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Investment Ideas for the 2/c Loan

A few years back both my wife and I took out our 2/C loan with the USAA Career Starter Loan. I have always been interested in finance and was very excited at the opportunity to invest this money. My wife is not interested in finance at all and also ended up investing her money.

The cool part about this story is that we have both doubled our original $30,000 investments, but we chose very different assets to do so. I chose real estate and ended up buying a rental property with it. Today, my equity in the property is worth over $70K. She chose to invest in index funds (and some stocks) now worth just over $80K.

The takeaway here is that there are a ton of different investment strategies that will allow you to turn this loan into a very large amount of money. The choices my wife and I make reflect our personalities. A rental property is very hands on and I was excited about investing so I enjoyed that aspect. The index funds my wife chose have taken exactly none of her time since she bought them yet she still came out ahead (which I am always reminded of).

This overall passiveness is extremely attractive because you gain all the returns without any headaches associated with managing a property. Today there are even more passive options available then when we invested our loan back in 2015.

If you’re ROTC, Academy or OCS then you will have the opportunity to take a low interest career starter loan. The USAA Career Starter loan provides forward thinking individuals a unique opportunity to invest a large amount of money earlier then most people have the opportunity too. Basically, it is an incredible opportunity to get and stay ahead.

Becoming a Savvy Investor

Other places online may tell you not to invest with borrowed money. In general, this is good advice as most personal loans have interest rates in excess of 10%. Also, you don’t want to risk borrowed money on a penny stock (or single stock) and then have loan payments for the next 5 years on money you’ve lost. However, a savvy investor sees the opportunity to loan such a large amount of money at a low interest rate and invest it to gain much higher returns. By taking advantage of this difference, you can easily have over $60K in assets once you are done paying off the loan.

In order to set yourself up for success down the road, there are three major factors you need to address:

  • Do not lose money. Especially important because this is borrowed money that you make payments on for 5 years-regardless of what you do with it.
  • Keep it simple. Regardless of what service you are, you will have a lot on your plate when you commission. Training pipelines, frequent moves, deployments and long hours are the reality. Active investing strategies such as trading or house flipping require your undivided attention to successfully execute. It is not realistic to expect you will be able to do this while starting your professional career. Building wealth passively will allow you to focus on your busy life and not come home to more work.
  • Keep a long term view. A simple way to think of this is that any money you invest you cannot touch until the loan is paid off. Think about this money as the base of your personal net worth and focus on continuing to contribute to that number every month. If you want to buy a house down the road, using the VA loan will allow you to do so without needing this money as a down payment. We have articles on what it is and how to do that if you’re interested about learning more. Time is on your side with this investment, selling too soon will ensure this money never grows into a life changing amount.

We’ll explore some investment options available and then show example portfolios demonstrating what a $30,000 investment in these options five years ago (our minimum recommended holding period) would be worth today.

Financial Advice

The following content is educational in nature only. Money Gouge is not engaged in soliciting advice of individual investments. Please do your own research and remember that past performance does not guarantee future returns.

Index Funds

The stock market is one of the best ways to increase your wealth passively. You can buy individual stocks or index funds.

Index Funds

A FINANCIAL product that allows you to invest your money across a large amount of individual stocks simultaneously. With index funds you buy a diversifed basket of stocks. Every dolLar you invest is instantly diversified. A COMMON INDEX FUND IS THE S&P 500.

Index funds are popular because their diversification means that your performance is not tied to the fate of just one company. For example, in the early 2000’s both Blockbuster and Netflix were leading entertainment companies. If you had invested $30,000 in either circa 2005 here’s what that would be worth today.

Netflix

$9,291,000

Blockbuster

$0

This is the craziness of investing, it’s very difficult to determine whether a company will be a winner or loser. Putting all your eggs in one basket really sucks if that basket is Blockbuster.

Exchange Traded Funds (ETF’s) are the actual thing you buy in the stock market that allows you to buy an index fund. So if you wanted to buy the S&P 500, you could buy VOO . This is Vanguard’s S&P 500 Index Fund. Vanguard maintains the basket of stocks that is the S&P 500 and buying shares of VOO allows you to buy the S&P 500.

Search results for VOO on Robinhood. Hopefully you have more buying power than me.

Understanding Fees

Companies such as Vanguard maintain these index funds for a super low fee of .10% (or $10/year for every $10,000 invested). It is important to choose the ETF with the lowest fee because they are all offering the same basket of stocks and a higher fee will drag on your returns. For comparison, a 1% fee on $10,000 over 10 years will cost you over $2,000 whereas the .10% would be $200.

S&P 500

The Standard and Poors 500 index (S&P 500) is the 500 most valuable companies by market cap. This index is extremely popular because it basically represent the 500 most successful companies currently on the market. It is relatively safe because you own all 500 and are not tied to the performance of any individual one.

If one company begins to struggle, it will be kicked off the S&P index and another rising company will take its place. This happened in December of 2020 when Tesla (TSLA) joined the S&P 500 and replaced a company called Apartment Investment and Management (AIV). AIV was not struggling and has done well since being kicked off, but Tesla has become such a successful company that it was added. Successful companies will naturally find their way in to the S&P 500 so when you buy it, you will automatically be holding quality stocks.

ETF’S to buy the S&P 500:

  • Vanguard S&P500 Index (VOO)- Expense ratio .03%
  • SPDR S&P 500 ETF (SPY)- Expense ratio .0945%
  • Ishares Core S&P 500 ETF (IVV)- Expense ratio .03%

The five year return of the S&P 500 is an awesome 17.6%. So, if you had invested $30,000 in 2016 and not touched it you would have $67,477 today.

$30,000 invested in the S&P500 5 years ago. Source: Investor.gov

Total Stock Market

The total stock market index is the ultimate diversification tool. When you buy this index fund, every dollar is diversified throughout the entire stock market. This is done by dividing the entire stock market into sections based on the market capitalization (or value) of a company. There are five categories (Mega,Large,Mid, Mid-Small and Micro). This index is evenly weighted between all sizes. The advantage of this (vice the S&P 500) is that you gain exposure to small cap stocks which traditionally grow faster than large caps. The extensive diversification of this index makes it one of the most popular in the financial independence world.

ETF’s to buy the total stock market:

  • Vanguard Total Stock Market ETF (VTI)- Expense ratio .03%
  • Ishares Core Total US Stock Market (ITOT)- Expense ratio .03%

The five year return of VTI is 17.39%. So if you used your loan to invest $30,000 five years ago it would be worth $66,877.00 today.

$30,000 invested in the Total Market Index 5 years ago. Source Investor.gov

Information Technology Index

This index consist of a basket of high quality tech stocks. Big companies like Microsoft and Apple as well as quickly growing companies such as Square and NVIDIA are all included. As you can probably guess, this index has been absolutely crushing it over the last few years. It’s five year return is 31.55%. So, if you invested $30,000 in 2016 you would have $118,188.55 today.

$30,000 invested in the Technology Index 5 years ago. Source: Investor.gov

How to Buy Index Funds with your Career Starter Loan

Buying an index fund (or stock) is simple, open a brokerage account. A brokerage account is an account used to buy stocks and ETF’s. You are likely familiar with Robinhood and may already have one. Robinhood is the most well known brokerage account but it is not the only one that offers an awesome product. It’s user friendly interface makes your stocks easily accessible, this can be a dangerous thing when you’re trying to not touch your money. For the career starter loan investment you may also want to consider M1 finance. Here’s why:

  • M1 Finance will allow you to build a portfolio. Say you wanted to split your investment between VTI,VGT and VOO but wanted to weight more heavily in technology. You could set VTI and VOO to 20% each and VGT to 60%. M1 will automatically divide every investment between them with no math on your part. Robinhood will not do this. If you wanted to add some individual stocks to your investment, this is also the simplest way to do that.
  • It offers a $30 sign up bonus, which is more than Robinhood. The sign up stocks I have gotten from them have never been worth more than $10. If you really wanted to max out your benefits, sign up for Robinhood (free stock) and transfer to M1 to get a $30 bonus. If you already have a Robinhood you could also do this.
An example portfolio for your career starter loan.

M1 Finance

  • No cost for buying stocks/etf’s
  • Dividend Reinvestment
  • Fractional Shares
  • $30 Sign On Bonus
  • Portfolio Style Investing

Robinhood

  • No cost for buying stocks/etf’s
  • Dividend Reinvestment
  • Fractional Shares
  • Free Stock
  • Portfolio Style Investing

If you are interested in reading more about different brokerage accounts check out our article on that.

Buying Index Funds through a Roth IRA

If you’re comfortable with not touching your money until you are 59 1/2, then you can use the Career Starter Loan to make one of the best financial moves possible. A Roth IRA is an individual retirement account where all the investments are tax free for life. The catch is that you cannot touch the money until you’re 59 1/2. Roth is one type of IRA, the other is traditional. A quick look at the two:

Roth

  • Max Annual Contribution: $6,000
  • Annual Contribution is deducted from your taxable salary for this year
  • Annual Contribution is tax free for life

Traditional

  • Max Annual Contribution: $6,000
  • Annual Contribution is deducted from your taxable salary for this year
  • Annual Contribution is tax free for life

Money Gouge Tip

Do not invest in a traditional retirement account with the career starter loan. You will not save much money because your taxable income is already extremely low. It will save you a lot more to not pay taxes on what your investment grows to by the time you are 59 1/2.

How To Buy Index Funds Through an IRA

The max annual contribution to a Roth IRA is $6000. If you take the Career Starter loan in 2021 then you can invest $6000 right away and another $6000 on January 1st 2022. If you plan on investing more than that overall (it’s smart to invest as much as you can) then you can go ahead and invest the additional money in a normal brokerage account.

To open a Roth you will need to use either M1 finance or a traditional brokerage such as Vanguard. At this time, Robinhood does not offer IRA’s. You can sign up for an M1 IRA here.

The biggest difference between a regular brokerage and Roth IRA for M1 is that the Roth requires a $500 minimum to open. That shouldn’t have much of an effect since the goal is to max it out ($6,000).

Vanguard is also popular, and you can check out their IRA account here. For me, I would prefer M1 over Vanguard because of it’s significantly better user interface and no commissions. Vanguard will charge you a commission (fee) to buy anything other than their index funds. You can buy anything for free on platforms such as Robinhood or M1 so it really does not make sense to pay this.

Money Gouge Tip

Purchasing index funds through an IRA does not mean you have to change your overall allocation. Basically, you’re buying the same stuff but in different accounts. The intention is to buy as much as possible ($12,000 in two $6,000 increments) in Roth so that it grows tax free for life. The rest of the investment can be in a normal brokerage and on platforms like fundrise which we will discuss later.

If you’re interested in learning more about setting up your TSP in the future or retirement accounts in general check out our article on that. Keep in mind that using your Career Starter Loan to invest in an IRA has no impact on your TSP. You will still need to focus on that when you commission. See more here.

Beyond Index Funds

It is okay to buy a small amount of individual stocks alongside index funds. The two major considerations are:

  • How much of your overall investment can be used for individual stocks?
  • What stocks are appropriate?

Overall Amount

While the majority of your overall investment should be index funds, one of the minor allocations can be individual stocks. The other minor allocation is real estate (more on that later).

A 10-15% allocation of the entire investment amount is appropriate. This will give you a decently sized position without taking too many dollars from your main investment in index funds.

If you are not interested in investing and don’t have any companies in mind then you do not have to allocate anything towards individual stocks.

What stocks are appropriate?

The stocks you buy are much more important than the amount. In general 1 or 2 high quality companies should be sufficient. This will allow you to build a larger position instead of a ton of small positions in a bunch of companies (which you are already accomplishing with index funds).

A high quality company is a well established and profitable brand. If there is a company you like or have always been interested in investing in: this is the time to do so. It helps if you view your investment as becoming an owner of the company.

What companies are you interested in becoming an owner of?

A 10% allocation on $30K would be a $3000 investment; here’s what that looks like in a few high quality companies if you had done that 5 years ago.

Equally important is what you should not invest in. Speculative or volatile investments are best avoided when using this loan. That includes:

  • Crypto
  • Penny Stocks
  • Companies you know nothing about or have never heard of

Remember the goal is to invest in assets that will grow over the long term. The volatility of these above investment puts you at real risk of losing borrowed money. The next asset is both non volatile and historically profitable over the long term.

Beyond the Stock Market

Did you know that including real estate in your portfolio reduces volatility and can increase overall return? This is because real estate’s performance has a low correlation to the stock markets performance. Therefore it is naturally insulated from a drop in the stock market. It also pays dividends providing a stable passive income.

Advantages of Real Estate

Diversification Away from Stock Market

Passive Dividend Income

This fact is well known by professional investors and can be seen by the asset allocation in the Yale and Stanford endowment funds. Both are legendary in the investment world because they have achieved market beating returns over the long term.

9.5%

Yale endowment fund allocation in real estate.

8%

Stanford endowment fund allocation in real estate.

You can also achieve less volatility and better overall performance by allocating 10% of your investment in real estate. One common way is to use Real Estate Investment Trust (REIT’S).

Source: Investor.gov

Public REIT’s

There are a ton of REIT’s (300+) available on the market. One of the most popular ways to buy REIT’s is the Vanguard Real Estate Trust (VNQ). This is an index fund of high quality REIT’s. It has an average 5 year return of 8.38%. It’s dividend yield is currently 2.83%.

VNQ on Robinhood

But there’s a problem with publicly traded REIT’s.

Public REIT’s trade on the stock market so their price is affected by overall market movements. Therefore, they are still correlated to market performance (even if the underlying business is not impacted). This negates one of the benefits of investing in real estate. VNQ fell in early 2020 alongside the rest of the market.

When Yale and Stanford invest in real estate they buy apartment buildings (and other large commercial buildings) directly because they have that type of money. Owning real estate like this is how you maximize your diversification because these buildings are valuable and cash flowing regardless of the stock market.

Fortunately, there is a way for you to mimic this (without having millions of dollars) and buy a collection of professionally vetted rental properties. Unfortunately, I did not know about Fundrise when I took my career starter loan but I have since invested with them and done well.

Fundrise

Basically, Fundrise allows everyday investors to invest in real estate in the same way as professionals do. It made real estate a lot more approachable and a lot less complicated.

Fundrise has paid around 100M in dividends to shareholders. Source: fundrise.com

Fundrise allows you to buy shares of quality investment properties. These shares allow you to become a direct owner of the properties. This allows you to truly diversify without a lot of the complexity usually involved with real estate.

How does Fundrise perform?

Here are the numbers from their various funds (portfolios). For reference, we’ll include VNQ’s performance as well.

Income REIT

  • Dividend: 6.97%
  • Average 5 year return: 8.6%
  • Value of $3k investment made in 2016: $4,531

Growth REIT

  • Dividend: 3.02%
  • Average 5 year return: 12.98%
  • Value of $3k investment made in 2016: $5,522

VNQ

  • Dividend: 2.83%
  • Average 5 year return: 8.38%
  • Value of $3k investment made in 2016: $4,486

The numbers don’t lie, an investment in either of their funds has performed well over the last five years. The best part is that this is passive and does not involve the stock market. Although stocks have done well over the last five years, diversification will pay off if the next five years are different.

Fundrise

An awesome new platform that allows you buy shares of professionally vetted investment real estate.

Putting it All Together

Let’s walkthrough a couple $30k portfolios that demonstrate how you could invest a career starter loan. We’ll breakdown the allocations and what they would be worth if you had invested in them 5 years ago and not touched them.

Portfolio 1

Portfolio 2

In just five years, your career starter loan could build you serious wealth. My wife and I both experienced this. If you are still unsure of how much of your loan to invest we discuss that in more detail here. Basically, invest what you can: the more the better. The best part? Investing this loan takes about 30 minutes of your time. This is a lot better than time consuming strategies that will probably flop (such as trading).

The Career Starter loan is an awesome opportunity. Invest what you can and then shift your focus to paying the loan off.

Money Gouge

Two military guys helping you make better financial decisions and understand how money works.
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Featured

The Best Way to Use the $200 American Express Travel Credit

American Express has been on a streak adding new benefits to their flagship Platinum card. Their latest addition is a $200 travel credit. This is on top of the $400 in offers that were released last month and in addition to their airline credit.

What: $200 Travel Credit for travel booked through AmexTravel.com. Includes airfare, hotel, cruises, car rentals and tours.

When: Usable through December 31st, 2021

AmexTravel usually has pretty standard rates for plane tickets and most fares. Whatever you book through them will now be $200 off and have a guaranteed refund if you need to cancel. That being said, there are some ways you can make that money go even further.

Note

Amex is running two types of promotions on plane tickets: Insider Fare and Recommended Flights. Though you will save $200 overall with the travel credit, I could not find any fares that were cheaper than google flights. In addition, Insider Fare is denominated in points (though they are decent) so the credit does not apply.

The Fine Hotel and Resort Collection

Amex Platinum members can get insane offerings at awesome hotels in popular spots by booking through the Fine Hotel and Resort Collection. Let’s look at a few different locations over a theoretical one night stay (29-30 May) over Memorial Day weekend:

Washington DC

The Jefferson

Their Website : $580/night
AmexTravel $530/night

The booking is cheaper through the Hotel and Resorts collection. Keep in mind, this is not including the $200 credit you will receive off the price. The booking also includes:

  • $100 Food and Drink Credit within the hotel
  • Daily breakfast for two
  • If available, room upgrade upon arrival
  • Guaranteed 4pm late checkout
  • Early check in at noon

San Diego

Four Seasons

Their Website $350/night


AmexTravel $350/night
  • $150 for the first night after credit
  • $100 property credit. Good for spa as well as food and drinks.
  • 4pm late checkout
  • Early check in
  • Room upgrade when available

Amex was also running a deal for this hotel where you book two nights and get a third one complimentary. These are constantly changing but most locations had at least one place offering this from what I’ve seen.

Money Gouge Tip: Ritz Carlton

Do not use Amex travel for the Ritz Carlton if you are in the military. They have a much more lucrative deal for military which you can read about here.

Final Thoughts

American Express continues to impress with their Platinum card. If you are curious about some of the other great benefits you can check them out here. This $200 credit is a way to make the card more useful in a COVID world; although it’s still not as good as the $300 travel credit on the Chase Sapphire Reserve that can be used for almost anything. Plane tickets and cruises might be hard to book for a while but you do have until the end of the year. Ultimately, the best way to use this credit is to combine it with the perks of the Fine Resorts and Hotels Collection. Combining these allows you to have an amazing weekend in a 5 star hotel without paying 5 star prices.

Written by: Dan Tapia

Auto Loan Calculator

Instructions

For the car you’re considering buying, input:

  • The price you expect to pay for it
  • Down Payment
  • Loan term (years)
  • Annual interest rate
  • First payment date, if desired

For your current car, input:

  • Expected trade-in value
  • Balance remaining on your current loan

Optional Additional Fees:

  • Monthly Insurance
  • State Sales Tax
    • Most states offer a bit of a tax break on the purchase of a new vehicle if you trade in your current car. The states that do not offer this tax break are California, Hawaii, Kentucky, Maryland, Michigan, Montana and Virginia. Note that sales tax is paid to the state in which the vehicle is registered (usually a service member’s home of record), not necessarily the state the car was purchased in. If you’re registering your vehicle in one of the states listed above, choose “No”. Otherwise, choose yes.
  • Registration and Title Transfer Fee.

Mortgage, Equity, and Amortization Calculator

Instructions

For each section below, input the appropriate information for the home you’re thinking about buying (or already have) to see what you can expect to pay up front and over time. Scroll down to see the amortization schedule and determine what your equity is in your home at any point.

Details:

  • For the price of the new home, use the (anticipated) accepted offer rather than the assessed value, since this is what determines the terms of the mortgage.
  • Unsure of what your property tax rate will be? Find out.
  • What’s PMI? Private Mortgage Insurance – an insurance that is typically required with conventional mortgages if the down payment is less than 20%. (If you’re using a VA loan, you don’t have to pay PMI).
  • While HOA (Homeowner’s Association) fees don’t affect the terms of a mortgage, it’s useful to see how they affect your monthly payment since they are certainly part of housing costs.

Mortgages

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Financing Calculator

The cost of interest is the true cost of a loan. See what different loans will cost you.

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How Much Car Can I Afford?

How much car can I afford?

How much car can I afford?A vehicle is a large purchase that can greatly impact your month to month finances so the answer to this question is important. In order to buy a car responsibly, we recommend buying a car that costs no more than 15% of your after tax monthly income. Don’t know how much that is? We’ve got you covered.

How To Determine How Much Car You Can Afford

  1. Check your monthly pay stub or LES.
    1. You can use last month’s base pay or average the last three months for a more accurate number.
  2. Enter that number below:

Example: If you made an average of $3000/month over the last three months you can afford a car that costs $450/month.

Why 15% and how is cost defined?

Why 15% is the magic number

15% of your salary is our recommended contribution level to your retirement account (401K or TSP). If you’re just getting started, it’s okay to include an employer match in that number but work towards making that the amount you contribute. For most people, 15% will provide solid retirement savings.

Limiting vehicle costs to 15% keeps your vehicle costs (likely your largest expense besides housing) at or below your retirement contribution. This is a simple way to make sure that you are managing your money effectively and investing more in your future than the average household.

Finally, only 30% of your salary is committed to these fixed costs. That leaves plenty of flexibility for you to deal with housing, life, or our favorite: other investments. In order to keep this level of flexibility it is important to accurately estimate the total cost of a vehicle.

What goes into cost?

Cost does not mean your car payment. Your car payment is the largest component, but not the whole picture.

Estimating Fuel Cost

According to the Bureau of Labor and Statistics, in 2019 the average person spent $2094 annually ($175/month) on fuel and related items. For most people this is a reasonable estimate.

Additional Considerations:

  • Average fill up cost for pickups is $101.92, so you might have to pay a bit more.
  • An EV owner who drives 540 miles a month and charges at their house at the average energy price will pay $25.20/month in energy according to Kelley Blue Book. This is a good guideline for EV fuel cost.
  • It’s easy to check how much you spent on fuel over the past few months if you look at your spending history on USAA, Navy Fed, or a budgeting app like Mint.

Estimating Insurance Cost

Estimating insurance cost is as simple as getting a quote for the vehicle you are interested in. You can do this prior to going to the dealership from information available online. Generally, all you need is:

  • VIN
  • Mileage
  • Purchase Price
  • Expected Usage (miles)

If unable to get a quote, you can also use the average insurance cost of $73/month according to a survey by Value Penguin.

Putting It All Together

In our previous example, we could afford a car that costs $450/month on our $3000/month salary. We’ll use the average values of $73/month for insurance and $175/month for fuel to determine what our car payment should be.

A car payment of $200/month will help keep the total monthly cost of the vehicle to $450 or 15% of a $3000 salary.

Why do gas and insurance affect how much car I can afford?

Most people only consider vehicle payments when buying a car. I made this mistake when I bought my Kia Stinger. The result is that you end up in an uncomfortable situation of high car payments and additional expenses. Your total monthly cost will quickly exceed 15%, which can feel pretty overwhelming.

Factoring in gas and insurance allows you to make sure that your 15% is an accurate assessment of monthly vehicle cost. This puts you in a much more comfortable position and keeps you from blowing your hard earned paycheck.

Married? Kids? Single Income Family?

In general, it’s a great thing if you can keep your total transportation expenses at or under 15% of your total household income. That said, there are many service members with spouses that are in school, looking for a job after completing yet another PCS, or at home taking care of the kids while the service member is so often at work, gone for training, or deployed.

Very frequently in these situations, the service member needs to drive to and from work while the remainder of the family needs to make it to school, practice, doctor’s appointments, and complete the never-ending family errands. This leads to families spending a large proportion of their monthly finances to pay for two cars, and in many cases it’s quite difficult to keep that number under 15%. In fact, we’ve met a lot of service members (especially young ones) that spend much more than 15% of their household income on transportation.

If this sounds like you, here are a couple of things you might consider:

  1. Could you get away with a more economic car?
    •  If you’re the type of couple with a Hellcat and an F-150, we get it. If you’re strapped for cash though, ask yourself if you could get away with a Cruze and a CR-V instead. Lift kits, horsepower, and style are all well and good, but any parent or spouse will tell you that providing for a family and looking after its future are much more important. Oftentimes, trading in the horsepower for a more efficient choice can save hundreds a month and well over a thousand a year.
  2. Do you live on base?
    •  If so, consider carpooling into work with someone else in your unit who lives close. If you don’t know of anyone, start asking around or even ask your senior enlisted or OIC if they know of anyone that could help give you a ride to/from work since you’re nearby work. We’ve met families that live on base that have consolidated to one car and carpooled in with friends who live a few blocks over or out in town. Floating a friend $50 or a dinner each month for the extra 4 minutes it takes him to pick you up and drop you off beats paying for two cars if you can help it. This strategy doesn’t work forever, but frequently it can save a family a lot of money during a duty assignment or a deployment workup. You might be surprised at how willing your friends or your chain of command might be to help you out for a while. It all starts by reaching out.
  3.  Just can’t do it?
    • If you live in town, absolutely need two cars, are a single income family, and have done everything that’s reasonable to reduce your transportation costs, we get that too. If you’re early in your career and can’t do it, don’t let it stress you out. It can be a tough thing to do during the first several years in the military, and in some cases it’s nearly impossible or not worth it. Again, we get it. Going forward, realizing that your base pay will increase based off of time in service and rank will enable you to get closer to achieving the goal of spending no more than 15% of your monthly income on transportation. It’s worth looking at what you and your spouse expect to be making a few years from now and coming up with a plan to get your monthly costs where you want them going forward. 

Money Gouge

Two military guys helping you make the most of your money. Learn More Earn More

Lessons Learned

Still wondering why 15% is necessary? Read the experience that led to us writing this article.

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Fundrise

What is Fundrise?

Fundrise is a Real Estate Investment Trust.

Real Estate Investment Trust (REIT)

A company that owns, operates or finances income producing real estate

Reit.com

Fundrise is professional real estate investment company that buys cash flowing properties such as apartment buildings or single family homes.

These properties are grouped based on performance and market. These groups (called funds) are designed to accomplish specific investment goals.

You can purchase shares of these funds for as little as $10. The process is similar to buying a stock, and your investment may appreciate in value or earn dividends, or both. What you are actually buying is a small piece of the real estate holding in that fund.

Here is our Money Gouge portfolio. We invested the first $100 from the website into Fundrise in September of 2021. In return, we’ve received a (small) dividend and 12% return on a completely passive investment.

12% Return as of November 2021

Fundrise is an REIT that allows you to buy shares of cash flowing real estate. These shares are purchased in as little as $10 increments. They give you ownership of the real estate in the fund you invest in.

How is Fundrise different?

Availability ↗

Investing in real estate projects used to be limited to accredited investors. Fundrise is accessible to everyone.

Affordability ↗

Most syndications that invest in similar projects require a $50K investment. Fundrise allows you to invest with as little as $10.

Passiveness ↗

You could get similar returns with your money by buying real estate yourself. Fundrise gives you the returns without any of the work.

Availability

Until recently, investing in commercial real estate was primarily available only to accredited investors.

Accredited investor:

Having a networth of over $1M not including your primary residence or an annual income that exceeds $200,000 individually or $300,000 combined.

Investor.gov

Something to Think About:
Holding a Series 7, 65 or 82 in good standing also allows you to be an accredited investor.

The SEC limits investor participation in private real estate projects because they are often difficult to understand and harder to stay current on. An investment in these types of projects involves buying shares in a company that will own and operate the building.

Fundrise operates it funds as REIT’s. This makes them an investment that is accessible to everyone.

Affordability

A common way to invest in real estate is buying a rental property or participating in a syndication.

Syndication: A professional investor leads an investment of a large apartment building or commercial property among multiple investors.

Millionacres

Syndicates work with multiple investors because they are buying large, expensive properties. The price is high enough that they gather multiple investors to help make the down payment. In exchange, you get ownership in proportion to the amount you put in. An example would be Upward Capital.

The problem is that down payments or syndications can easily require over $30K. These are great investments to work towards, but not a good place to start investing.

Fundrise offers you the same high quality properties in an affordable way. Buying shares offers you an affordable way to get similar cash flow and appreciation from your dollars without the large upfront savings.

Passiveness

One of the purposes of investing is to allow you to enjoy and take control of your time. This is why passiveness is an important goal when choosing which assets you will invest in.

Real estate is very involved if you are working on closing on a rental property. In addition, even with a property manager in place you will still need to deal with occasional maintenance or tenant issues. I have personally experienced this many times with the two rental properties I own.

Large commercial properties have a full time property manager who works onsite. This removes you from the management side of real estate. Fundrise removes you even further because their staff manages the acquisition of properties.

As an investor, all you need to do is select a fund that fits your investment goals. There is even an option to have your dividends deposited directly to your bank account.

Fundrise’s Income eReit
Fundrise’s East Coast REIT

A Third Party Review of Fundrise

If you are interested in Fundrise, here is a third party review. This video was one of the most helpful we’ve seen.

Fundrise

Passive real estate investing in high quality commercial real estate. Start creating wealth and passive income with as little as $10.

FAQ

What is the minimum holding period?

Fundrise is a long term investment. This is because you are buying illiquid real estate properties. Generally, five years is the minimum holding time. However, you can request to withdraw prior to five years and the early withdrawal fee is currently 1%.

Can I sell my shares?

If you sell your shares after the initial five years there is no withdrawal fee. You have the opportunity to sell as many shares as you want at quarterly intervals.

What is Fundrise’s Fee?

Fundrise has a 1% fee. It’s broken into two parts:

  • .15% advisory fee: This fee goes towards running your account.
  • .85% fund fee: This fee goes towards management and acquisition of the real estate in their funds.

How does this compare?

1% may sound like a lot for those of us who are use to low fee index funds. However, in the real estate world this is quite competitive. If you want to buy a rental property, closing costs are typically 3-6% of you entire purchase price, and property management is around 10% of your annual rent.

For a syndication, generally there is a 1-2.5% acquisition fee and management fee of 1% of monthly rent. This is the closest comparison because this is really the only other way to buy commercial properties like Fundrise offers.


Standard Financing Calculator

Details

The standard loan calculator below displays the monthly payment, total cost, and amortization schedule for the loan terms put into the first box.

Note: Dates can be in nearly any format, but you must input the date of your first payment to see the corresponding amortization schedule.

TSP Calculator (Active Officer)

Is your TSP is on track to meet your goals? Find out now:

Instructions
  1. Modify average annual rate of return as desired. Default is 10% – roughly the averaged annualized return of the C Fund.
  2. Enter your effective State and Local tax rates.
  3. Select your tax filing status and enter the number of years you expect between EAS and retirement.
  4. For each pay grade, input:
    • Number of months you’ve served (or expect to serve).
    • Number of months you’ve contributed (or plan to contribute).
    • Percentage of base pay you’ve contributed (or plan to contribute).
More Details

This calculator currently uses 2021 pay scales and tax brackets, but is updated appropriately each year. FICA and federal income taxes are accounted for, as are pay increases based on cumulative time in service.

Since state and local taxes can vary and sometimes have a substantial effect over time, we left those to the user to input so he/she can get a better personal estimate of TSP projections.

Finally, and potentially most importantly, this calculator uses the entered rate of return year over year and month over month. If we could predict the market, we’d be able to tell you exactly what your TSP would be worth. Until then, understand that this is ultimately an estimated projection based on whatever average rate of return is entered by the user. This includes the years between EAS and true retirement, when the value of the TSP will continue to grow despite the fact that no further contributions are made.

A downloadable version modified for easy offline editing is available below.

TSP Calculator (Reserve Officer)

Is your TSP is on track to meet your goals?

Instructions

As a reservist, your pay has a few more moving parts than active duty. This tool is designed to capture these intricacies and show how you can expect your TSP to grow.

How to use it:

  1. Modify average annual rate of return as desired. Default is 10% – roughly the averaged annualized return of the C Fund.
  2. Enter your effective State and Local tax rates and tax filing status.
  3. Enter the value (if applicable) of your TSP when you transitioned from active to reserve.
  4. Enter the number of years you expect between End of Service (EOS) and retirement.
  5. For each pay grade, input:
    • Years of (total) service and months served at that pay scale.
      • If you fall into two different categories for one pay grade, enter it as two separate entires
    • Number of drill weekends you completed (or expect to complete).
    • Days served in an active duty capacity (or plan to serve).
    • Percentage of drill and active pay you’ve contributed (or plan to contribute).

Black Boxes

The black boxes below become interactive if you select a pay grade in the corresponding row. This is done to avoid clutter while allowing several combinations of ‘pay grade’ and ‘years of service’, which in turn appropriately accounts for pay scales over your reserve career.

More Details

This calculator currently uses 2021 pay scales and tax brackets, but is updated appropriately each year. FICA and federal income taxes are accounted for, as are pay increases based on cumulative time in service.

Since state and local taxes can vary and sometimes have a substantial effect over time, we left those to the user to input so he/she can get a better personal estimate of TSP projections.

Finally, and potentially most importantly, this calculator uses the entered rate of return year over year and month over month. If we could predict the market, we’d be able to tell you exactly what your TSP would be worth. Until then, understand that this is ultimately an estimated projection based on whatever average rate of return is entered by the user. This includes the years between EAS and true retirement, when the value of the TSP will continue to grow despite the fact that no further contributions are made.

A downloadable version modified for easy offline editing is available below.

TSP Calculator (Active Enlisted)

Is your TSP is on track to meet your goals? Find out now:

Instructions
  1. Modify average annual rate of return as desired. Default is 10% – roughly the averaged annualized return of the C Fund.
  2. Enter your effective State and Local tax rates.
  3. Select your tax filing status and enter the number of years you expect between EAS and retirement.
  4. For each pay grade, input:
    • Number of months you’ve served (or expect to serve).
    • Number of months you’ve contributed (or plan to contribute).
    • Percentage of base pay you’ve contributed (or plan to contribute).
More Details

This calculator currently uses 2021 pay scales and tax brackets, but is updated appropriately each year. FICA and federal income taxes are accounted for, as are pay increases based on cumulative time in service.

Since state and local taxes can vary and sometimes have a substantial effect over time, we left those to the user to input so he/she can get a better personal estimate of TSP projections.

Finally, and potentially most importantly, this calculator uses the entered rate of return year over year and month over month. If we could predict the market, we’d be able to tell you exactly what your TSP would be worth. Until then, understand that this is ultimately an estimated projection based on whatever average rate of return is entered by the user. This includes the years between EAS and true retirement, when the value of the TSP will continue to grow despite the fact that no further contributions are made.

A downloadable version modified for easy offline editing is available below.

TSP Calculator (Enlisted Reserve)

Is your TSP is on track to meet your goals? Find out now:

Instructions

As a reservist, your pay has a few more moving parts than active duty. This tool is designed to capture these intricacies and show how you can expect your TSP to grow.

How to use it:

  1. Modify average annual rate of return as desired. Default is 10% – roughly the averaged annualized return of the C Fund.
  2. Enter your effective State and Local tax rates and tax filing status.
  3. Enter the value (if applicable) of your TSP when you transitioned from active to reserve.
  4. Enter the number of years you expect between End of Service (EOS) and retirement.
  5. For each pay grade, input:
    • Years of (total) service and months served at that pay scale.
      • If you fall into two different categories for one pay grade, enter it as two separate entires
    • Number of drill weekends you completed (or expect to complete).
    • Days served in an active duty capacity (or plan to serve).
    • Percentage of drill and active pay you’ve contributed (or plan to contribute).

Black Boxes

The black boxes below become interactive if you select a pay grade in the corresponding row. This is done to avoid clutter while allowing several combinations of ‘pay grade’ and ‘years of service’, which in turn appropriately accounts for pay scales over your reserve career.

More Details

This calculator currently uses 2021 pay scales and tax brackets, but is updated appropriately each year. FICA and federal income taxes are accounted for, as are pay increases based on cumulative time in service.

Since state and local taxes can vary and sometimes have a substantial effect over time, we left those to the user to input so he/she can get a better personal estimate of TSP projections.

Finally, and potentially most importantly, this calculator uses the entered rate of return year over year and month over month. If we could predict the market, we’d be able to tell you exactly what your TSP would be worth. Until then, understand that this is ultimately an estimated projection based on whatever average rate of return is entered by the user. This includes the years between EAS and true retirement, when the value of the TSP will continue to grow despite the fact that no further contributions are made.

A downloadable version modified for easy offline editing is available below.

What Will Your TSP be Worth?

The links above open an easy-to use tool (specific to your duty status) that gives you an estimate of your TSP value at retirement. In addition to duty status, it takes into account factors many basic interest calculators dont, including increasing base pay based on rank and years of service, taxes, time from EAS until you withdraw, and more.

Additional Resources