30 Day Financial Transition Challenge Day 18: Investment Management

Welcome to Day Eighteen of the “30 Day Financial Transition Challenge.”  Today’s article focuses on investment management, by building upon the information you compiled in Day 11 (Retirement Accounts) and Day 13 (After Tax Accounts).

Bottom Line Up Front (BLUF)

Today, we’re going to take a look and determine whether you feel confident managing your investments on your own, and determining your own asset allocation.  If not, are you willing to do the self-education and research, or would you rather work with a professional who can help on what right looks like to you?

Why? 

It’s relatively simple to set aside money for investments, particularly with the military’s Thrift Savings Plan.  However, when you exit the military, the sheer volume of investing options can become overwhelming.  Combine this with the number of financial ‘advisors’ offering to help roll your TSP into an IRA, it can be very daunting.

Improper investment management can cost thousands of dollars in the long run.  With proper time, dedication, and effort, just about anyone can manage their investments in a manner that meets their goals.  However, it takes a LOT of research to make sure that this is done in a low cost, tax-efficient, and effective manner that best meets the objective.  Before you sign on to do this yourself, you should make sure that you’re properly able to do so, and that you’re willing to put in the work to learn how to do this properly.  This requires an honest assessment of your entire transition ‘to-do’ list.

Goal 

Your goal should be to figure out:

  • How much you truly know about investment management.
  • How much you might need to learn about investment management.
  • What is your investment philosophy?
  • Have you defined your long-term goals? What does financial independence look like to you?
  • How do you know whether you’re on track, or if you need to make adjustments?
    1. How do you know what ‘on track’ looks like?
    2. What kind of adjustments do you need to make?
    3. Do you need to make adjustments to your goals, contributions, investments?

What you need

Information accumulated in Day 11 (Retirement Accounts) & Day 13 (After-Tax Accounts).

How-to

This exercise consists of a simple checklist of questions to help frame your approach.

  1. If you haven’t already, compile the information you accumulated in Day 11 & Day 13. This should help you better understand where you currently stand.  Mint and Quicken are good tools to use.
  • Pre-tax accounts (TSP, 401(k), Traditional IRA)
  • Post-tax retirement accounts (Roth TSP, Roth IRA)
  • Non tax-advantaged accounts
  1. Figure out how much you really know about investment management. This should include:
  • Tax efficiency
  • Diversification
  • Cost
  • Investment philosophy
  • Investing risks
  • Risk vs. Return
  • Types of investments

If you want a relatively simple way to gauge your investment knowledge, the Financial Industry Regulatory Authority (FINRA) has a 12-question quiz.

  1. How will you react when life happens? Do you think you need someone to help guide future decisions?
  • What happens if the stock market goes down 10%? Do you get upset?  What does your actual behavior look like?
  • Do you know what you would do if you got laid off from your next job?
  • What would you do if you got a $100,000 inheritance?
  • If someone pointed out that you’re spending too much money on your mutual funds (high fees, for example), are you sure you would make the right decision?
  1. Figure out if you’ve actually determined your financial goals. If you’ve figured out what you need, and you’ve already accumulated that much money, then your goals should probably focus on tax-efficiency, safety of capital, and inflation protection.  If you believe you’re at least 10-20 (or more years) from financial independence, then you might want to look at the best way for your money to grow over time.  Either way, your investment management philosophy should reflect your values and goals.
  2. If you’re uncertain, you might have to put in some work to figure it all out.
  • Do you have the time to put in this work?
  • If not, you might have to rely upon the help/advice of other people. In that case, who are you going to trust, and who are you going to turn to for help?
  • What is your plan to make sure that your decisions are fully informed in a manner that is consistent with your values?
  • If you plan to ‘do it yourself,’ when will you budget the time to actually do so? Where does this fit in your ‘to do’ list?

Conclusion

To wrap up, this is by no means a sales pitch to hire a financial planner.  However, this is your time to decide whether you’re going to put in the work to make sure you’re able to handle your own investment management (in addition to ALL the other challenges in your to-do list), or if you think you might need some help.   Just to recap, we’re going to figure out if you:

  • Feel confident that you know where you stand
  • Feel good about what you’re doing
  • Are confident that you can handle challenges
  • Need any help to make sure you’re on the right track

Tomorrow, we’ll discuss VA disability.  Whether you intend to file a claim as you exit the military, you still need to take some time to learn the process.  You might find it very useful immediately after leaving active duty, or years down the road when you discover a service-related illness, injury, or condition.

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About Forrest Baumhover

Forrest Baumhover is a Certified Financial Planner™ and tax professional. His firm, Westchase Financial Planning, focuses on the unique financial planning needs of servicemembers and families looking to separate or retire from active duty.

If you’d like to learn more about Forrest or his services, please check out the About Forrest page at the top of this article.

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One Response to 30 Day Financial Transition Challenge Day 18: Investment Management

  1. Pingback: 30 Day Financial Transition Challenge Day 17: Post-Military Life Insurance

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