, endanger the life or physical safety of themselves or others, or would compromise a law enforcement activity

The reg goes on to say which expenses are exempt from GTC usage:

The following expenses are exempt from the mandatory use of the individually billed travel card. However, cardholders are encouraged to use the travel card to the greatest extent possible, to include withdrawing cash from an ATM to pay for these expenses, where practicable.

  • Expenses incurred at a vendor that does not accept the travel card.
  • Meal charges when the use of the card is impractical, in government dining facilities as an example.
  • All expenses covered by the “incidentals” portion of the per diem
  • Miscellaneous expenses typically paid using cash such as coin-operated parking meters, toll booths, laundry facilities, etc.

Additionally, in Section 030502, “Failure to Use GTCC,” the reg states:

Failure to use the travel card will not be used as a basis for refusal to reimburse the traveler for appropriate charges. However, failure to use the travel card may subject the traveler to appropriate administrative or disciplinary action.

Remember that as a military servicemember you are always subject to the UCMJ. Be careful what you charge or don’t charge to your GTC and make sure that you are following the rules as laid out in the appropriate regulating documents.

Wrap Up

In summary:

  • The big expenses (lodging, rental cars, and commercial air travel) on your GTC
  • Take cash out of ATMs with your GTC
  • Pay for everything else on your no foreign transaction fee, reward points or cash rewards credit card (such as the Barclaycard Arrival World MasterCard)

With this system you’ll have minimal risk, maximum reward, and you’ll stay within the rules regarding GTC usage and official government travel.

How about you, TDY warrior? What system do you use to get cash and get your maximum reward points while travelling on official business?

Posted in Money Hacks | 2 Comments