Did you know that fewer than 1 in 5 military members stay in long enough to receive an active duty pension? Only 17% of servicemembers reach that milestone. Even if you do earn a military pension, it may not be enough to support you in retirement.
That means you need to plan your own retirement. A good place to start is with the military Thrift Savings Plan or an IRA. You could also contribute to a 401k plan after you leave the military, or start a taxable investment account. But where should you start? Which investments should you buy? And how do you measure your progress?
These are all great questions. Managing an investment portfolio can seem difficult, especially if you have more than one account. For example, my wife and I have an investment portfolio that contains two Roth IRAs, two 401k plans, two Thrift Savings Plan accounts, and a taxable investment account. In a perfect world, I would be able to consolidate those accounts, but at the moment, I can’t. So I need to find a way to manage them all without spending a lot of time or money. Thankfully, I recently found a free tool that helps me do just that.
Before I show you how I use the tool, I’d like to address some of the challenges many investors face when managing an investment portfolio. Then we’ll look at how to address those challenges so you can more easily adjust your portfolio, reduce your risk, and improve your investment returns.
Problems All Investors Face:
- Asset Allocation (mix of stocks, bonds, and other investments)
- Investment Fees
Let’s take a brief look at each of these problems, then I’ll show you how I solve them:
Asset Allocation: Where You Put Your Money
Asset Allocation is the mix of investments in your portfolio. This will often include investment types, such as stocks, bonds, Real Estate Investment Trusts, and other investments. The goal is to address your overall risk. I’m sure you’re familiar with the term, “don’t keep all your eggs in one basket.” This is where asset allocation comes into play.
Asset Allocation can be difficult when you have multiple accounts, such as my situation. One way to make this easier is to treat all of our investments as “one large bucket” instead of a bunch of small buckets. So if we decide we want an asset allocation of 70% stocks and 30% bonds across our entire portfolio, we can have some accounts that are 100% stocks or 100% bonds, so long as the overall portfolio averages out.
Investment Fees: When Less is More
Many people underestimate the importance of investment fees. A difference of only 1% can mean the difference of tens of thousands of dollars, or even hundreds of thousands of dollars in the long run. That is why my wife and I still have two TSP accounts – the TSP has some of the lowest fees you will find anywhere. It would cost us money to move the funds from the TSP to a new account.
One of the easiest ways to improve your portfolio’s investment returns is by slashing fees. Moving an investment from a fund with high fees to a comparable fund with lower fees can improve your portfolio’s performance overnight, literally saving you thousands of dollars. Check out this chart which shows how fees add up over time – it’s shocking!
Chart Assumptions: Two identical investment portfolios starting at age 25 with $10,000, annual contributions, a 5% annual return, and held until age 65. You can see the difference is over $250,000 – all from an additional 1% investment fee!
Taxes: Pay Now, or Pay Later
You will almost always pay taxes on your money. The question is when, and how much. Obviously the goal is to legally reduce how much you pay in taxes. That’s where retirement accounts such as 401k plans, Roth IRAs, the Thrift Savings Plan, and other retirement accounts come into play.
Some of these accounts, like Traditional 401k, IRA, and TSP accounts, allow you to contribute to your retirement fund before the money is taxed. It then grows tax-free until the day you decide to withdraw it in retirement, at which time it is taxed.
Roth accounts act the opposite way – you make contributions after your money has been taxed, then the funds grow until you reach retirement. Qualified withdrawals are tax-free. Which type of funds you place into each account can have a massive long-term impact on your investment portfolio’s performance.
Taxable investment accounts use funds that have already been taxed as income, the funds can be taxed as they grow, and you will pay taxes when you sell the investments.
How to Solve These Problems – Quickly & Easily
You’ll notice I conveniently neglected to show you how to address these three major investment issues. I do it with a simple, and free, tool called FutureAdvisor.
Here’s how it works:
- Sign up for a free account*
- Connect your investment accounts to your FutureAdvisor account (don’t worry, they use bank-level security!)
- Run the free Portfolio Analysis
- Review the recommended actions based on your profile
- Take action!
*FutureAdvisor is free, and there is no obligation. But they also offer a really cool premium version, which I’ll explain later. For now, I’ll focus on the value you can get from their free tool.
FutureAdvisor – Free Portfolio Analysis
I’d love to take a screenshot and walk you through the assessment from my investment portfolio, but that’s probably not the wisest thing to do. Instead, I’ll explain how it works.
First, open a free FutureAdvisor account, then choose your current age, estimated retirement age, and your risk tolerance (conservative, moderate, or aggressive). Here is a screenshot of the tool in action:
You will see a recommended target portfolio including a breakdown of types of stocks and bonds (domestic, foreign, large cap, small, cap, and everything in between). You will also see the projected performance of your target investment portfolio (just understand that projections aren’t a guarantee of future returns).
Next, connect your investment accounts. When you connect your investment accounts, FutureAdvisor will compile a list of all your investments and take many factors into consideration, including:
- The type of account (Roth, Traditional retirement account, taxable investments, etc.)
- The asset class
- Investment fees
- and more.
Then, FutureAdvisor recommends certain actions to improve your portfolio and potential returns. For example, most of my investments were already in low-cost index funds and ETFs, which FutureAdvisor recommends as a way to control investment management fees. But my asset allocation needed to be adjusted based on my risk assessment.
So the FutureAdvisor tool showed me specifically which funds to sell from each account, and which funds to replace them with. This made it quick and easy to bring my portfolio into balance without worrying about getting my portfolio out of balance, or messing things up with taxes. Very cool for a free software program!
FutureAdvisor Also Works with the TSP
One of the frustrations I’ve had with some investing software programs is they often ignore the Thrift Savings Plan. That’s not the case with FutureAdvisor. In fact, they recently updated their algorithms to specifically integrate the Thrift Savings Plan into their portfolio recommendations. This makes it much easier for military members and government employees to balance their portfolios, save on fees, and improve investment performance.
To use FutureAdvisor with the TSP, simply login to your FutureAdvisor account and enter your TSP login credentials. Again, FutureAdvisor uses bank-level encryption, so your information is safe. Once your data is synced, FutureAdvisor will perform a free portfolio analysis and make specific recommendations based on your situation.
FutureAdvisor Premium – Military Discount
As I mentioned earlier, all the previously mentioned features are free. This is the version I use to manage my investments. But I’m comfortable managing my investments and making trades on my own. If all of this is a bit over your head, or you don’t prefer to manage your own investments, then you may wish to consider FutureAdvisor’s premium service. Not only will they will perform all the same analysis for you, but they will make the trades for you. (The Premium Service also has additional features such as tax loss harvesting).
Military Discount. The good news is that FutureAdvisor is offering their Premium Wealth Management solution to military members and veterans for free for a limited time.
Here is the military discount currently offered by FutureAdvisor:
- 12 months free FutureAdvisor Premium – for all Active Duty military members. (Eligibility will be verified using the DOD Single Record Verification Website).
- 6 months free FutureAdvisor Premium – for all veterans and retirees. (Eligibility will be verified by review of form DD-214 – Certificate of Release or Discharge from Active Duty.) Includes National Guard, Reservists, veterans, and retirees.
You must begin the Premium enrollment process before Dec 31, 2014 to receive the discount.
Additional Bonuses for Military Members and Veterans
FutureAdvisor has also created a series of educational tools that will be hosted on their website. These include some upcoming webinars on “Personal Finance for Military members” and also a “Train the Trainer” webinar to help train supervisors and field commanders to help them educate their junior members about personal finance.
And of course, the aforementioned Thrift Savings Plan integration. FutureAdvisor has integrated the Thrift Savings Plan accounts into their algorithm in order to provide the most comprehensive advice for service members. This includes in-plan recommendations for the TSP—something they haven’t done for any other clients.
Try FutureAdvisor for Free. Overall, I’ve been very happy with FutureAdvisor’s software. It makes it easy for me to see how well my entire investment portfolio is balanced, and helps me look for ways to manage expenses and keep more money in my pocket. Visit FutureAdvisor to learn more or to open a free account.