What would you tell a new military officer to do with his money?
My nephew the Army Ranger is a 25YO shiny new 2LT enjoying his 30 days of free leave before a 12-week leadership course. After that he starts his "real" infantry training followed by Ranger School redux.
Since he's already wearing a CIB I don't think he'll be very challenged during the next three-four months, and he's asked for my investment advice. He's smart enough to eventually learn this stuff on his own but I find myself wanting to pay forward what I wish I'd known a quarter-century ago. Whether he uses it or not is up to him.
His investment profile is essentially "set & forget" and he can handle extreme [-]chaos[/-] volatility. He'll be too busy during the next couple years to spend time on finances, and because he won't have many spending opportunities the cash will pile up faster than he can figure out where to put it. He's earning about $2500/month base pay plus another $700/month in tax-free allowances for housing & food. Pay raises will be ~3%/year and he'll promote to O-4 in the next decade, which will loft him to at least ~$80K/year in today's dollars.
His short-term plan is to apply for Special Forces training, serve out his five years, and then take it one tour at a time. If he's enjoying himself then he'll try to stick around for a career. If he's not happy then he'll take his skills to the nearest security-training company for a different career. If he survives then his prospects for future employment are pretty certain and his paychecks aren't likely to be interrupted.
He has some extra cash that he could put into a Roth IRA and he could leave $5K in a money market for rental & utility deposits. He already has a beater car but he's thinking of upgrading to a 4WD pickup so that the other Rangers don't make fun of him. (At least he's planning to buy a used one!) He has good insurance for his car & property with USAA & Armed Forces Insurance.
He's concerned that the housing market will run away from him (not too likely in Forts Benning or Campbell) so he was relieved to hear that he shouldn't buy a house until he knows he'll be keeping it for at least five years. He'll be away so often that a house would just be a liability and he'll probably find it easier to share a rental with roommates.
He's just signed up for the TSP again (West Point cadets weren't eligible) and I suggested that he contribute at least 10% and try to boost it to 25%. The 2007 TSP contribution limit is $15,500 so he won't hit it for a few more years. (I also recommended that at least half of every promotion should go into the TSP.) Since he's young & single I advised splitting his TSP contributions between the small-cap "S" and international "I" funds. No bonds.
His Roth IRA could go with Fidelity or Vanguard in an international or small-cap value index. He'll use his PenFed account to buy their CDs. $5K is overkill for a 2LT's emergency fund but he'll probably be saving up for that truck for the next 12 months.
In a couple years, after he piles up a stash beyond the minimums and if he gets bored with small-cap & international, I'd suggest large-cap dividend or emerging-market index funds. As a young single guy he can stay 100% equity and not worry about bonds for a very long time. (And if he looks like he'll get a military pension then I'd tell him to forget about bonds anyway.) Otherwise I think his main focus would be LBYM (not hard with his lifestyle) & putting away as much as he can.
He already has his copy of "Work Less, Live More." (Thanks, Bob!) If he wanted to read more then I'd suggest "The Bogleheads Guide" or "Four Pillars". The biggest dangers I could see would be day-trading penny-stock buddies or an insurance agent.
Gosh, this seems almost too easy-- there must be a catch. Any other suggestions?
My nephew the Army Ranger is a 25YO shiny new 2LT enjoying his 30 days of free leave before a 12-week leadership course. After that he starts his "real" infantry training followed by Ranger School redux.
Since he's already wearing a CIB I don't think he'll be very challenged during the next three-four months, and he's asked for my investment advice. He's smart enough to eventually learn this stuff on his own but I find myself wanting to pay forward what I wish I'd known a quarter-century ago. Whether he uses it or not is up to him.
His investment profile is essentially "set & forget" and he can handle extreme [-]chaos[/-] volatility. He'll be too busy during the next couple years to spend time on finances, and because he won't have many spending opportunities the cash will pile up faster than he can figure out where to put it. He's earning about $2500/month base pay plus another $700/month in tax-free allowances for housing & food. Pay raises will be ~3%/year and he'll promote to O-4 in the next decade, which will loft him to at least ~$80K/year in today's dollars.
His short-term plan is to apply for Special Forces training, serve out his five years, and then take it one tour at a time. If he's enjoying himself then he'll try to stick around for a career. If he's not happy then he'll take his skills to the nearest security-training company for a different career. If he survives then his prospects for future employment are pretty certain and his paychecks aren't likely to be interrupted.
He has some extra cash that he could put into a Roth IRA and he could leave $5K in a money market for rental & utility deposits. He already has a beater car but he's thinking of upgrading to a 4WD pickup so that the other Rangers don't make fun of him. (At least he's planning to buy a used one!) He has good insurance for his car & property with USAA & Armed Forces Insurance.
He's concerned that the housing market will run away from him (not too likely in Forts Benning or Campbell) so he was relieved to hear that he shouldn't buy a house until he knows he'll be keeping it for at least five years. He'll be away so often that a house would just be a liability and he'll probably find it easier to share a rental with roommates.
He's just signed up for the TSP again (West Point cadets weren't eligible) and I suggested that he contribute at least 10% and try to boost it to 25%. The 2007 TSP contribution limit is $15,500 so he won't hit it for a few more years. (I also recommended that at least half of every promotion should go into the TSP.) Since he's young & single I advised splitting his TSP contributions between the small-cap "S" and international "I" funds. No bonds.
His Roth IRA could go with Fidelity or Vanguard in an international or small-cap value index. He'll use his PenFed account to buy their CDs. $5K is overkill for a 2LT's emergency fund but he'll probably be saving up for that truck for the next 12 months.
In a couple years, after he piles up a stash beyond the minimums and if he gets bored with small-cap & international, I'd suggest large-cap dividend or emerging-market index funds. As a young single guy he can stay 100% equity and not worry about bonds for a very long time. (And if he looks like he'll get a military pension then I'd tell him to forget about bonds anyway.) Otherwise I think his main focus would be LBYM (not hard with his lifestyle) & putting away as much as he can.
He already has his copy of "Work Less, Live More." (Thanks, Bob!) If he wanted to read more then I'd suggest "The Bogleheads Guide" or "Four Pillars". The biggest dangers I could see would be day-trading penny-stock buddies or an insurance agent.
Gosh, this seems almost too easy-- there must be a catch. Any other suggestions?
Well you've suceeded! (Although I did just give me nieces some concrete advice about what do with the money from the sale of their house.)
