Thrift Savings Plan (TSP) Has Taken a Beating Like the Rest of the Stock Market

October 25, 2008

Because the mutual funds that comprise the federal government’s version of a 401-k, the Thrift Savings Plan (TSP), are essentially index funds that mirror large indices like the S&P 500, Wilshire 5000, and others.  The TSP has been in lock step with the current stock market downturn and many members of the federal government and the military have seen their retirement portfolios significantly decline like most civilians. 

C Fund.  The common stock investment fund, or C Fund, closely follows the S&P 500 index.  The fund has lost 21.9% over the past twelve months.

S Fund.  The small capitalization fund, or S Fund, is designed to closely follow the Wilshire 4500 completion index.  The Wilshire is a broad index that tries to capture the shares of smaller companies that are not included in the Standard & Poor’s 500 index.  The fund has lost 18.9% over the past twelve months.

I Fund.  The I Fund, TSP’s international mutual fund, was established to follow and benchmark the Morgan Stanley Capital International EAFE (Europe, Australia, Asia, & Far East) Index.  The fund has lost 29.0% over the past twelve months.

G & F Funds. The TSP’s G & F Funds invest in government bonds and cash equivalent funds and are the safest and lowest interest earning funds in the group that are offered to investors.  These funds have been the only ray of light during the market upheaval returning 4.05% and 3.89% respectively over the past twelve months.  That is no surprise since they are ultra-safe, boring, and can barely keep up with inflation.  The F Fund is for fixed investments such as high grade bonds.  The G Fund is full of short-term government treasuries.

So, what should you do with your TSP balance and contributions?  Keep investing!

  1. Now is the perfect time to pour money into the retirement program.  The stocks that make up the indices that are followed have never been cheaper.
  2. Use your January pay raise to boost your contributions.  I’m actually raising my contribution level right now by 1% to take advantage of the low share prices.  I figure that I was going to do it any way in January, and I will barely notice an extra 1% missing from my paycheck.
  3. Keep the right asset allocation.  The end of the year is the perfect time to rebalance your funds inside your TSP.  In order to be diversified, you should consider investing in a mix of the funds that are offered depending on your age and risk tolerance.  I am a huge fan of having a solid mix between the C, S, and I Funds in TSP.

Try not to panic about the recent downturns of the market and the federal Thrift Savings Plan.  They will both bounce back over the long term.  Keep investing!

*** All percentages were calculated through October 1st, 2008.

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USAA Continues to Stay Strong, Safe, Profitable, and Growing During Financial Market’s Turmoil

October 24, 2008

It is no secret that United Services Automobile Association (USAA) is a large financial services company that many Servicemembers, veterans, and their families depend on for their money matters.  USAA provides its 6.7 million members with banking, investment, insurance, financial planning, and other financial products.  USAA continues to perform well during America’s current financial turmoil because of its financial strength, profitability, minimal debt, increasing net worth and assets, and high capitalization.  I continue to get questions from readers and my Soldiers about how USAA is doing during these crazy times.  Below is a list of the company’s highlights to ease your worried minds…

Insurance.  Standard & Poor’s, the world’s foremost source of financial ratings, affirmed its Insurer Financial Strength Ratings of AAA for USAA’s Property & Casualty Companies and Life Insurance Companies.  Standard & Poor’s provides credit ratings, indices, investment research, risk evaluation and data to the public about financial instruments.  USAA’s AAA rating is the highest of 21 possible ratings and indicates that the company’s insurance business is extremely strong. 

Unlike a lot of insurance sales people out there, USAA’s employees are paid only on salary, not on a commission basis.  Because of this, their focus is on providing only the products and services that the company’s members need and not selling you expensive products that are unnecessary.

Banking. evaluates the financial condition of banks around the country and assigns a 1-to-5 star rating with five stars representing its highest rating of sound banks. looks at several key banking categories when it ranks banks.  According to, USAA rates a Star Composite Rating of 4 (grand total rating), an Earnings Rating of 4, an Asset Quality Rating of 5, a Capital Rating of 4, and a Liquidity Rating 5.  The bank’s capitalization stands as a protection against loss for banking customers, creditors, shareholders, and the Federal Deposit Insurance Corporation (FDIC).  USAA’s net worth has continued to grow this year and is well above its peers, and the bank’s capital exceeds federal requirements.

USAA has steadily increased its net worth which has more than doubled since 2000.  According to USAA reported $31.5 billion in total assets as of June 30, 2008.  Their mortgage loans and deposits held by the institution, at that date, amounted to $13.2 billion and $27.3 billion, respectively. The company’s net worth, the difference between total thrift assets and liabilities, was determined to have been $2.78 billion, which was 8.83% of total assets.

You can view’s entire Safe and Sound Report on USAA at their website.  Remember that the data in the report is through June 30th, 2008, the last day of available data.

A Different Kind of Company.  USAA is a member-owned association that is a crossbreed between a for-profit and non-profit organization.  The financial giant exists only to serve its members, not to meet earnings-per-share targets, and profits from the company are redistributed back to its policy holders.  USAA is a Fortune 500 company, one of the largest in America.  It is also a private company that is not publicly traded on a stock exchange.  This is a unique feature that allows the company to focus on its customers and their needs rather than pandering to stock analysts and institutional investors and obsessively focusing on meeting Wall Street expectations to the detriment of the company’s customers and stakeholders.

Disclaimer: I am a proud member of USAA and have been a customer for years.  I wholeheartedly recommend the company and their services to members of the military and their families.

If you enjoyed this posting, you might also like these:
1. USAA Reassures Investors and Banking Customers of Safety, Strength, and Liquidity
2. People Who View Investing as a Gamble Will Never Get Ahead
3. How Long Will It Take the Stock Market To Rebound?

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Know Your Rights Under the Servicemembers Civil Relief Act and Choose Companies Who Support the Military

October 22, 2008

The Servicemembers Civil Relief Act of 2003 (SCRA) provides members of the military with a lot of great protections while serving their country in a combat zone.  The SCRA protects Servicemembers from high interest rates, eviction, foreclosures, bankruptcy, lawsuits, etc. when called to active duty.  The law is especially helpful for Reserve and National Guard forces who may have taken a pay cut form their civilian jobs to defend the country.

While the law was especially designed for Reservists and National Guardsmen, I have seen many patriotic companies honor the spirit of the law for active duty members of the military too.  And, these are the companies that should be lauded for their commitments to our military.  The law states that interest rates on loans including mortgages and credit cards must be reduced to 6% annually while the Servicemembers are on active duty.  The lowering of the rate only applies to debt incurred before starting active duty service.

Because of that wording, I had a Soldier in my unit who had a bill consolidation loan with high interest rate from GE Financial, now called Genworth Financial after GE sold its financial services unit.  GE Financial refused to lower my Soldier’s interest rate to 6% because he has always been on active duty and the debts were incurred while working on active duty.

I tell you that story as a warning about the companies you do business with.  Citibank is the polar opposite from GE financial.  Citibank not only lowers interest rates, but they drop it all the way down to 0% while you are deployed.  Companies like Citibank should be applauded for their commitment to Solders while GE Financial should be avoided like the plague.

If you are currently deployed and have not contacted your creditors, have no fear.  You can fax or mail a copy of your deployment orders anytime and receive a credit for any interest over 6% that you may have overpaid.  It is back dated to the day that you deployed which is stated on your deployment orders.

Even though the economy is in a downturn and financial companies and banks are struggling it is great t see companies like Citibank who are committed to our nation’s military.

If you have specific questions about the Servicemembers Civil Relief Act you should contact your Judge Advocate General’s (JAG) office or legal assistance represtative for help.

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People Who View Investing as a Gamble Will Never Get Ahead

October 18, 2008

Investing in stocks, bonds, mutual funds, and other financial instruments is not akin to spinning the roulette wheel in Las Vegas.  People who are stuck in the mind frame that investing is the same as gambling with their money do themselves and their financial futures a disservice. 

The difference between investing and gambling is research.  Investors must conduct due diligence in order to mitigate the risks of investing their money.

Before you invest in any stock or mutual fund, investigate the company by…

Understand the Company.  You should try and know the company inside and out before you purchase shares in them.  What do they make?  Who do they sell to?  Does their competition do it better and why?  Why do you think that this company is going to increase its revenue, profits, and or stock price?  The same questions hold true for mutual funds as well.  What is their investing style and what are they trying to accomplish?  Are they sticking to their investing strategies during these current rocking financial times?

Read as Much as Possible.  Read all of the latest news articles about the firm that you are researching.  Look at their stock chart.  Was there a particular day that the stock price took a nose dive?  What happened on that day?  Look for a news article on that day to help explain any drastic changes in share price.  Google Finance is the best for this with their graphs that have corresponding letters where top news stories have taken place (see graph below).  You should also be reading all the financial reports that the company is required to produce and file with the Securities and Exchange Commission (SEC).  You can find them on the Edgar Database


Listen to a Conference Call.  Every quarter most public companies hold conference calls for their institutional investors such as pension funds, mutual funds, and their analysts that follow the stock.  These calls are simulcast over the internet, and you can even listen to past calls stored on financial websites like Yahoo Finance.  These calls provide an incredible wealth of knowledge and a behind the scenes look at how company executives view the company. 

Warren Buffet, the most famous investor in the world, does not invest in anything that he does not understand.  He did not have very many technology companies in his portfolio when the tech bubble burst in 2000 because he did not understand how companies like Amazon could command such a high stock price even tough they had never produced a profit.  This is a great piece of advice that you should keep in mind.  Do not invest in any company, product, or mutual fund that you do not understand.  Investing is not a gamble when you do your research and mitigate your risks.  Of course there are always risks of losing your money in the stock market which has become vividly apparent in today’s economy, but carefully choosing your investments can help you pick winning stocks and mutual funds that will grow over the long term.

Blog Carnivals from the past few weeks:
1. Carnival of Personal Finance #174
2. Carnival of Money Stories #80
3. Finance Fiesta Carnival

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Kiplinger’s Top Ten List of Things Going Right in the US Economy

October 17, 2008

Kiplinger’s Personal Finance Magazine, my favorite money magazine, recently listed 10 things that are going right in the US economy.  With so much negative news about the economy, these ten points are a breath of fresh air.

1. Oil Prices Are Falling – Prices have declined by 50% in the last three months
2. A Tipping Point for the Auto Industry – Hybrids and deals on car lots abound
3. Interest Rates Are Low and Headed Lower – Rates are dropping on many types of loans
4. Homes Are More Affordable – Low home prices and a return to traditional lending standards like 20% down payment, good income, and good credit score
5. Your Bank Savings Have Never Been Safer – New FDIC limits protect up to $250,000 per account and money market fund prices guaranteed to stay at $1 per share
6. Stocks Are on Sale, and Many Bonds Offer Terrific Yields – P/E Ratios are extremely low. Great companies have been beaten up with the market despite great fundamentals
7. The Miracle of Technological Innovation Continues – $799 can now buy you a 42-inch, high-definition flat-panel TV at Best Buy that will knock your socks off and throw in another $200, and you can get a surround-sound system (hint, hint dear!)
8. Prosperity Reigns in the Heartland – This is turning into a good year for farmers
9. A New Tone and Direction in Washington – Sometimes change is good and hopefully change this winter will boost the economy no matter who wins
10. Shoppers Can Expect Great Gift Buys This Holiday Season – Great new toys are on sale early in an effort by stores to get holiday revenue despite a lagging economy. Kids across America are rejoicing!

SPECIAL NOTE: I was experimenting with a new poll on Military Money Might, and it did not go out on the RSS feed or show up clearly on the e-mail newsletter version. So, please take a minute and give your two cents about the economy through the poll on the blog posting right before this one on the website. Thanks….

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How Long Will It Take the Stock Market To Rebound?

October 17, 2008

When the U.S. stock market crashed in 1929, it took until 1954 before the Dow Jones Industrial Avereage regained all of its losses.  The Dow broke 10,000 (for the first time) on March 19th, 1999.  It peaked at 14,164 at the market’s close on October 9th, 2007.  When do you think the Dow will return to 14,164?  Will it ever get that high again?  I’m interested in seeing what you think.

Is It Worth It to Paying Points on Your Mortgage?

October 13, 2008

There are many options for people applying for mortgages, and yes…people are still getting mortgages.  There may be a credit crunch, but banks still must make a living.  And, that means making loans to customers.  If you have good credit and a decent down payment, you can still take out a mortgage and buy a new house.  The American Dream is not dead despite the doomsday news broadcasts.

There are tons of options for you when it comes to mortgages.  Will you take out a 15 or 30 year loan?  Will you borrow at a fixed or variable rate?  Will you prepay points to lower your total interest rate?

When you pay points on your mortgage, you pay interest in a lump sum upfront to get a lower rate on your fixed rate mortgage.  Each point costs 1% of the total mortgage amount.  For example, a $150,000 mortgage will cost you $1,500 for each point that you prepay.  The more points you pay, the lower your annual mortgage rate.  Soldiers, sailors, airmen, and marines have a unique set of circumstances because they move around so much from one assignment to another.  On average, one third of the United States’ military members and their families move every year.  So, which is the best decision for Servicemembers, pay points and a lower rate or no points and higher rate?

That was the quandary my friend was in recently.  He could prepay one point for a 30 year fixed interest rate of 5.6%, or he could not pay a point at closing and have an annual interest rate of 5.85%.  I know what you are thinking.  A quarter of a one percent is not much right?  But, not so fast…everyone’s situation is different and these choices should be carefully weighed.  The small change makes a huge difference depending on how long you stay in the home you buy.

My friend is actually moving to Washington, D.C. to work at a military base nearby.  So, of course his housing costs are rather large, but the same calculations that we go through below can and should be used by everyone to weigh your options whether you are buying a home in the nation’s capital, Minot, North Dakota, Manhattan, Kansas, San Diego, and any points in between.

The total loan amount for my friend is $472,000.  After three years, he will have paid $81,200 in interest payments alone on a loan with an interest rate of 5.85% and no points.  The mortgage will have been paid down by $18,900 (approximately $2,700 monthly mortgage payments).  After five years, $133,400 worth of interest will have been paid, and $33,600 of new equity will have been created (not including down payment).

Now, lets look at how much less in interest you will pay if you choose to prepay the one percent “point”.  One percent of the original loan amount of $472,000 will be $4,720.  At 5.6% annual interest, you will have paid $77,700 in interest payments in three years or $3,500 less in interest when compared with the other plan ($81,200-77,700=3,500).  After five years, you will have paid $127,500 in interest (not including the point).  So, after five years, you will have saved $5,900 in interest (not including prepaying the point).  $5,900 is greater than the $4,720 you paid for the point.  So, you should only prepay the point if you are going to live in your house for four years or longer.  The four year point, in this example, is actually the breakeven point where paying for the interest up front will begin to outweigh the other option.

So, for military Servicemembers, you should only pay a mortgage point up front on your loan if you know that you are going to be living in your new home for four years or longer.  Usually, that is a long time in one spot for a lot of members of the military.  For a civilian staying put in the home for the entire 30 years, it makes sense to pay the point up front if you can afford it.  It will save you thousands in interest over the life of the loan.  The quarter of a percentage point really does add up to a lot of money over a long time period.  The average civilian home owner in America keeps their mortgage for approximately seven years, and in that instance, paying the point makes sense too. 

I hope this example helps and does not add to the confusion.  There are several mortgage point calculators on the internet.  Also, feel free to drop me a line if there is anything else I can clear up or add to this post.  I’ve added the mortgage amortization table for the first six years of these interest rates to show you where I got these numbers. 

“Paying the Point” = 5.6% Interest

Year Beginning Balance Interest Payment Ending Balance
1 $472,000 $26,273 $32,516 $465,758
2 465,758 25,915 32,516 459,156
3 459,156 25,535 32,516 452,176
4 452,176 25,134 32,516 444,794
5 444,794 24,710 32,516 436,989
6 436,989 24,262 32,516 428,735

No Points = 5.85% Interest

Year Beginning Balance Interest Payment Ending Balance
1 $472,000 $27,454 $33,414 $466,040
2 466,040 27,096 33,414 459,721
3 459,721 26,716 33,414 453,023
4 453,023 26,313 33,414 445,922
5 445,922 25,887 33,414 438,394
6 438,394 25,434 33,414 430,415

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