August Update

The official August update.

Items:

• The activation is solidifying now. I am trying my best to prepare
  

Goals Update

• Review
• Financial
• Credit card debt totaling $0 (No change) ("deadbeat" credit card balance isn't counted. That card is paid off every month) (goal $0)
• Loan debt totaling $0 *GOAL REACHED*
  
• Loan debt totaling $0 *GOAL REACHED*
  
• Car loan totaling $16,733.37 (down $225.94)
  
• Emergency fund totaling $7,520.99(up $11.54) (goal $7,500) *GOAL REACHED*
  
• Roth IRA contributions to date: In savings, $798 (down $1758.54), invested in Roth IRAs, $6390.15(up $2625.68)(goal $10,000)
• Charitable
• Total hours volunteered: 71 (goal: 100)
  

Recieved my free assessment from Merriman Berkman Next. No real extra information, just a bit of fine tuning on asset allocation, advice for the deployment, and guidance on estate planning. Very boring to all but a few people.

Mobilization is upcoming. I'm planning to take as much advantage of the military benefits as I can. Free medical and dental care, extra pay for housing, etc. If I play my cards right, this could be a huge financial boost.

Not only that, but if there turns out to be a huge hospital where I'm going, I may be able to finish school there. That would be a huge load off of my mind.

July Update

The official July update, in which all of my short term plans become worthless.

Items:

• I will shortly be leaving for a moderate amount of time on an activation. Where, when, and how long aren't important, but what is important is that school, and some other plans have to go on the back burner for a while. Still, I'll continue to try to keep up on my financial plans, and do everything I can to progress myself while I'm there. Most likely, I'll be able to continue doing my updates.
  

Goals Update

• Review
• Financial
• Credit card debt totaling $0 (No change) ("deadbeat" credit card balance isn't counted. That card is paid off every month) (goal $0)
• Loan debt totaling $0 *GOAL REACHED*
  
• Loan debt totaling $0 *GOAL REACHED*
  
• Car loan totaling $16,959.31 (down $227.32)
  
• Emergency fund totaling $7,509.45(down $18.03) (goal $7,500) *GOAL REACHED*
  
• Roth IRA contributions to date: In savings, $2,556.54 (up $346.73), invested in Roth IRAs, $3,764.47(up $29.44)(goal $10,000)
• Charitable
• Total hours volunteered: 56 (goal: 100)
  

Of course, now everything will change. I'm not sure if I'll reach that 100 hours of volunteer service, but I'll keep going until the day I leave. I'll also need to tweak my retirement savings. I want to max my IRA still, then worry about the TSP plan, since there's no matching involved. I'll know more as things progress.

Why I do this

Microsoft Money generates a monthly report for me on spending. I like the reports, because it shows my progress, and where I'm sliding. For instance, I spent less this last month on dining out, groceries, entertainment, hobbies, utilities, and almost everything, except gas (partially out of my control)

The line that really made me happy?

Money calculates your net worth to be $2,290.68...
In January, your net worth was $-10,313.50.

That's an increase of $12,604.18 in SIX MONTHS! Now, a lot of that was reenlistment bonus, but it's proof that I spent that money wisely. This stuff works, and it works fast.

June Update

The official monthly update.

Items:

• School will begin in September. Between Army TA, GI Bill, and TA from work, I should actually make a profit from going back to school.
  

Goals Update

• Review
• Financial
• Credit card debt totaling $0 (No change) ("deadbeat" credit card balance isn't counted. That card is paid off every month) (goal $0)
• Loan debt totaling $0 *GOAL REACHED*
  
• Loan debt totaling $0 *GOAL REACHED*
  
• Car loan totaling $17,186.63 (down $223.81)
  
• Emergency fund totaling $7,527.48(up $27.48) (goal $7,500) *GOAL REACHED*
  
• Roth IRA contributions to date: In savings, $2209.81 (up $682.23), invested in Roth IRAs, $3,735.03(up $285.03)(goal $10,000)
• Charitable
• Total hours volunteered: 45 (goal: 100)
  

No real changes. Working on my asset allocation plan still: Focusing on finding an all vanguard plan so there's no fees (more on the fees thing another time). Missing 2 weeks worth of volunteering due to other, more obligatory work.

May update

The official monthly update.

Items:

• Union contract voted yesterday. We'll see what happens.
  
• School is actually going forward, but slowly.
  
• Decreased 401(k) to 3% match to favor my IRA

Goals Update

• Review
• Financial
• Credit card debt totaling $0 (No change) ("deadbeat" credit card balance isn't counted. That card is paid off every month) (goal $0)
• Loan debt totaling $0 *GOAL REACHED*
  
• Loan debt totaling $0 *GOAL REACHED*
  
• Car loan totaling $17,410.44 (down 1,038.02)
  
• Emergency fund totaling $7,500 (up $236.24) (goal $7,500) *GOAL REACHED*
  
• Roth IRA contributions to date: In savings, $1,527.58 (down $2,063.16), invested in Roth IRAs, $3,450 (up $3,150)(goal $10,000)
• Charitable
• Total hours volunteered: 39 (goal: 100)
  

Our emergency fund is now fully funded, and the money that was going from my paycheck into that fund is now directed towards our IRAs, meaning that I'm now allocating $668 per month into our IRAs. That extra cash means I will very easily make my goal of half funding our IRAs this year, so I've raised the bar. I want to max our IRAs this year. It would make a great start, and it would be a worthy investment. To that end, I've decided that we should make the minimum payments to our car loan. The interest rate on that loan is low, and the expected tax-free return on the Roths is much higher.

I'm still continuing to review my asset allocation plan before it's fully implemented. I'm considering taking 5% from each of the actively managed international funds (PRIDX, TIVFX), and getting 10% into an investment grade bond fund as well, probably VBLTX. It will increase my stability with a low chance of decreasing my return.

So, now we're just focusing on cutting costs where we can, and spending our money smartly. If we keep this up, I have high hopes for our futures.

Asset Allocation: A Primer

I mentioned in my last post my asset allocation plan. I've been aware of the concept of asset allocation for a while, but I didn't really know all the details until I started reading "All About Asset Allocation". So, I'm going to try to sum it up here.

Nobody can predict the way the stock market will go. Sometimes, you can make a prediction, and have it be correct, or get lucky, but you have the same information and chance that a fund manager does. A fund manager has education on their side, but they're human too, and they won't be right all the time. Overall, funds in the long run follow the market, but they have higher fees. This is an application of the random walk theory. So, if you want to follow the market and have low fees, index funds are the way to go.

But, there's a prediction problem here too. Which sector or index is going to do well? Every market has good years and bad years. Do you really want to put all of your money into a fund that only invests in 1 kind of stock? A smart investor would invest in more than one market so that his money is diversified. So, the portfolio I created has many different sectors, sizes, and markets that it invests in.

But, not every fund will act the same. Some will go up, some will go down, some will correlate well with others, while some will do their own thing. What if, in a year, my percentages are all different than when I began?

A good asset allocation strategy involves rebalancing. I would sell the excess fund that did well, and use the money to buy from the fund that lost money. The price of the respective funds don't matter, because I'm doing everything as a percentage of my own portfolio.

What does this achieve? There's an old saying: Buy low, sell high. Well, when I'm selling the fund that made extra money, I'm selling those shares for more than I purchased them for. This is the "sell high" half. Then, I take that money, and purchase the fund that costs less then I originally paid. That's the "buy low" half.

There are 2 main theories to rebalancing. One has better performance, but requires extra work and maintenance, and the other requires less work for slightly less effect.

• percentage based: When one of your assets deviates a preset percentage from your ideal, you rebalance. Works slightly better overall, but you have to be constantly keeping track.
  
• time based: Rebalance after a specific period of time, say, quarterly, or annually.

Which is better? Depends on your style. I'm a fiddler. I love to tweak this, adjust that, change things up a lot. I'm opting to rebalance on percentage, and I'm choosing a relatively low limit: 2%. So, the instant a fund hits 8% or 12%, I'm rebalancing. If I didn't want to think about it until the next year, I would use the other method.

So, in a nutshell, that's asset allocation. I like the concept. I love the fact that it's not depending on somebody else to have better knowledge than me. It's just pure statistics at work.

My asset allocation plan

I've been putting together an asset allocation plan for mine and Mrs. Dreamer's IRAs for a while now. We have a good amount socked away especially for investment, and it's best to make sure that your portfolio is balance all across the board.

First, my investment plan. I plan to take full advantage of any and all tax advantaged funds before opening a full brokerage account. Here's that plan: The idea is to start at the top, and contribute at the next level only if the previous level is maxed out.

1. 5% into 401(k) and TSP plans. The combination of tax savings and employee matching make these especially appealing. The 5% number keeps my tax bracket from accidentally crossing that borderline.
   
2. Roth IRAs. Both Mrs. Dreamer and I are very young (mid 20's), and the tax exempt growth is an unbeatable deal. Plus, putting after tax dollars in there is like putting an extra 15% on top of what I could have put from a traditional IRA. If our income ever breaks the income limit, we'd open a traditional IRA.
   
3. 529 plan. We don't have kids now, but we may in the future, and the earlier we start saving money for college, the better. We do have a niece whom we could give the money to if we decide not to have kids.
   
4. increase 401(k) and TSP up to 15%. If the day comes that I can max both Roth IRAs and have money left over, obviously I could be saving more in taxes from that money. 15% is the max for my 401(k)
   
5. increase TSP up to 100% (minus allotments). The max for TSP is 100%. I would need to determine how much would pay my SGLI (life insurance) and any other allotments, then contribute the rest to the tax deferred TSP.
   
6. Brokerage. If I've maxed all my retirement plans, tucked away money for college, and still have money to invest (wouldn't we all love that), THEN I'll look at a regular brokerage. Why pay capital gains and earnings taxes if you don't have to? If I ever reach this point, I'll gladly pay those taxes, but until then, I need every penny I can get.

Now, for the asset allocation plan. Much of the inspiration for my asset allocation comes from the investment advice provided at FundAdvice.com, combined with the advice of the investment advisors from USAA.

401(k): The 401(k) at my work just got a huge makeover, and it's much, much better. Before, there were no mid-cap or small-cap offerings, a majority of large-cap, some international, an S&P 500 index tracking fund, and some "balanced" (asset allocation) funds. They got rid of some of the large-cap in favor of a mid-cap value, mid-cap blend, and small cap value fund.

• 50% Fidelity International Discovery (FIGRX), International blended
  
• 10% Fidelity Equity Income (FEQIX, Large cap value
  
• 10% Fidelity US EQ Index Pool (no ticker), S&P 500 tracking fund, large cap blend
  
• 10% Columbia Acorn Z (ACRNX, Mid cap growth
  
• 15% Keeley Small Cap Value (KSCVX, Small cap value
  
• 5% Fidelity US Bond Index(FBIDX Intermediate Bonds

TSP: The TSP plan has a weird setup, but luckily, Paul Merriman had an artice about it that helped. Both Mrs Dreamer and I have a TSP account.

• Dreamer
  
  • 30% C fund (S&P 500 index)
    
  • 30% S fund (Wilshire 4500 index. Combining the S and C funds invests in the top 5000 companies in the US as a whole)
    
  • 40% I fund (International fund)
  
  
• Mrs. Dreamer
  
  • 10% F fund (Fixed income fund, tracks Lehman Brothers U.S. Aggregate bond index)
    
  • 10% G fund (special treasury securities specifically made for the TSP)
    
  • 24% C fund
    
  • 24% S fund
    
  • 32% I fund

Roth IRAs: For the purposes of asset allocation, both mine and Mrs Dreamer IRAs are included in the plan. This is the plan for overall funds we will hold.

• 10% Vanguard 500 Index (VFINX), Large cap blend
  
• 10% Vanguard Value Index (VIVAX), Large cap value
  
• 10% Vanguard Small Cap Index (NAESX), Small cap blend
  
• 10% Vanguard Small Cap Value (VISVX), Small cap value
  
• 10% Vanguard REIT Index (VGSIX), Real Estate Investment Trust (REIT)
  
• 10% Vanguard Vanguard Developed Markets Index (VDMIX), International large cap blend
  
• 10% Vanguard International Value (VTRIX), International large cap value
  
• 10% Vanguard Emerging Market Index (VEIEX), Emerging markets
  
• 10% Tocqueville International Value (TIVFX), International small cap value
  
• 10% T. Rowe Price International Discovery (PRIDX)

, International small cap growth

I estimate it will take about 5-6 years to set up this asset allocation plan. Once it's up though, I will only need to rebalance occasionally, and let the diversification work for me. Plus, once all the funds have their initial investment ($3000), I can either use dollar cost averaging for my remaining contributions until retirement, or use the yearly contribution to rebalance, depending on if I have the cash available all at once, or over a period.