Advice on what to do next?

**jIM_Ohio** · 08-31-2008, 10:27 AM

I see you hold
VFINX (S&P 500)
VIPSX (bonds)
I saw no international
I saw no small caps
I would think a wilshire 4500 extended market fund or an international fund would make sense.

Because of your age, I am surprised you chose bonds over these asset classes to begin with. I might consider selling the bonds for the other 2 asset classes, then purchasing a muni bond fund in a taxable account- this move will save you considerable taxes over time.

**simpletron** · 08-31-2008, 06:04 PM

have you looked into the Thrift Savings Plan(TSP)? the TSP is basically the military equilavent to a 401K.

I don't know the exact rules or investment options for TSP, so I can't tell you much about. but If you ask your superior officer, I'm sure s/he will know more about it.

**kork13** · 08-31-2008, 07:10 PM

If you're taking care of yourself in terms of savings, debt, and such... Personally, I'd put some money away to take a small vacation with your wife/family (or to see your parents/siblings, or just go somewhere yourself for the fun of it) when you return from deployment. Especially after a long deployment, it's often a good chance to take some time with the people you care about. Not necessarily just for your sake, but often for their's.

Beyond that, I'd work in the rest of that $2k into the Roth, and as was mentioned, put some money into the TSP. No match, unlike many 401k's, but still a great way to increase your retirement savings. Even just 5 or 6% of base pay can be pretty significant if you leave it alone for a while. As far as options, the best place to go is the TSP website. To summarize, there are 6 funds that can be invested in (they function the same as mutual funds), which mostly follow different indexes:

- Government Securities Investment (G) Fund -- Your basic treasury bonds. Also, the default investment vehicle until you tell the TSP to do otherwise.)

- Fixed Income Index Investment (F) Fund -- Gov't, mortgage, and corporate bonds, follows LBA index.

- Common Stock Index Investment (C) Fund -- Large-cap stocks, follows S&P 500 index.

- Small Capitalization Stock Index Investment (S) Fund -- Small-cap stocks, follows the DJ Wilshire 4500 index.

- International Stock Index Investment (I) Fund -- Int'l stocks, follows EAFE index.

- Lifecycle (L) Funds -- Combines all of the above, changing according to a certain withdrawal date (you choose... currently, as late as 2040).

All of the above info can be found on this chart.

Personally, I think these are probably the best retirement investments you'll have access to... they're simple, give you access to all of the major investment types, and what's more, the cost ratio is only .015% for each of those funds... good luck finding that many places elsewhere...

More in-depth info can be found in this document.

**MaxPowers** · 09-01-2008, 01:30 AM

I thought about doing the TSP but from what I understand it is just like a traditional IRA. If I make my max contribution to my Roth IRA, can I still contribute to the TSP? Is there really an advantage to doing the TSP?

Tell me more about the Wilshire 4500. These are the ones on Vanguard https://personal.vanguard.com/us/fun...dFamilyId=6326 They don't seem to be doing to well.
Not to sure why I got the bonds, but I could exchange it for something else later right? Why is everything doing so bad right now? Is now the time to by when the prices are lower? Should I go into something like that Vanguard emerging market, total market, international market....?

**jIM_Ohio** · 09-01-2008, 04:04 AM

TSP would decrease taxes paid. If your deployment dollars are not taxed, you might want to consider putting money in a taxable account now (paying 0% taxes).

If you are being taxed on income, the TSP will reduce your tax liability (money is put in before taxes are calculated).

IRAs do not affect TSP eligibility.

**kork13** · 09-01-2008, 06:05 AM

Max,

The TSP is more like a 401k than an IRA--in fact, I think 401k's were actually designed off of the TSP's structure. Don't remember which one came first (401k/TSP), but basically the one was designed after the other. Also, the TSP has much higher contribution limits. This year, I think it's $15.5k, and it changes (increases) every year, I assume with inflation. The real advantage of the TSP is that it provides very low-cost, tax-deferred investments for retirement. As jim said, contributing to it decreases the level of income which is taxed, because those monies contributed are pre-tax. You'll pay taxes on them only when you withdraw.

Also keep in mind, however, for someone as young as we are, that's not always actually a benefit... Right now, we're probably in the lowest tax bracket we'll be in for potentially the rest of our lives, or at least until well into retirement. So not paying taxes on our money now (and paying it later instead, when we're in a higher tax bracket) could actually be less beneficial for us. This is why i'm focusing my savings into my Roth right now. I max out my Roth with $417/mo, and am only doing ~$255/mo into the TSP. I figure that money doesn't help me alot right now, but it's still better to save it somehow than not at all. In the future, I'll probably start increasing my TSP contributions, though likely will continue maxing the Roth. personally, I wish the Roth limit was much higher, at least around $10k....

As for the Wilshire funds that you've drawn attention to (and just about any other stock-based mutual funds), yes... they're all in the toilet right now. The market in general right now has tanked, and there's not alot that are doing good right now. For me, my few cash/bond shares are up between 2-4%, and my stocks for gold/precious metal/mineral companies are up about 12%. Besides those (which make up a total of ~10% of my portfolio right now), everything else is down at least 4%, many down more than 8-12%. Based on your outlook, that's either great (means you can buy more shares at the low price while they're down, then ride them when they eventually come back up), or that's terrible (means your investments are currently worth less than you initially invested them at in the first place. Personally, sure, my $21k in investments are currently worth only around $19k, but I see that as a temporary concern, and they'll eventually come back up. We're so young that as long as you have the nerve to let them sit low for a while, they'll eventually come back up.

As to what the Wilshire actually is, it's basically a collection (index) of the stocks/securities of smaller American companies. In terms of market share, the S&P tracks the largest big and mid-sized companies on the market, and includes about 75% of the total securities (in terms of dollar value) on the NYSE. The Wilshire covers pretty much all the rest of the market, including about 24.7% of the total securities on the market. It focuses on the smaller companies, that while they don't have the capital to compete with the huge companies like Exxon-Mobil and GE, they're still very marketable and can generally make similar (if not bigger) relative gains (% gain relative to their size). Others may have a better grasp of it, but this is how I think of/understand the two. There are also many other indexes (DJ Industrial for ex.) which index certain sectors, like technology, financials, medical/pharmaceutical, international, etc.

**jIM_Ohio** · 09-01-2008, 07:45 AM

Clarification- the above post is referring to the wilshire 4500.

rest of post is accurate.

The Wilshire 5000 is considered the total market. All US companies large and small. It actually tracks around 5200 stocks. The index I should say tracks the 5200 stocks which make up the entire US market.

The Wilshire 5000 sees 500 companies account for 75% of the movement of the index- these are the companies in the S&P 500 index (S&P 500 is exactly 500 companies- if a company is added, one must be removed).

The Wilshire 4500 index tracks the wilshire 5000 minus the 500 stocks in the S&P 500 (really more than 4500 stocks to track).

The index funds which track the wilshire indexes DO NOT own all 4500+ or 5000+ stocks in the index. The index funds own most and use "sampling" to make sure the fund moves with the index.

How does the index fund decide which stocks to use to track?- a fund manager somewhere is making that decision.

**kork13** · 09-01-2008, 07:49 AM

thanks for the sanity check, jim

**MaxPowers** · 09-01-2008, 07:50 AM

Ok I think I will start up a TSP for a couple % when I get my savings where I want them.

I am still trying to figure out which mutual fund to go to. A lot of them are to expensive to get into. I have to get a cheep one, with an initial of like 3-5k. I have the Vanguard S&P index, so I probably want something like international market or something? Whats a good mutual fund? so many to choose from.

**MaxPowers** · 09-02-2008, 09:31 AM

Are the target retirement funds a good choice?
Can you tell me more about the Vanguard Total World Stock ETF (VT) Should I try to get into this? Or maybe Vanguard FTSE All-World ex-US Index Fund Investor Shares (VFWIX)? If I can only hold 2 funds, what should I do to stay diversified but be in decent standing for a 2 fund portfolio for the next couple years till I get more money.

**kork13** · 09-02-2008, 04:34 PM

Originally posted by MaxPowers View Post

Are the target retirement funds a good choice?

Target funds (in retirement accounts) are great if you want to just keep pumping money into it then leave it alone. The fund managers do all the work for you, making it slowly more risk-averse as your target date approaches. If you like the asset allocation that the fund has (and that it will move toward over time), then they can be a great choice for you.

Just keep in mind that they are designed as a balance between risk and return--to keep medium risk, you will gain medium returns. Also, if you have a certain asset allocation you would prefer to keep, target date funds won't cooperate. So if you want to be a more stock- or bond-heavy than the available target date funds, it may be better for you to stay away and manage your own allocation with funds/indexes of your choosing. More work, but it gives you total control if you want it.

Advice on what to do next?