Short term investment advice (3 years)

[jlow784]

Hello, hello everybody.

I have been browsing the forum for a couple of weeks now trying to get an understanding of TSP, how it works, which funds to invest in and so on. I came across the thread started by James48843 Brand new to TSP- or just starting... which was very insightful, and was wanting some good opinions and advice for my situation.

I leave in January for three years active duty in the army. I plan on only doing the three years and then getting out. My goal is to save up enough money to use as a down payment on the purchase of a house when I am discharged, maybe 30% of the total cost. :nuts: I don't currently have any type of investments set up; e.g. mutual funds, IRA - just a savings account. Is the L 2020 fund my best option? I want to concentrate on the home purchase for now, but after that I want to set up a Roth IRA and save for retirement.

 

[jkenjohnson]

Hello, hello everybody.

I have been browsing the forum for a couple of weeks now trying to get an understanding of TSP, how it works, which funds to invest in and so on. I came across the thread started by James48843 Brand new to TSP- or just starting... which was very insightful, and was wanting some good opinions and advice for my situation.

I leave in January for three years active duty in the army. I plan on only doing the three years and then getting out. My goal is to save up enough money to use as a down payment on the purchase of a house when I am discharged, maybe 30% of the total cost. :nuts: I don't currently have any type of investments set up; e.g. mutual funds, IRA - just a savings account. Is the L 2020 fund my best option? I want to concentrate on the home purchase for now, but after that I want to set up a Roth IRA and save for retirement.

Won't you be able to get a VA loan? They do not require any downpayment.

 

[jlow784]

Thanks, I was not aware of such a benefit. It may not apply to me though, because on Wikipedia it states "Eligible areas are designated by the VA as housing credit shortage areas and are generally rural areas and small cities and towns not near metropolitan or commuting areas of large cities." I plan on moving to the Phoenix area when I am out and not so sure that I will be able to take advantage of this offer. Even if I am able to I would still like to save up a nice amount of money to pay for a portion of a home up front. Would you advise the L 2020 fund?

 

[tsptalk]

Welcome jlow. If you want to save money, and it sounds like you are not getting matching funds from an employer, you may want to look elsewhere as the TSP has restrictions and it won't be as easy to get at when you need your money. I can see using it because it forces you to put money away automatically, but there would be other options outside of aretirement account. If you are getting matching funds then yes, the TSP is your best option.

Should you use the TSP, the L2020 is one way to go but the question is, do you want to save money, or invest? The next few years could be great, or it could be rocky for the market. Do you want to take that chance of a possible loss of principle with the potential for some extra gains, or do you want to guarantee that your principle will be there when you get out? Depending on the answer, I would probably either go all cash, or all stocks.

I guess we just need more info to help.

 

[Boghie]

JLow,

Tom is 100% correct. As is jkenjohnson. Nice to have resources like that.

I know of Marines and former Marines who have purchased houses with VA loans in San Diego. Only some parts of my fair city could provide background scenery for Deliverance. I could only dream of living in ths sticks though - that is where I like to go on my vacations... Basically, Wikipedia is surprisingly wrong.

To finances. Money being saved for a house should not be saved in any type of retirement account. Definitely not TSP or a Traditional IRA. Assets in a Roth IRA can be pulled out (the money you put in, not the growth) after something like five years - but why go through all that mess. Additionally, as Tom stated, money saved for a short time for a specified purpose should not be 'invested'. Imagine saving money in an S&P Index fund at Schwab starting in 2005. Now you found your dream house and want it as a Christmas gift in 2008. Your math tells you that you have saved $30K. Your account tells you that you've got $21K and it seems to be dropping every day. Put money allocated to the house in a money market.

On the other hand, money being invested for retirement should be invested not saved. The L2020 Fund is intended for a chap who will be driving his/her Winnebago to the KOA campgrounds around Phoenix. Maybe wheel around Phoenix in your blissfull golden years. Lawn bowling your life away. If that ain't you then the more years you have till retirement means that your investments should be more aggressive. That is, if you will turn 60 - 65 around 2040 than maybe the L2040 Fund should be used for your retirement. Who cares if your vast retirement account is $30K or $21K after three years - actually I care. But the fact that I care matters not, time is more important than money if you have the time

Happy Hunting

 

[jlow784]

Thanks for your honest advise and opinions everybody, I really appreciate it. It will certainly help me to accomplish my goals. It's unfortunate that uniformed services do not get the benefit of the matching contributions feature. It would really help. I'm glad to learn that Wikipedia is incorrect about the VA loan, because I'm sure that this can assist me very nicely.

You guys are right though, I am looking to just save for now and start investing a few years down the road. Is "go all cash" referring to putting money into my savings account and allowing it to accumulate? I went and researched a little into money market options. I think it would benefit me to open a money market account with my institution and take advantage of the higher interest rates, so thanks. I also learned about CD's and Treasury notes. I have gained a basic understanding of how these work, but would like to get your all's opinions on these two choices. I currently don't have a substantial amount of money to put towards either a CD or Treasury note, but after a year I think I could have a nice amount saved to establish one of these if it's a smart choice for me. Is this an all cash option as well?

 

[alevin]

As best I understand things at this point, yes, short-term CDs are close to being cash, and Tnotes bought from Treasury Direct are good as, also. Some people out there are saying Tnotes may be the better option right now.

 

[Birchtree]

Here's my simple solution. Open a Roth IRA and dollar cost average a position in SDRL (Sea Drill). It will pay you a 9% dividend yield while you build a position. Most dividends are paid every three months and are reinvested for free. After several years when you are ready take the cash you need - not the earnings though, the money will be available. This way you can build possible capital gains as well as accumulate cash via dividends. Snort.