Tag Archives: thrift savings plan

Monthly Investing Recaps: June 2014

At the start of each month I detail all the buy/sell activity here for each of my 3 individual stock portfolios: Loyal3, Roth IRA, and Taxable Brokerage accounts. It’s just one way I am chronicling my journey to financial independence here at Starting From Zero.

In addition to these 3 accounts, I also continued investing in my Thrift Savings Plan (TSP) again this month. Right now I’m contributing 4% of my base pay but may adjust this in the future. The majority of my investing will still be in my taxable and Roth accounts. The TSP is basically a 401k plan for federal employees including the military. It only offers index funds but does have probably the lowest expense ratios around, even lower than Vanguard. Right now I’m putting my contributions in the C Fund which mirrors the S&P 500 and the S Fund which is a small cap index fund. Since these deposits typically take a while to reach my account, I won’t be detailing those transactions here.

After not investing any new funds in May, I pooled all the cash I had and made one final purchase for my Roth IRA for the year and used the excess to make some smaller purchases through Loyal3.

Loyal3 Account

Buys

3.43 shares of Target (TGT) @ $58.31 per share.

3.3624 shares of Dr. Pepper Snapple (DPS) @ $59.48 per share.

Sells

None.

Quick Hits: With Target continuing to trade at an attractive long-term entry point and recently announcing a 20.9% dividend increase, this dividend champion was a no-brainer to add to.

Dr. Pepper is a new position for my portfolio. DPS is a manufacturer and distributor of non-alcoholic beverages that are sold in the United States, Canada, and Mexico. The company’s brands include its flagship Dr. Pepper and Snapple drinks, Sunkist soda, 7UP, A&W, Canada Dry, Crush soda, Hawiian Punch, Mott’s, Schweppes, and my personal favorite as a kid, Yoohoo. Unlike its main competitors, Coca-Cola and Pepsi, both of which are trading at P/E’s of 19+, Dr. Pepper’s P/E comes in at 17.5 with a forward P/E of 15.2, both of which are less than the S&P 500′s current and forward P/E ratios of 18.3 and 17 respectively. Although they have only been growing their dividend for 5 years, the stock does sport dividend growth rates of 10.4% for the past year, and 22.8% average for the last three years while still keeping the payout ratio at 47%.

Roth IRA

Buys

23 shares of Deere (DE) @ $91.80 per share.

Sells

None.

Quick Hits: Deere is another new position for my portfolio and one I’ve been looking to add for a while now. Growing up in a rural town and with plenty of farmers and other users of Deere tractors and equipment in my family, I guess I have a soft spot for the stock. Although earnings are expected to decrease in the coming few years, I like the long-term growth story of this company which is summed up nicely at their investor page. After keeping their dividend static for five quarters, Deere recently announced a 17.6% increase, bringing the quarterly payout up to $0.60 from $0.51. Sweet. :) Even after the recent run-up in price the stock continues to trade at an attractive valuation with a P/E of just 9.9.

Taxable Brokerage

No activity this month.

 

Full Disclosure: I am long TGT, DPS, DE, and KO. This post is not intended to be a buy or sell recommendation for any stock mentioned and is intended for educational/entertainment purposes only.

How was your June for investing? What do you think of my stock picks this month? Share with a comment below and thank you for reading!

Investment Account Types

After choosing your investment strategy, deciding on where to make those investments from is the next step.

For those of you new to investing here is a quick rundown of common accounts that you can use to save for retirement.

Non-Retirement (Taxable) Brokerage Accounts: This is where I have the bulk of my stocks currently, though this year I want to focus more on putting more money in tax-advantaged accounts. Although I will be using the dividend income produced by this account for financial independence/early retirement, the account isn’t technically a retirement account as it has no tax advantages like IRA’s and 401k’s. The big benefit to having this type of account is that I can withdraw funds (dividends and principle) at any age, whether that be once I’m 40 (and hopefully financially independent 🙂 )or even tomorrow if I need some extra cash to supplement my current income. As these types of accounts aren’t tax advantaged, there are no contribution limits.

401k: With the days of defined benefit pensions mostly over, the 401k has become the primary retirement savings tool for most people. These plans are offered through your employer and generally allow you to invest in various mutual funds/index funds. Some employers may even match your contributions up to a certain percentage, essentially giving you free money. Generally contributions to 401k’s are made with pre-tax dollars, meaning the contributions will be tax deductible when you put them in but will be taxed when you begin withdrawing them. However there are some plans that now offer a Roth version, meaning the money you contribute is made with after-tax dollars, which although won’t give you a tax break today, can be withdrawn tax-free when you retire. For 401k’s you can’t withdraw funds until you turn 55 or 59 1/2 depending on your situation. The contribution limit per year by the employee is $17,500 (employer matches don’t count toward the limit).

IRA’s: There are two primary types of IRA’s: Traditional and Roth. The traditional option work the same as most 401k’s with contributions being pre-tax dollars. The Roth is made with after-tax dollars. The main difference between IRA’s and 401k’s are that IRA’s are accounts you can start on your own whereas you must work for a company that offers a 401k plan to participate in that type of investment vehicle. The great thing with an IRA is that you have more freedom to invest the way you want. You can choose to invest directly with a mutual fund company and invest in their funds or you can open a brokerage account as an IRA, giving you the option to not only buy mutual funds, but also individual stocks and ETF’s. This is how I have my Roth IRA set up, as a brokerage account.  Money put in traditional IRA’s cannot be accessed until you turn 59 1/2 without incurring an early withdrawal fee and paying taxes. For Roth accounts, you can withdraw the amount of your contributions (but not any earnings) anytime. All additional funds in Roth’s cannot be accessed until you turn 59 1/2 without incurring a penalty. The current annual contribution limit for all of your IRA’s combined (if you have multiple ones) is $5500.

So what’s my plan for using these different types of investment accounts?

Right now I invest in a combination of the 3, with the bulk of my portfolio in a taxable brokerage account (and my Loyal3 account which is structured the same way as taxable) made up of dividend growth stocks, the rest in a Roth IRA of more dividend growth stocks, and a small part in my Thrift Savings Plan (federal employee 401k) which is made up of index funds. My TSP account will be probably be rolled over into a traditional IRA once I leave the military so I can invest into stocks instead of just index funds.

What about you? What type of investment accounts do you use? Thanks for reading. 🙂

March 2014 Balance Sheet

Today I’ll be sharing my personal balance sheet, listing all of my assets and liabilities to figure out what my current net worth is. Tracking your net worth is a good exercise and something not many people do on a regular basis. While it doesn’t show how much dividend income I’m pulling in, which is how I plan on achieving financial independence early, it does provide a good overall snapshot of my financial life. Note: the +/- after each category total represents the change only from the prior month.

Assets

Emergency Fund: $4,500.00 (+$0). Starting this month I’m going to report this separately from my other cash savings as it will generally remain steady unlike the cash savings listed below.

Cash Savings: $4490.81 (+$1203.29). Continued to pack away money to prepare to move into my own apartment off base later this year. I’ve pretty much saved as much as I figure I need in order to pay the first few month’s rent, plus all the other expenses such as furniture, etc. Whatever I don’t use will probably go to my Roth.

Roth IRA: $7,322.69 (+$670.66) Added in the $721.50 I got back from a college tuition refund and used it to buy some Kinder Morgan Inc. Continuing to drip all holdings as I only plan to make a few more purchases in this account the rest of the year.

Brokerage: $10,798.73 (-$529.91) The majority of the cash I had in this account plus all dividends I received throughout the month I withdrew in order to fund my Loyal3 purchases. It’s like selectively reinvesting dividends, but commission free! 😉

Loyal3: $1109.92 (+$776.70) Continued to add to my positions in Coke and Target, plus initiated a position in McDonald’s.

Thrift Savings Plan: $976.98 (-$9.47). Although I started investing in this account again in March, none of the new deposits have hit the account yet so not much of a change here. I’m investing in a combination of an S&P 500 index fund and a small cap index fund.

Auto Worth: $5,820.00 (-$435.00). After last month’s weird gains, this has started to trend downward again. Nice reminder to myself to not think of cars as an investment. The only reason I include it here is that it’s probably the one non-financial asset I have that if I ever needed to sell, could probably get close to its market value.

Assets Total: $35,019.13 (+1,676.27)

Liabilities

Credit Cards: $174.31 (-$197.57). As I never carry a balance on my cards and my billing cycle ends in the middle of each month, this is simply my current balance on the last day of March.

Net Worth: $34,844.82 (+1873.94). I was really helped along this month with getting my tuition refund check back plus general gains in the market overall. My goal for 2014 is to get this up to $40,000.

How was your March for finances? Do you track your net worth and if so are there any other items you track on yours? Please leave a comment below and thanks for reading!

February 2014 Balance Sheet

Hello there! Today I’ll be sharing my personal balance sheet, listing all of my assets and liabilities to figure out what my current net worth is. Tracking your net worth is a good exercise and something not many people do on a regular basis. While it doesn’t show how much dividend income I’m pulling in, which is how I plan on achieving financial independence early, it does provide a good overall snapshot of my financial life. Note: the +/- after each category total represents the change only from the prior month.

Assets

Cash Savings: $7787.52 (+$1196.64). Nice increase from last month as I continue to pack away money in anticipation of moving out of the barracks this summer. $4500 of this continues to be my Emergency Fund.

Roth IRA: $6652.03 (+199.06). Haven’t added any new money yet this year so this increase was all a combination of market gains and dividends received. Once I finish saving up for my apartment and adjusting my emergency fund to match my new monthly expenses, I plan on dumping all extra savings into this at the end of the year.

Brokerage: $11,328.64 (+590.90). Similar to the Roth, this increase was from market gains and dividends received.

Loyal3: $333.22 (+57.56). This was the one investment account that I contributed to this month, partly because I can’t save all my excess cash without investing some of it, investing can be addicting :). Just continued to dollar cost average into Coca-Cola stock without paying any commissions.

Thrift Savings Plan: $986.45 (+26.70). As mentioned earlier, February will be the last month of just passive market gains in this as I will be restarting my contributions for March.

Auto Worth: $6255.00 (+$109). Hmmm. I guess the used car market for 10 year old Chevy sedans is increasing? 😉 Just continuing to go off what Kelley Blue Book gives me. Overall I expect this category to generally trend downward long-term.

Assets Total: $33,342.86 (+$2179.86)

Liabilities

Credit Cards: $371.88 (+147.26). As I never carry a balance on my cards and my billing cycle ends in the middle of each month, this is simply my current balance on the last day of February.

Net Worth: $32,970.88 (+2032.50). Not a bad month overall. I was able to increase my Net Worth by $2032.50 while bringing in $2017.02 in income and spending $542.12 in expenses. That’s a successful month in my opinion and shows just how awesome it is once you start investing and putting your money to work for you.

Do you make a balance sheet/net worth statement each month/quarter/year? Are there any other items you track on yours? Please leave a comment below!

Thoughts on the MyRA

In his State of the Union address in January President Obama introduced a new retirement account type called MyRA (My Retirement Account). It’s designed to allow individuals to invest small amounts of money ($25 to start, $5 minimum contributions thereafter) into a retirement account similar to a Roth IRA except that it invests in U.S. Treasury Bonds instead of stocks/mutual funds. Like a Roth IRA, all contributions are from after-tax dollars, meaning you won’t pay taxes on your distributions when you retire. The current annual contribution limit for Roth IRA’s ($5500) also applies to the MyRA. Since it is set up as a Roth, you cannot contribute to both a separate Roth IRA and the MyRA at the same time.

Once your MyRA’s account balance hits $15,000 (about 2.75 years of investing if you contribute the max) or the account is active for 30 years (which ever happens first) you must roll the account into a regular Roth IRA where you will then have the freedom to invest in better investments such as stocks/mutual funds.

The money you contribute to the MyRA is invested in the “G” Fund from the federal government’s Thrift Savings Plan (similar to a 401k) and you are limited to just that fund. The “G” Fund has average annual returns of:

1 Year: 1.47%

3 Year: 2.24%

5 Year: 2.69%

10 Year: 3.61%

Since fund inception (April 1987): 5.69%

While there is a guarantee that you will never lose your principle, the average annual returns are not nearly as good when compared to the stock market. Take the “C” Fund for example which is included in the TSP for federal employees but will not be available for the MyRA. The “C” Fund is an index fund that invests in the 500 companies that make up the S&P 500, a popular index to compare investment returns to.

1 Year: 16.07%

3 Year: 10.90%

5 Year: 1.71%

10 Year: 7.12%

Since fund inception (January 1988): 9.50%

As you can see, the “C” Fund as performed quite better than the “G” Fund. However there always exists the possibility of recessions, bear markets, and crashes such as in 2008-09 where the S&P 500 declined considerably but the “G” Fund held its value and continued its slow growth.

In conclusion while I think the MyRA is a good choice for those individuals who have no retirement savings at all or work at jobs that don’t offer 401k’s, for the majority of people I don’t think it is the best choice. Unless all you have is the $25 to open an account and low amounts like the $5 a week to contribute you are probably better off just opening a regular brokerage Roth IRA account through a company like USAA, Vanguard, etc. This will allow you to have a larger variety of options to invest in such as individual stocks, index funds, and managed mutual funds.

I think the best thing to come out of the President introducing the MyRA was that it brought a lot of attention to retirement savings in the media and hopefully to many citizens here in the U.S. I think a potential negative to the low contribution requirements could be that people get used to “only” contributing small amounts and believe that this will be enough to retire on, without focusing on better controlling their expenses and thus, investing more. If people realize that it truly is just a starter account to save up $15,000 in order to invest in other retirement investing vehicles and use it in that manner, than I think it will be successful program.

What are your thoughts on the MyRA? Do you plan on contributing and if so what are your plans for after you save up the max of $15k? Please leave a comment below and continue the conversation. Thanks for reading.