Deployments are tough…
Often, they’re characterized by long hours, time away from home, and missed holidays with family and friends. However, they do present an opportunity to build financial security for yourself and your family.
Quite literally, deployments pay off…
When you get home, you may be wondering what to do with all that money in your bank account. By investing as much deployment money as you can, you will be able to turn the sacrifice and hard work from deployment into long lasting wealth for you and your family.
Here is how to determine how much to invest and some simple, diversified options to invest in.
In This Article
Determine How Much Deployment Money to Invest
Determining how much deployment money to invest sounds difficult, but its actually fairly simple. Here is a rule of thumb (principle) to help guide this decision.
As the principle suggests, the first place to direct your deployment money is ensuring you have sufficient savings. The peace of mind this gives will reduce a lot of financial stress. Critically, it will also allow you to avoid using the credit card or touching your investments to cover an emergency expense.
How Much is Enough?
In todays inflationary environment, savings is more important than ever because unexpected expenses will cost more. The general guidelines in the personal finance category is 3-6 months expenses. That’s a good start, but determining where you fit on that spectrum is more tricky. It is primarily driven by your life style and comfort level. Here are some guidelines for different life situations.
If you are single and don’t have animals, kids or own a home then 3 months expenses may be enough. Your biggest expense is probably a vehicle so be sure that 3 months expenses will cover your insurance deductible and include your car costs.
Havings sufficient savings is a critical first step. To quickly determine your exact savings number you can use our calculator below.
Once you have your number, set it aside! The next thing to tackle is any credit card debt.
Using Deployment Money to Pay Down Credit Card Debt
Credit card debt is stressful and quite common. It is also difficult to eliminate because the high interest rate quickly works against you. Fortunately, you can use the money you saved on deployment to eliminate any credit card debt you have.
Once you have set aside your savings amount, pay off all credit card debt.
Paying off credit card debt is an exciting thing, and it’s worth celebrating. But it’s also crucial to address the spending habits that got you into that situation in the first place. Remember to always pay your entire balance every month. If you are spending too much, set a limit on the card or use a debit card.
What about other high interest debt?
If you have other debt that is at a high interest rate (5%>) it may be worth paying that down before investing. You can use this calculator to determine how much you will pay in interest on any debts you have.
Deciding to pay down high interest debt is a matter of personal preference. Your loan amount, interest rate and monthly payment are all considerations.
Paying down credit card debt is a must because you will not earn more off investments than credit card debt will cost you. But with respect to other debt, remember that all the investments shown in this article will offer you a 8-10% return over the long term. So you might be better off investing your deployment money and then working on your loans going forward.
Now that you have sufficient savings, paid off credit card debt and possibly other debts, lets get to the fun part- investing your money.
Why It's Worth Investing this Money Differently
Chances are, you already have a TSP or retirement account. This probably makes up the largest portion of your net worth and investments. Most TSP funds (including lifecycle) are invested in the following stock indexes.
If you have a TSP (or retirement account) you are already heavily invested in these two indexes.
When you return from deployment, you have a lot of money that is separate from your retirement accounts. You can diversify this money into similar performing long term assets instead of putting more money into the S&P 500. When your TSP is down, this money will be invested in a way that will protect you from the volatility you’re already exposed to.
This leads to higher returns in the long run than if you had just invested it into a single investment (even if it’s the S&P500).
The investments in this article (Fundrise, Golden Butterfly and ETF’s) will help you generate stable returns regardless of stock market volatility.
What is Fundrise?
Fundrise is a real estate investment trust (REIT). An REIT is a company that specializes in buying and operating commercial real estate.
They buy apartment buildings, single family homes and commercial properties throughout the country. They then organize their properties into different funds. The funds are divided by what the properties offer- cashflow, appreciation or a geographical area.
How Does Fundrise Work?
You can buy shares of these funds -which in practice- is as easy as buying a stock. Although simple, what you are actually buying is an ownership slice of the real estate held in that fund. For example, here is the information page for shares of one of their funds, the Income Real Estate Fund.
Buying these shares gives you ownerships in over 35 projects such as:
Therefore, Fundrise allows you to easily and affordably buy real estate. This gives you an easy way to invest your deployment money in a high performing asset that is not influenced by the stock market’s performance.
How Has Fundrise Performed?
Performance is determined by the fund you are invested in. But overall, Fundrise has done an excellent job of offering an investment that offers competitive returns and low volatility.
Besides the asset class, one of Fundrise’s key advantages is that it is not traded on the stock exchange like other REIT’s. This means it’s share price is not affected by market movements. This summary of returns for Q1 22 show just how much this small detail can affect your investments.
Useful Info to Know About Fundrise
Fundrise charges a .15% advisory fee and a .85% annual management. Together that’s an annual fee of 1% or 10$ for every $1000 you invest. This is actually the lowest in the real estate industry. Any other fund or syndication that allows you to invest in similar assets will have significantly higher fees such as sales commission and additional fees based on performance.
You can read more about their fee structure here.
Interested in real estate?
Golden Butterfly Portfolio
What is the Golden Butterfly?
The golden butterfly is a portfolio (group of investments) that was designed by an anonymous contributor at portfoliocharts.com.
It’s goal is to offer a competitive return from diversified asset classes. Compared to similar portfolios such as the permanent portfolio it is skewed towards growth by including small cap stocks.
It is equally invested into the following 5 asset classes:
So how has this balanced portfolio performed?
Golden Butterfly Performance
As of this writing, the Golden Butterfly has a 7.93% return over 30 years. For 2022 YTD ending July 31 (time of writing) it is down 9.5%.
For comparison, the total stock market index is down 12.6% and the S&P 500 is down 12.5% for the same period.
How to Invest Your Deployment Money into the Golden Butterfly Portfolio
There are two simple steps to build a Golden Butterfly in less than 5 minutes.
1. The Lowest Cost ETFs
An exchange traded fund (ETF) is a basket of assets that you can buy like a stock. In short, it’s how you buy the total stock market or any other type of asset without having to build them yourself by buying every single one.
Companies such as Vanguard charge a small fee to maintain these baskets. You’ll want to look for the lowest fee possible since your fee will drag on your investment returns. Fortunately, for the Golden Butterfly Portfolio there are ETFs available with very low fees.
Here are the lowest cost ETFs for each asset class:
2.Build The Portfolio
M1 Finance is a commission free brokerage that allows you to build portfolios (pies). You can select any stock or ETF and then divide it into the weighting you want. M1 will then automatically divide every dollar you invest by that amount.
Build Your Golden Butterfly Portfolio
As mentioned earlier, you are probably already invested in the S&P500 and other common indexes through your retirement account.
You can use your deployment money to invest in low cost index funds that are concentrated in certain sectors you think will be successful in the future. This is called thematic investing and will put your money to work in areas you think will produce market beating returns in the future.
Some common themes are biotech, AI, and cyber security. Here are low cost ETFs for those sectors:
Biotech is an exciting industry that has performed very strongly in the 21st century. If you are into emerging technologies, the companies in this space are generally on the cutting edge.
One of the most popular indexes in this sector is the Vanguard Health Care ETF (VHT). It is designed to match the Spliced US IMI Health Care 25/50 index. This index is composed of health care companies equally weighted in the small, mid and large cap sectors.
VHT has a 10 YR performance of 15.09% and an expense ration of .10%.
Another popular index is SPDR S&P Biotech Index (XBI). This is a concentrated index of all the health care stock in the S&P 500 (which means they are only large cap).
XBI has a 10 YR performance of 10.04% and an expense ratio of .35%.
The Global Robotics and Automation Index ETF (ROBO) seeks to track the index of the same name. It focuses specifically on companies that are developing intelligent systems and are capable of sensing, processing and acting on that information.
ROBO was established in 2013 and has a 5 year return of 11.84%. It’s expense ratio is .95%.
Cyber Security is a high growth recession resistant sector that will only continue to gain importance. There are many ETF’s that will allow you to own the highest quality cyber security companies out there.
ETFMG Prime Cyber Security ETF (HACK) tracks the index of the same name.
HACK has a 5 YR return of 9.42% and an expense ratio of .6%.
The Ishares Cybersecurity and Tech ETF (IHAK) tracks the NYSE FactSet Global Cyber Security Index.
IHAK was established in 2019 and has a 3 YR return of 11.64% and an expense ratio of .47%.
Building a Thematic Portfolio
Side by side comparison of the ETFs
This is by no means an exhaustive list of all the themes or ETF’s that are available. Thematic investing is exciting because you support industries or movements that are important to you.
Regardless of what you invest in there are two principles you can use as guidelines.
1. Stick to index funds. Investing in individual companies in emerging sectors carries a very high risk. With the amount of money you are investing, you don’t want to invest it in a way that could produce a total loss. It’s much safer to bet on the sector overall.
2. Watch the fees. Many investment companies have developed ETF’s in trending or emerging sectors. Unfortunately, a lot of them have higher fees. Fees will drag on your returns and should always be minimized. Sticking with more well known low fee companies such as Ishares or Vanguard will also help.
Once you find a few ETFs you are interested in, you can quickly create a pie using M1 Finance that will automatically allocate money to your preference. For example, here is a 50/50 between VHT and IHAK.
You also have the option to set up recurring monthly contributions, so you can continue to build your investments. This also leads to higher returns over time through dollar cost averaging.
You've worked hard for your deployment money. Now make it work hard for you.
Coming home from deployment is always an amazing feeling. As a nice bonus, your bank account will probably reflect the hard work and sacrifice you put in.
It’s definitely tempting to spend it, but if you invest it instead, you will put that money to work building a brighter future for you and your family.
Once you square away savings and debt, Fundrise, Golden Butterfly or Thematic Investing are perfect ways to invest this money. They are low cost, easy to set up and diversified. Most importantly, they preserve your wealth from a total loss while allowing you to consistent returns.
If you’re returning from a deployment, thank you for the sacrifice and hard work you’ve put in. Both of us have been out there and understand how much it affects your life. We hope that this article will help you capitalize on this unique financial opportunity.
If you know someone who could benefit from reading this article we appreciate if you shared it with them.