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One of the perks of having a blog is meeting and working with some amazingly talented individuals. Rob Aeschbach is one of those people.
Rob (last name is pronounced ASH-back) retired from the Marine Corps after 22 years of service, 12 of which was on active duty. He's also a military spouse and knows about holding down the home front while the servicemember is deployed or TDY. He's been dealing with military pay issues for 29+ years. Rob knows what you mean when you talk to him about BAH, TSP, PCS, CZTE, and all the other military financial acronyms.
After retiring from the Marine Corps, Rob completed the requirements to become a Certified Financial PlannerTM. He now offers financial planning services specifically targeting military personnel. His discovery meetings are free and he is completely upfront about his costs and fees on his website, Military Financial Planner.
The basic principles of personal finance can be learned in an afternoon and the principles of successful investing can be learned in a week. However, if you don't have the time, energy, or desire to become a self-taught financial expert, hiring a fee only financial adviser could make you 10-100x wealthier than having no plan or using a commission based adviser.
A fee only adviser can also save you $1000s or $10,000s in asset management fees over a lifetime. Paying an adviser a percentage of your invested assets every year means less returns for you and adds up over the years. When you use a fee only adviser, the expense is fixed and non-recurring. If your situation changes, you can buy more of your adviser's time, but at a fixed rate. Costs matter, especially in long term investing. We discuss this topic in more detail below.
I got a chance to interview Rob a few weeks ago via email. We have no financial relationship and there is no affiliate links in this article. If you do end up contacting Rob, let him know Spencer from Military Money Manual sent you! I think that Rob is providing a great service at a reasonable price and he understands military specific money issues. We also happen to agree on a lot of advice and investing strategies.
If you need a one time consultation or a monthly financial checkup, check out the Military Financial Planner, especially if you are in the military. My questions are in italics below, Rob's answers are regular.
Rob, thanks for taking the time to do this interview. To start it off, what is your investing philosophy?
I think you can define your investment philosophy by answering 2 questions: do you think you can beat the market? And do you think you can time the market?
Some people really can beat the market. The problem is that they get paid to do that at giant financial firms, whereas most of us have other things to do. We don't have the time to research, analyze, and process the information it takes to beat the market. And certainly not faster than the people making the market. Not only that, but research shows that the people who beat the market this year probably won't do it again next year.
The same goes for timing the market. You're unlikely to know when is the best time to get into or out of certain market sectors, or the entire market itself. History shows that missing out on only a few days of market gains each year will cripple your portfolio.
So my philosophy is to invest broadly across several sectors using low-cost index funds to match the market, and to stay invested in my desired allocation through market ups and downs.
DIY Military Investor Help
I'm a military DIY investor with a focus on early financial independence (in my 40s). What kind of services could you offer me?
There are several things that I like doing for DIY investors. Analyzing your portfolio is one — do you really have the asset allocation you think you have? Does it make sense? I often see a lot of redundancy in DIY portfolios, and it just takes a little coaching not only to simplify things, but accepting that simpler is often better. At the same time, DIY investors often overlook market sectors or don’t understand how investing in those sectors could improve returns and reduce risk.
Additionally, financial planning is not just about investing. We can look at covering all the bases, including things like estate planning, insurance, taxes, the ins and outs of different retirement plans, your budget, and so on.
Fee Only Financial Adviser vs. “Free”
How does being a fee-only financial planner separate you from the “free” advisers?
Some companies provide financial planning as a loss-leader to get you in the door and then make you a customer for other services. Sometimes the “plan” is really an excuse to sell you something such as insurance. You should know how much your advisor is being compensated to serve you, whether it’s through commissions, bonuses, salary, promotional fees, 12b-1 fees, etc. What are the incentives?
Another thing we're hearing more about is the ‘fiduciary duty'. In other words, is the advisor putting your interests first? Someone who is not a fiduciary is not required to consider your best interests when recommending an investment.
TSP or IRA? Roth or Traditional?
In general, how should military personnel prioritize their retirement accounts? TSP and then IRA? Roth or Traditional?
Mostly this comes down to taxes, and a little bit of behavioral finance. Are you paying income tax? Many married enlisted families with kids are not paying income tax at all. I don't mean monthly deductions; I mean at the end of the year if you are refunded all of your deductions, then you're not paying taxes. In that case you nearly always want to use Roth accounts.
As far as TSP vs. IRAs: the IRAs have a little more flexibility, but it's usually easier to get started investing with the TSP. There are also fewer investment choices in the TSP — and that can be a good thing. I usually recommend investing in the TSP first because you won't find lower fees anywhere, and it's a great way to invest on auto-pilot.
Unique Military Financial Challenges
What kind of unique financial advantages do military personnel have that others may not?
Many people look at the frequent moving we do as a burden, and it often is. But one of the benefits of PCSing is the chance to have a do-over. Maybe you realized that you were paying too much in rent, or spending too much on commuting costs. Now that you're moving to a new duty station you might find a smaller place to rent in a less prestigious neighborhood to save money on housing. Maybe you know that you should live closer to work to shorten your commute, or you could even live without a second car.
The taxes that we don't pay are an advantage most service members don't realize until they get out. Housing and food allowances, often more than 25% of you pay, are entirely tax-free. Even special pays like sea pay or jump pay are free from the 7.65% payroll taxes. That adds up to a lot even over a single enlistment.
3 Things Every New Recruit Must Do
What do you think are the 3 most important things for new servicemembers to do financially?
- New service members are starting a completely new lifestyle, whether that's coming out of college, high school, or the civilian work force. So the first thing to do is include savings in that new lifestyle and get comfortable spending less than you earn. Too often a young single service member, earning more income than ever before in his life, spends it all on eating out and an expensive car. By the time he gets out or is ready to start a family he has nothing to show for those years of hard work.
- Track your expenses. You won't know if you're spending too much on groceries, dining out, commuting, or anything else unless you track it. You can use Quicken, Mint.com, YNAB.com, a spreadsheet, or just a notebook. Whatever works for you, do it. Being aware of your spending is the first step in taking control of your finances.
- Ask for help when you need it. We have a young force, and usually this is their first job. Very few service members are financial experts, so take advantage of the help that is freely available.
Every service has a personal financial management program that offers free financial education on saving, investing, buying a car, etc. These services are paid for by the military, and are usually provided at the base family support centers.
Additionally there are non-profit groups that provide free financial counseling to qualified service members and veterans. The PenFed Foundation serves all service members, and then there are organizations that help each specific branch of service: Navy-Marine Corps Relief Society, Army Emergency Relief, Air Force Aid Society, and Coast Guard Mutual Assistance.
If you've built up enough savings, or if you want more personalized advice, consider getting professional advice, but make sure you know how you're paying for it.
Thanks so much for taking the time to answer my questions, Rob. As you can see, Rob shares many of the same values I do when it comes to successful investing and personal finance. If any readers out there end up contacting Rob, please let him know Spencer from Military Money Manual sent you.