Throwback Thursday Classic Post – Step 4 to Crush the TSP – Invest

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You’ve read steps 1, 2, and 3 to crush the Thrift Savings Plan (TSP), and now you’re ready for step 4 and to start investing. In step 3 you came up with your desired asset allocation, so make sure you have that. You’re going to need it for the rest of the post. Just to make life a little easier, we’re going to use an example asset allocation of 80% stocks and 20% bonds.

Bond…James Bond

For the bond portion of your asset allocation, you only have two investment choices:

  • G Fund – US government bonds (specially issued to the TSP)
  • F Fund – US government, corporate, and mortgage-backed bonds

Both of these are US bond options, which is just fine. There are no international bonds available in the TSP.

We could have an intellectual discussion about the subtle differences between these two bond funds, but we’re not going to. It isn’t necessary. They’re both fine bond funds, so just split the difference, diversify, and put half of your bond allocation in the G fund and half in the F fund.

To illustrate, in the example allocation of 80% stocks and 20% bonds, we’d put 10% in the G fund and 10% in the F fund.

That’s it. The bonds are done.

The Stock Allocation

This is a little more complicated. The largest decision you have to make is how you’re going to divide your stocks between the three options. Here are your choices:

  • C Fund – stocks of large and medium-sized US companies
  • S Fund – stocks of small to medium-sized US companies (not included in the C Fund)
  • I Fund – international stocks of more than 20 developed countries

The first question is what percentage of your stock allocation should go to the I fund. There are a few schools of thought on this.

John Bogle, the founder of Vanguard, is famous for believing that you don’t need to invest any of your stocks in international stocks. His long held belief was that the US companies are doing business globally, so they are already worldwide diversified. For example, Coca-Cola is clearly selling Coke products all over the globe. He would say you should put 0% of your stocks in the I fund.

At the other end of the spectrum are people who believe that you should invest proportionally. If you look at the worldwide value of stocks, it is about a 50/50 split between the US and the rest of the world. These people would say you should put 50% of your allocation in international stocks.

Both of these opinions are reasonable, so anything between 0% and 50% allocated to the I fund is fine. What do I do?

I rely on the research done by Vanguard, an institution managing over $5 trillion. I figure they have more money and resources to research this stuff than I do. What does Vanguard do?

If you look at their Target Retirement Funds, which are meant to be a “one stop shop” kind of investment fund, you’ll notice that they split their stock allocation so that 60% is US and 40% is international. They used to do it 70% US and 30% international, but their research showed 60/40 to be a better split so they moved to it a few years ago.

You’ll notice that a 40% international allocation is between the 0% Bogle viewpoint and the 50% global weighting viewpoint, so it seems fine to me and that is what I do.

If you want another opinion, you can look at the TSP Lifecycle funds. You’ll notice that they do about a 70% US and 30% international split, like Vanguard used to do. Again, that seems reasonable.

Ultimately, you can pick anywhere from 0% to 50% and find someone really smart who agrees with you. I’d encourage you to have some exposure to international, so I’d say you should pick at least 20%, but it really is up to you.

Not sure what to do? Go with 30% (the TSP Lifecycle approach) or 40% (the Vanguard approach) for the I fund and call it a day.

How to Split the C and S Funds

This is easier, or at least I think it is. The C fund is basically an S&P 500 index fund of large companies, with the S fund having the rest of the small and medium sized companies. If you want to mirror the US stock market, you want to put about 75% of your US stock allocation in the C fund and the other 25% in the S fund. You’ll notice that this is what the TSP Lifecycle funds do, further backing up my assertion.

So, I recommend that you split your C and S fund allocation 75/25, respectively.

Putting the Stock Portion All Together

For the stocks, here’s the math:

  • (Your desired international stock %) X (your total stock allocation %) = % that goes in the I fund
  • (Your total stock allocation %) – (% you are putting in the I fund) = % you must divide into the C and S funds
  • (Your % you must divide into the C and S funds) X 0.75 = % that goes in the C fund
  • (Your % you must divide into the C and S funds) X 0.25 = % that goes in the S fund

Let’s use the 80% stock and 20% bond example we started with to illustrate. Let’s assume we’re going with a 40% desired allocation to international (like I personally use):

  • (Desired international stock = 40%) X (total stock allocation = 80%) = 32% goes in the I fund
  • (Total stock allocation = 80%) – (32% that is going in the I fund) = 48% we must divide into the C and S funds
  • (48% we must divide into the C and S funds) X 0.75 = 36% that goes in the C fund
  • (48% we must divide into the C and S funds) X 0.25 = 12% that goes in the S fund

That gives us a stock allocation of 32% I fund, 36% C fund, and 12% S fund.

The Bottom Line

We split our bond allocation 50/50 between the G and F funds. We put the desired percentage for international stocks in the I fund. We split the remaining stock allocation 75/25 between the C and S funds, respectively.

For the 80% stock and 20% bond portfolio we are using as an example, this plays out:

  • 10% in the G fund
  • 10% in the F fund
  • 32% in the I fund (based on a hypothetical 60/40 US/international stock split, which can vary as discussed above)
  • 36% in the C fund
  • 12% in the S fund

This can be tough to grasp in a blog post, so if there are questions or points that need clarification just put them in the comments section and we’ll straighten them out.

The next step you need to crush the TSP is to decide if you’re going to go Roth or traditional.

Spend Your FY20 CME and Board Certification/MOC Money Now!

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Due to COVID-induced limitations on travel, the Medical Corps has some remaining FY20 funds to support reimbursement of Maintenance of Certification (MOC) fees, Non-BSO-18 CME fees as well as board certification fees.  As these are FY20 funds, the requests for reimbursement must be submitted to the CME funding email address (usn.bethesda.navmedprodevctrmd.mbx.nmpdc-cme-funding@mail.mil) NLT COB 21 SEP 2020 and one must pay the MOC fee/take the exam/attend the CME event NLT 30 SEP.

New Medical Corps Promotion Checklists

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There have been a lot of questions about the new Medical Corps Career Path and how to navigate it. Trying to keep things as simple as possible, I translated the path into promotion checklists for LTs, LCDRs, and CDRs. If you are wondering what you need to do to promote to the next rank, check out the appropriate checklist below (which I’ll also add to the Promo Prep page):

If You Rent or Live on Base, You Need Renter’s Insurance

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“If you rent an apartment or house, the idea of buying renter’s insurance…may not have crossed your mind. But it should have.” – Get a Financial Life: Personal Finance in Your Twenties and Thirties 

It makes sense that if you rent you might need renter’s insurance. If you live on base, though, you might need it as well. For example, the Navy changed policy for people who live in Public Private Venture military housing. Renter’s insurance used to be included, but now it is not. The Air Force did the same in 2015. And as you can read in this Navy article, “All Sailors are encouraged to obtain renters insurance, however, regardless of where they choose to live.” The same is probably true for all others in the Department of Defense.

What is renter’s insurance?

Your landlord’s insurance won’t cover your personal belongings like furniture, clothing, and electronics if they are stolen or damaged. For that you need renter’s insurance, which protects your belongings and offers liability protection, similar to homeowner’s insurance used by homeowners.

The liability protection might be needed if someone injures themselves in your apartment and you are held liable. The renter’s insurance could cover their medical bills and any legal costs you have.

In addition, some policies will cover your expenses if something happens to your apartment/home and you cannot live there for a period of time.

What doesn’t renter’s insurance cover?

This will vary from policy to policy, but in general renter’s insurance will not cover flood damage. To find out if you are in a flood zone and need insurance, go to FloodSmart.gov. It might not cover tornado or earthquake damage either, so you’ll need to check. For info on earthquakes, go to EarthquakeAuthority.com.

Are there limits to the coverage?

As you might imagine, yes, there are limits. Your policy will provide insurance up to a certain amount. It could be $50,000 or $75,000 or whatever you pick and are paying the premium for.

In addition, each policy will either provide coverage for the current cash value or replacement costs. For example, assume you have a $2,000 computer that is 3 years old and is damaged in a fire. A replacement cost policy would give you whatever it costs to replace the computer with a new one, somewhere around $2,000. A cash value policy would only give you what the 3-year-old computer is actually worth, which is likely to be significantly less than $2,000.

Certain items, like expensive jewelry, often have a cap on their coverage. For example, if you have $5,000 of jewelry your policy might only cover up to $1,000 of it. If you want coverage for a particularly expensive item or items, you may need to purchase a “rider,” which is an additional coverage on the policy for specific items like jewelry, electronics, or fine art.

How much liability coverage do you need in your policy?

You should have at least as much liability coverage as your net worth. If you have a net worth north of $500K, you would need to purchase additional liability coverage in the form of umbrella liability insurance.

Do you always need renter’s insurance?

“What if you figure your personal possessions aren’t worth that much or replacing them won’t cause that much of a financial burden? If that’s the case, you may want to skip renter’s insurance – unless your landlord insists you get a policy as a condition of renting the apartment.” – Jonathan Clements Money Guide 2016 

Even if this is true, though, you may need the liability coverage.

How can you make it less expensive?

There are a few ways you can reduce the cost of your renter’s insurance:

  • Have as high a deductible as you can afford. Your deductible is the amount of money that you must pay before an insurance company will pay the rest of the insurance claim. In other words, if you sustain $2,000 of damage and your deductible is $500, then you would have to pay the first $500 and the insurance company would pay the additional $1,500. The higher your deductible, the cheaper your insurance policy is.
  • Make sure you shop around, as prices will vary. I’d check out:
  • Think before you file a small claim. If you have a $700 loss but a $500 deductible, you could get $200 from the insurance company if you filed, but they would probably see you as a higher-risk customer since you filed a claim and raise your rates, costing you much more than $200 over the long haul. Only file claims that are large losses you can’t afford.
  • Ask about special discounts for safety features of your rental property like smoke detectors, fire sprinklers, security alarms, doormen, etc.
  • Get multiple insurance policies you need from the same company. If you get your auto and renter’s insurance from the same company, you could get a discount.

Division Chief, Hearing Center of Excellence, Research and Development Directorate (J-9), Defense Health Agency – O5/O6

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They are looking for an ENT Surgeon, Neurologist, Flight Surgeon, or Occ Med Physician to fill this position:

Anyone interested in applying needs to send me their CV and military bio by COB 25 SEP 2020 at joel.m.schofer.mil < at > mail.mil.