Setting my self up financially as an E-1. Am I right or Wrong?

[samuel53]

I am E-1 in the NAVY and was wondering if I am doing the right thing when it comes to my financial future. I was thinking of putting money into individual stocks but hand-picking stocks are really difficult as I already tried with the Robinhood app but it seems dificult if trying to beat the sp500 8-10% annual return. SPDR 500 or Vanguard ETF seems easy enough but I was thinking of contributing $500 on the 15th an 30th of each month to a mutual fund specifically this one(Higher returns than the index): https://fundresearch.fidelity.com/mutual-funds/summary/316390301 . I know it is a lot but I got no debt and have no expenses other than the phone bill and vending snacks. I also switched my TSP funds to the C and S since exposure to the market has more returns even though more volatility. Currently contributing 5% on Roth but as I climb through the ranks obviously I will increase contributions. I do have a CD with navy Fed just in case an emergency happens. Am I doing the right thing or is it too much too soon?

Thanks in advance for the input and excuse any misspelling(not a native speaker)

 

[soulgenesis]

@samuel53 The fact that you’re thinking about this early is awesome!! Your TSP and Roth IRA are great vehicles for retirement investing. Since you have $1,000/mo to invest, I’d increase your TSP and Roth IRA contributions if your CD savings are enough for an emergency and you can access that quickly and without penalty. When the CD term ends, think about putting that money in a high yield savings account Ally, Discover, Marcus, AmEx, etc so it’s immeadiately available and no fees

I wouldn’t mess with Robinhood or picking funds of only one sector of the market. You want to have low fees and be diversified. Stick with a mutual fund with an expense ratio under 0.50% and cover the entire stock market, like Vanguard’s VTSAX or VFIAX.

 

[nicolaii1218]

@soulgenesis Definitely max out the contribution and matching for the TSP.

 

[soulgenesis]

@nicolaii1218 Agreed, seeing that the ER of the TSP is so low and has same performace of funds you can get in a Roth IRA, and it’s allocated each month, don’t even have to do anything! Out of sight, out of mind.

Some argue though, that by contributing to a Roth IRA instead, you can withdraw contributions if needed at no penalty. Can’t say the same for the TSP.

 

[demarch]

@samuel53 People like Warren Buffett that put so much effort in selecting individual stocks and sectors for a portfolio cannot routinely beat the market. If you are going with Fidelity, I would select their standard S&P500 or total market index funds, or a Freedom Index target date fund (Like the L20XX in the TSP) that aligns with your retirement, if retirement is the goal of your investing.

Limiting yourself to one sector (healthcare per that Fidelity fund) is not a reliable way to beat the market long term. Perhaps it will outperform over a certain period (healthcare has done well in the U.S. recently), but any time you pick a specific company (or even sector), you increase your risk level. My guess is that healthcare stocks could react vastly differently depending on who wins the upcoming election... (not trying to be political and break rules, I feel this is a valid point)

Also for emergency funds, I would keep them out of CDs. Most CDs you pay a penalty for early withdrawal before the maturity. Emergency savings should be liquid, in a (high yield) savings account.

 

[therosary9]

@demarch I dunno man. Navyfed's easystart certificate would be an exception to that rule considering he/she is active duty. It's got a good apy and he/she has other options if he/she has a real emergency. But generally, I would agree with you about cds as an emergency fund.

 

[demarch]

@therosary9 Is there an additional benefit of being active duty with the Easystart? Everything I see for NFCU's CDs still says you "likely" pay a withdrawal penalty, which would probably negate the bit of interest you earn in excess of what HYSAs are paying.

 

[therosary9]

@demarch The benefit IS being active duty. Help exists outside of emergency funds. Navy and Marine Corps Relief Society is just one example.

I'm just thinking that the easystart isn't a terrible idea for someone who has social safety nets in place, reliable base income, and possibly additional deployment income. That CD maxes at 3 grand anyway, which wouldn't be hard to save even for an E-1 on a boat.

OP is much less likely to need to touch the CD money since there are several other support systems in place to help him/her. That's all I'm saying.

 

[demarch]

@therosary9 Those are good, valid points. Especially being on a boat, great time to save some $. I can see that as a starting point.

 

[meaningfulchristianity]

@demarch That's accurate, not sure what the down votes are about. I've done the easy start a few times, broke it early once. Pretty sure the penalty was forfeiting the interest. My advice would be to put that money you might need in short order into a high yield savings account (I use Discover, like the interface if that means anything).

I'm done playing around with CD's personally. Excess money either goes into the market in the form of TSP or Vanguard, cash is either the high yield savings account or my checking account. Hope this helps and OP is on a great path as an E1 and hope they keep it up!

 

[therosary9]

@samuel53 Are you a lifer? Or are you doing one enlistment and getting out?

 

[samuel53]

@therosary9 I'm planning to reenlist. Too early to say but I love my job and being on a ship

 

[therosary9]

@samuel53 TSP.

You're right, trying to handpick stocks as a novice is a bad idea.

With the TSP, your money will be diversified for you based on when you plan to retire. The L2050 fund for example allocates most of your money to stocks and the remainder to bonds.

As you move closer to your retirement date, it readjusts to become more conservative and reduces your chances of losing money close to your retirement.

TSP also has low expenses and it's better than a lot of people give it credit for.

My advice for you would be to up your percentage from 5% to something like 15-30% depending on your financial obligations.

Worry about handpicking stocks when you have a better grasp on the fundamentals of personal finance. If you're in your early twenties, time is really on your side regardless.

 

[forhim4ever]

@samuel53 To answer your question in the most basic way, you aren't wrong if you're saving and asking these questions to begin with. Wrong is blowing your paycheck on restaurants, fancy cars, stuff like that. You're right, but financial right is a spectrum.

You're not going to find much support here for individual stocks. People around here prefer to do the index thing, though every once in a while you hear some alternate opinions. In theory, yes you can make more, but in practice it is very unlikely that the level of effort needed to do that effectively is worth it for you. Definitely read as much as you can about all of that stuff.

As a young enlisted, you have a wealth of options to you now, I suggest that you really consider carefully your "game plan." People have a lot of different ideas of what financial success looks like, and it might be different for you than for me. Do you want to retire early? How early? Or would you rather work till a "standard" retirement age and reap the extra savings. Do you plan on having kids, getting advanced degrees, getting married, donating large amounts of money to charity, living on a farm, etc.

Goals that you come up with are going to affect how you save to some extent. If you don't have answers to those questions, that's also fine! Imagine yourself in maybe 4 or 5 years, and think of what that guy might want. I've found that's easier than trying to figure out what 60 year old me wants. But getting an idea of what future you might want is the key to deciding how your investments are going to help that.

The only "technical" advice I'd give is to put a lot more into your TSP if you can afford it, preferably the Roth one*, starting now. There's a lot of info out there that shows TSP is pretty much one of the best investment vehicles on the market, (as long as you stay out of the G fund, which it sounds like you did, so good on you!)

Changing your investment percentage to 20% would only be about 150 per paycheck, which as a dorm dweller is really not bad, and still should leave you with quite a bit of extra cash to invest as you see fit, build that emergency fund, and do fun things, as long as you budget and don't try to keep up with E4 Snuffy and his fancy sneakers, mustang, nicotine addiction, and daily monster.

Good luck!

*Roth is almost definitely going to be better since your income as an E1 is very low, and roth benefits low income more.

 

[pawelpaul]

@samuel53

I'm probably starting to look like a broken record on this sub, but I recommend checking out the flow chart from the wiki for something super simple and checking out a simple path to wealth for folks just starting out in getting their finances in order. For those looking for something a little more advanced, maybe the stock series as well.

I hope this helps!

 

[newenglander]

@samuel53 Given that you’re an E1 I would max out your Roth before investing in the TSP. When you retire your Roth withdrawals will be tax free because you already paid tax on the money when you got your paycheck. As an E1 you will probably never pay lower taxes in your employed life!

Look into an automatic investing program that puts your money into low expense index funds. Most major brokerages can set this up.

Most professional money managers cannot reliably beat the market. S&P 500 index funds and the like will make you a lot more money over the next 30 years than the so-called professionals.

DO NOT go to companies like First Command.

 

[nicolaii1218]

@newenglander Except he is likely under the new BRS and gets matching in his TSP. Also, he can set up a Roth TSP and have the same benefits as a Roth IRA.