Author: Joel Schofer, MD, MBA, CPE
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Change in Catch-Up TSP Contributions and Finance Friday Articles
Here’s a cut/paste from the TSP announcement about a change for catch-up contributions:
Catch-up contributions will soon get easier
Starting in January 2021, we will make the catch-up process easier: if you’re turning 50 or older, you’ll no longer need to make two separate elections each year in order to take advantage of catch-up contributions.
Instead, your contributions will automatically count toward the IRS catch-up limit if you meet the elective deferral limit and keep saving. If you’re eligible for an agency or service match, contributions spilling over toward the catch-up limit will qualify for the match on up to 5% of your salary. Your election will carry over each year unless you submit a new election.
For 2020 catch-up contributions, you do still need to complete the current process and make a separate election. Check current contribution limits to make sure you’re on track this year.
Here are this week’s articles:
- Diagnosing Debt: Demystifying Interest Rates & Loan Terminology
- Does Dry Powder Work?
- Follow the Fed
- Investors Need to Become More Comfortable With Volatility in Their Portfolios
- What If The 4% Rule For Retirement Withdrawals is Now the 5% Rule?
- When You Have Enough, It’s Time to Help Others
- Why Own Bonds When Rates are So Low?
Throwback Thursday Classic Post – You Made CDR! Now What?
If you are one of the lucky people who made CDR, I have some things for you to consider:
- The next 2-3 years of fitreps may mean very little to your overall career. First, you are soon going to be in the most competitive group in the Medical Corps, Commanders scratching and clawing to make Captain. If you are at a medium to large command, no matter what you do as a junior Commander, you are likely to get a P (promotable) on your fitreps. That is just how it works for most commands.
- This first bullet means that now is the PERFECT time to do something “alternative” (off the usual career path for a physician) or take a position that you know will get you 1/1 fitreps or be part of a very small competitive group. Go to the War College. Take a senior operational job where you’ll get a 1/1 fitrep. Become a Detailer. Apply for fellowship because the NOB fitreps won’t hurt you as a junior Commander or Commander Select. Now is the time to do these type of things. You don’t want to wait until you are a few years below zone for Captain. When you reach this stage you’ll need competitive EP fitreps.
- After you are selected for your next rank is also a great time to move/PCS. Have you ever been OCONUS? If not, now would be a great time to go. You can PCS somewhere for 2-3 years and then PCS to the command where you are going to set up shop and try to make Captain. At OCONUS commands there is more turnover of staff, so major leadership jobs like MEC President, Department Head, and Director positions open up more frequently, setting you up to get a senior position when you return to CONUS.
- You may think I’m crazy, but it is time to start thinking about how you are going to make Captain. As I mentioned in the first bullet, getting a job that will make you a Captain is tough and competitive. Now is the time to do the things that will make you an excellent candidate for one of those jobs. Want to be a Residency Director? Maybe you should get a degree in adult or medical education. Want to be a Director? Maybe you should get a management degree like a Masters in Medical Management or an MBA. Want to be a senior operational leader? Now is the time to do Joint Professional Military Education I and/or II.
- Here is a list of the jobs that I think will likely make you a Captain. Read the list…figure out which of these jobs you are going to use to make Captain…and get busy preparing yourself to get them:
- Residency Director
- Department Head in a large MTF
- Director
- Chief Medical Officer
- Officer-in-Charge
- Major committee chair
- Medical Executive Committee President
- BUMED staff
- Specialty Leader
- Deployment requiring an O-5 or O-6
- Detailer
- Senior operational leader
- Division/Group/Wing Surgeon
- CATF Surgeon
- Amphib or CVN Senior Medical Officer
Optimally you’ll have the time when you are an O5 to do multiple jobs on the preceding list. For example, as an O5 I had been a Detailer, a Specialty Leader, Department Head, Associate Director, and CO of a deployed unit. My next step was to become a Director at a major MTF, and while I was a senior LCDR and CDR I obtained a Naval Postgraduate School MBA as well as achieved certification as a Certified Physician Executive to try and make myself a competitive candidate for a Director position. Ultimately, I became the Director for Healthcare Business at NMC Portsmouth.
Congratulations on making Commander…take a deep breath…and start thinking about some of the things I mentioned in this post. Before you know it you’ll be in zone for Captain.
What is an Expense Ratio?
Whether you are managing your investments by yourself or getting help, you need to understand one critical concept, the expense ratio of your investments. Every mutual fund and exchange-traded fund (ETF) that you invest in has an expense ratio, and keeping it as low as possible is key to your long-term financial success.
What is an expense ratio? An expense ratio is the percentage of a fund’s assets that is used for expenses. In other words, if you invest in a mutual fund with a 1% expense ratio and that fund makes 10% in 2020, you’ll only get a 9% return on your investment because 1% goes to pay expenses. The less of your return you use to pay expenses, the more you get to keep.
What is an average expense ratio? An average stock mutual fund has an expense ratio of 0.6% in 2019, but the expense ratios for mutual funds that are similar in their composition can vary wildly. For example, if you look at a list of Standard & Poor 500 index funds offered by investment companies, you’d find expense ratios as low as 0.04% (like the TSP C Fund) and as high as 2.43% (ticker RYSYX). While 2.39% does not seem like that large of a difference, keep in mind that costs last forever and that small differences compounded over years will cost you a lot of money.
Let’s pretend that when you are 25 years old your grandparents give you $10,000 to invest in an S&P 500 index fund for 50 years, during which you earn a 9.5% return. If you invested in an average mutual fund with a 0.6% expense ratio, you would have $683K. If you invested in the Vanguard index fund (another low cost S&P 500 index fund like the TSP C Fund) with a 0.05% expense ratio, you would have $902K. That 0.55% difference in the expense ratios cost you $219K! Small differences in expenses can make huge differences in long-term investment returns, so you need to pay attention to the expense ratios of your investments.
This difference is even more dramatic when you compare actively managed funds to passively managed index funds. Because actively managed funds have higher expense ratios than index funds, it is very difficult for an active manager to beat his/her comparative index over the long-term. This is why I invest 100% in index funds.
When you are picking your investments, keep in mind that you can’t control what happens to the market, but you can control which investments you choose and the expenses that they charge. Any time you are looking to invest in a mutual fund or ETF, you should search for similar funds and compare expense ratios, which you should try to keep below 0.5% (or even 0.25% if possible). Make sure that at a minimum you take a look at the Vanguard version of the investment you are considering since their expense ratios are among the lowest in the industry and they never charge extraneous fees, like loads. There is no reason to pay more expenses for what is essentially the same investment product. It could cost you A TON of money over the long-term.
USU Faculty Development Fall 2020 Newsletter
Here’s the newsletter, which includes the info on how to get a faculty appointment:
Election 2020: What Servicemembers Can and Can’t Do
Here’s a link to this article from MOAA:
Election 2020: What Servicemembers Can and Can’t Do
Here’s a summary from BUMED:
As we are in the middle of an election cycle, your BUMED Ethics Counselors wanted to ensure all hands have the most recent guidance concerning political activities. We encourage you to read the attached information, which includes guidance applicable to telework.
General reminders:
While teleworking, employees are on duty. Therefore, employees may not use their personal computer or personal mobile phone to participate in political activity, including sharing a partisan political party message or re-tweeting an endorsement of a political candidate.
Employees are prohibited from using Government-issued office equipment, email, and internet at any time for the purpose of engaging in political activities.
Active duty military members and further restricted civilian employees are prohibited from participating in partisan political activity. These employees may “follow” or “like” a political party or candidate running for partisan office, but they may not post links to, “share”, or “re-tweet” comments from a candidate’s or political party’s Facebook page or Twitter account, as such activity is deemed to constitute participation in political activities.
Service members must also be careful not to comment, post, or link to material that violates the UCMJ or Service regulations. For example, showing contempt for public officials or posting unprofessional material that is prejudicial to good order and discipline.
Please see the attached guidance for more information and examples of permissible and prohibited activities:
Finance Friday Articles
It takes a LONG TIME to compile all the articles for Finance Friday, and not that many people click on them, so I’m going to just start listing my favorites instead of my favorites plus the rest of the articles. Here are my favorites this week:
Joel Schofer's Career Planning Blog 