Financial Frontlines®

The Savings Deposit Program (SDP) is a great way to earn a guaranteed 10 percent return on your money while deployed in a combat zone, qualified hazardous duty zone or contingency operation.  This rate is extremely attractive, especially since the Federal Reserve has continued to cut short-term interest rates (including another cut on April 30th, see related story here: Fed Cut Rates Again).  The SDP rates are ten times higher than most bank savings accounts and 3-4 times higher than most high-yield deposit accounts available at internet banks and credit unions.
 
The SDP is easy to start and stop, with interest accruing starting with the 31st day of deployment and continuing for up to 90 days after the end of deployment, at which time the money must be withdrawn from the account.  Program highlights include:

• Qualifying service members can deposit up to $10,000 in the account during a single deployment via military pay allotment or cash contributions.
• Allotments must be made in $5 increments.
• Deposited money earns a 10 percent return, compounded quarterly, starting with the 31st day of deployment and ending 90 days after the deployment ends.
• The money stays in the account until the deployment ends (although certain hardship withdrawal provisions are possible).
• If the service member is already deployed and doesn’t have access to a pay specialist, an agent (spouse, parent or other family member) with a special power of attorney can start the allotment.
• IMPORTANT: Interest earned on the deposited money is subject to income taxes, but the tax impact for the year is likely to be minimal unless the deployment is very short.

With interest rates near historical lows and the stock market going through a very volatile period, deploying service members should strongly consider this useful tool. 

Visit Savings Deposit Program for more information or contact your unit financial specialist to sign up.

Happy Savings!

Part 2 — The Self-Inflicted Wound G&F (Greed and Fear) syndrome in practical terms means you buy when things look good and sell when things look bad. The “C” fund in the TSP looks too good to pass on when it is returning 15%. So you buy; probably after selling another one of your funds that’s tanking. Bottom line, you bought high and sold low. (Ummmm, isn’t that the opposite of how the old saying goes?)

Eventually, the “C” fund goes over the top and the returns won’t look so good and another fund will be peaking. The process starts all over. Now you sell the “C” fund at the bottom (after buying it at the top) and you buy another fund at the top. And so it goes into the future.

Goodbye investment returns. Greed got you to buy high and fear got you to sell low. Emotions have no place in investment strategies. You have to use knowledge and history to formulate your investment game plan. Make your plan completely emotionless.

There is always a reason for not investing or for changing your holdings in most peoples’ minds. Think back to all that happened during the 1900s. Two world wars, great depression, cold war, nuclear weapons, USA-USSR relations, Mid-East relations, Korea, Vietnam, 1973-1974 economy, late 1970s inflation and interest rates, Iran hostages…got it? There were plenty of highs and lows in the stock market.

When was the best time to invest? Always. How many times have you thought, “Gee, I wish I could have bought Wal-Mart in the 1980s?” Well, you didn’t say “gee.” The point is the people who bought Wal-Mart in the 1980s held on to it and now you envy them. They didn’t float in and out of it like the people who buy and sell their holdings based on greed and fear.

The problem with buying low is that people would rather have their tonsils taken out by the Jack the Ripper than buy investments when the market is taking a beating. I was practicing after 9/11. Trying to get people to invest after that was like building a house in a hurricane.

It turned out that 2002 was an outstanding time to buy as the market was full of fear. “…be fearful when others are greedy and greedy when others are fearful.” You can’t beat a good Warren Buffett quote at this point. Understand the nature of the stock market and you will know thy enemy. Knowing your enemy allows you to establish appropriate plans of attack.

Go To Part 3 – Know Thy Enemy

Part 1 — The Average Investor
He is fixated on his Thrift Savings Plan (TSP) or on-line investment account. Always looking for the better money making purchase…the fund with the highest return…a fund noted in a money magazine…the hot new fund his bud mentioned to him. Have you met the lady who is constantly looking to dump her underperforming funds or stays parked in the most conservative funds to play it safe?

These are the average investors with the self-inflicted wounds. These people are wiping out their investment returns. It’s time to just say “No!” to self-inflicted investing wounds.

You have one career-lifetime to earn and save enough so that one day you can buy your freedom from the workaday world. You know the future where you do what you want, when you want, how you want. You can’t afford to foul-up your one chance to get your savings plan right.

Every time you make the wrong move, your financial plans and your future life suffers a setback. Just ask all those investors who took a beating after the Dot-Com bubble burst in March 2000 if they wished they had been more disciplined investors.

Setbacks cause you to:

1. Save more,
2. Work longer, or
3. Eat cat food in retirement to make up for your mistakes.

Saving more isn’t usually an option, working as a senior will be a drag and cat food…well that’s just plain gross, but you know what I mean. Oh, the average investors will blame the stock market or the crazy economy or the President/Congress or the world situation… The reasons for their bad portfolio results are as numerous as there are people with imaginations. Boil it down and these people all use an investment strategy that is well known and widely used. It is called the strategy of greed and fear, here after to be known as G&F syndrome.

When I was practicing, these folks used to tell me (as they pointed and shook their figure at me like my mom used to…often) that’s why they didn’t trust the stock market. “See, I told you that stock market will burn you every time.” Not exactly ma’am. You see the market didn’t burn you, you burned you. How you ask…

Go To Part 2 – The Self-Inflicted Wound

By popular demand, we are launching a blog designed to support active duty, National Guard and Reserve service members and their spouses in all financial matters. We will provide timely advice on smart money moves, stretching your paycheck as far as possible in these challenging financial times, common pitfalls in retirement, college planning for kids, estate and insurance planning and how to maximize your military benefits. We will also be commenting on national and international financial issues, stock market moves and other issues that may affect your bottom line.

In addition to MOAA’s expert staff of benefits specialists and certified financial planners, our readers will benefit from the knowledge of guest bloggers from several of our key partners, including USAA, Pentagon Federal Credit Union and others.

We welcome your comments on military pay, military benefits, special military deployment programs and general financial issues such as budgeting, debt repayment, college savings, retirement savings, insurance planning and estate planning.

If you have questions or want additional information, call or write MOAA at 1-800-234-6622 or email at beninfo@moaa.org.  Submitting a question through the comments on this blog will not necessarily get you an answer.  Comments on this blog are considered social networking and not official contact with MOAA.

You must be a MOAA member if you are eligible for MOAA…former officers, retired officers, currently service officers.

If you are not eligible for MOAA, we would appreciate your consideration of our affiliate organization, Voices for America’s Troops.

 Thanks for reading!

Disclaimer: The information contained in this blog is for general financial education and should not be construed as individual financial advice. Although some of the contributors are Certified Financial Planner (TM) practitioners, blog entries and subsequent discussion should not be considered individual financial advice and/or solicitation for business. Please consult your own financial, tax or legal advisor prior to applying any principles herein to your own financial situation.