extra $ - any experience with USAA for investing?

[sknight]

I realized the other day that I've built up a pretty decent chunk of extra money (~$50K) sitting in my basically no-interest-gaining checking and ING accounts, and I'm trying to figure out what to do with it. I already max out my 401K and Roth, and have an Emergency Fund (no CC or car debt). The other day I put $10K of it as extra principal towards my mortgage in the States (6.1% interest, ~$140K left), but to be honest I'm not sure that's the right place -- although at least then the money is doing SOMETHING, compared to just sitting in my account! I've been thinking about investing in a non-IRA MF of some kind, or using a financial planner or something... But I could use some input! As a caveat, I'm a DoD Civilian stationed overseas - so it's not as easy as just driving down to my local Edwards Jones to talk with someone! A colleague recommended USAA - does anyone have any experience with USAA for investment purposes? (I use them for my insurance) Or other ideas for me? Many thanks for your feedback!

[sknight]

and to add...I am SO HAPPY to see these boards here! I used to be active on the MSN and WIR boards before I came overseas, and I was disheartened to find them all gone when I tried to reconnect this week. Thank you to whoever decided to make this leap! And it's WONDERFUL to see a lot of the same members - and even familiar threads - from a couple years ago!

[ModE98]

Welcome to our new home and boards. One or more of our members will soon catch your post and offer some sage advice over the weekend. Again, WELCOME, and be an active member and participate in any of our discussions that may be of interest to you.

[yclept]

There was some discussion on USAA on this thread: notmsnmoney.proboards.com/index.cgi?board=startinvesting&action=display&thread=2665
The people who use them seem to like them. I have no personal experience with them, so cannot comment further.

[mtntigger]

While I love USAA for just about everything, I'm not too fond of their funds and I don't care for how their setup is on buying individual stocks.
You may want to send bonnap a personal message; I know that she recently went through the financial advisor option through USAA.

[sknight]

Thanks for the input - I'll drop bonnap a line too and see if she ended up going the USAA route or not. In general, does it seem like a good idea to put this extra cash into taxable MF, rather than dropping down the mortgage on my house (rented out)?

[architecto25]

USAA.........I've been a member of USAA since 1956 (for you mathematicians, that's 55 years). And I can honestly say, in all that time, I've never had a bad experience with them. I recall perhaps 15-20 years ago, Money Magazine called them "The best bank in America". My attachment to them has been for insurance purposes (cars/boat/residences, etc.). My 3 children are active with USAA. Now for the other side of the story.. I've just never been excited about mutual funds, etc., and I've never gotten into financial investing with USAA; preferring to do it elsewhere, etc. Many years ago, I had a residence damaged in Houston due to a hurricane.... USAA treated me unbelievably fairly. So, I really didn't give you any good answers about investing with them.... whatever you do with them, it's probably better than elsewhere.....!

[henryclay]

I am also a long term USAA member. I am not as active as I might be with them, but I have never had a bad experience with them.

About 20 years ago I had a planner sit down with me and I can't say enough for his advice. I'll restate some of the high points that you might consider.

If you have that much cash sitting idle you need to do some forward thinking. With $140K still owed on your home, how long will it be before you get it paid off? You didn't say what the interest rate was but at 5% interest it is costing you $7,000 this year in interest. With 50K doing nothing, that's $2500 more in interest than if you put that 50K on the house. Put another way, if you moved the no interest cash to pay down the principal on the house note you would effectively be investing it at (in my example), 5%.

Apparently you have extra earning power, and kudos to you that you do, but to have that much cash in a no interest account needs serious study.

My primer on financial planning, that I have used since my session with the planner, says we need some cash set asides, but beyond that we also need to move to a cash basis purchasing plan, too. To do that we should start by leaving the credit cards at home when we go to town. Slam dunk. Leave the credit cards at home.

Next we need to ask ourselves, (realistically), how long during our lifetime will we be driving an automobile, and follow that up by asking ourselves how long will we be making monthly payments because the one we are driving is not paid for. Got some extra cash? Put it on the car note and get it paid off early. The realization that at some point in time our earning power is going to decrease has to be a factor. Keeping up with the Joneses is old hat.

Driving an automobile another year or two isn't that big of a deal, especially if you keep the spark plugs and oil changed, and don't put cheap gasoline in it to save a few pennies here and there. Those few pennies can add up to an awful lot of money when things go clatter clatter under the hood. And they will go clatter clatter if you put enough cheap gasoline it it and don't change the spark plugs and oil like the manufacturer says. There are a few other little things that are truly inexpensive, but if not attended to will cost megabucks later. To that end any number of guides on how to make an automobile last are readily available. And consider the Joneses for a minute. Do you really care what the Joneses think about how you got to the place you are supposed to meet them if you get there safely and on time?

After the automobile is paid for, it is wise to continue making payments into a transportation account toward buying the next one for cash. Think of how much interest can be saved by a plan like that. The problem seems to be that the transportation savings account gets robbed to pay for niceties that only serve so delay everything and lower the overall standard of living in the end. But if the plan is set up and used as planned you will be driving a later model car more often and it not only cost less but it will be paid for, because instead of you paying interest on the note the bank will be paying you interest on your transportation account.

Next is the house. After getting out from under all the other debts, put every last discretionary dime on the house. Each one of those dimes will be an investment at the interest rate of the mortgage itself. You won't see that interest on your bank statement, but you can look at the amortization schedule for the loan on the house and see how much interest you WILL NOT have to pay as the direct result. By putting a few dollars, and I do mean a few, on the mortgage can save years on the payment schedule, with the sooner yo start the more payments you won't have to make at the end. And after that you will have the house paid for and that means you will have earned the resulting equivalent of a pay raise, , , with no taxes attached.

And speaking of taxes, the majority of interest paid on mortgages today provides no tax break because the standard deduction is so high on tax returns that the interest payments are not enough to get a deduction anyway. And anyone with enough interest on their house payments to get a deduction on a tax return is the very person who needs to reconsider their approach to how they are using their income.

And lastly, everybody needs to have cash set aside. That need cannot be disputed. But there is a limit to being a smart planner and being a "smart" planner. One thing to consider is that when things turn completely sour, American dirt is always good collateral for a loan at the bank, and a history of having paid the house off early is worth a point or two in a smaller interest rate

USAA? They are solid, and ordinarily only deal in conservatives, but they will get you the riskiest thing on the market if you insist.
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[IPAfan]

Stocks have gone up quite a bit. There are still bargains out there, but in general the markets are not a screaming deal.

With $50,000 there are some opportunities for conservatively leveraged real estate that could make you a decent return. You could buy a rental house, vacation house, or the right office building and earn a decent return. I've seen some scenarios where you could probably make a 15-20% return if you leverage with cheap debt. So you'd be looking at buying a $150,000-$200,000 investment property.

Obviously you'd need to do a lot of research, but if you can find a decent property that's fairly new and can yield 10% on the total cost, I think that could be a great investment. An office building might be an idea since you live out of the country.

[Jake 48]

welcome

[Deleted]

Sknight,

So my friends have left and I'm enjoying beautiful weather here in the So. Cal mountains. I don't think it gets any better than this!

We liked the USAA planner and the financial review process. They are not commissioned sales people but they do earn bonuses when the company does well. As you could tell from my thread we were way of whack on our asset allocation with nearly 20% of our net worth sitting in low yielding cash accounts. Also we are about a year away from DH retiring and we needed to rebalance our our 401ks and 457 to reflect that change.

Part of the reason we were sitting in so much cash was that BofA basically "fired" us as clients once the Merrill Lynch management realized that we were overseas. Because they don't have a license to sell securities in Germany they couldn't even let us keep our mutual funds because technically reinvesting in dividends qualifies as "selling". They could have handled the situation a whole lot better than they did including suggesting that we move our securities from a managed account to our existing self-directed account. But what really annoyed me was getting a letter giving us 30 days to move our money or they would sell everything and send a check for $800k to our P.O. Box in the States. We had been customers for over 20 years!

So we sold all of our mutual funds with BofA, closed a savings account with them and parked the money in USAA. We sat on that money for over a year because we really didn't know what to expect when we moved to Germany. Surprisingly we started adding to the pile because we were saving even more money since our move. That was a big surprise to us. I honestly thought we wouldn't be saving that much given that things in Europe are so much more expensive than in the US. So between the move, the crazy economy and DH's job under threat we managed to stockpile cash in excess of $600k in various accounts. I think we earned $200 in interest on that money.

Then at the end of January we were contacted by a wealth manager (WM) from USAA. Basically they were cold calling (actually e-mailing) members who were sitting on a lot of cash. Although technically we didn't meet their WM investible limit (I think it's $500k) they were doing outreach to their members thinking that the members may have had other assets that weren't at USAA. So it was a good call on their part and the timing was perfect for us. Since we have gone through the financial planning process before I was actually prepared to move a lot faster than the financial planner was, lol! I scanned and sent copies of all of our various statements via the secure mail server and I also gave her a link to our Net Worth IQ listing so she could look at our situation holistically. We set up a telephone appointment for 2 or 3 weeks later (DH had some work travel commitments and I had German lessons 3x week). We spoke for close to an hour with us clarifying information, discussing goals, the upcoming retirement, when we planned on taking SS, our pensions et cetera. Then about 2 weeks later she ran some scenarios (using the Monte Carlo methodology) based on our existing allocations and a recommended investment scenario. It was interesting because the actual yields weren't that far apart but the risk scenario with the recommended reallocation was significantly less. She ran a separate one which was even more conservative but we opted for the first one.

In the end we wound up buying $300k of 3 different USAA bond funds, paying off one of our houses (the one we are going to move back to when we return to the States) and adjusting our 401ks and 457. We had planned on continuing to reinvest in the bond funds but we were (unpleasantly) surprised by a 14k tax bill on March12th and a need to make estimated quarterly tax payments. Also DH's job situation got squirrelly again and we might be moving back by the end of the year vs next August. So we're loading up on cash again so we can have the maximum flexibility. We may be in situation where we are doing two remodels on two houses within six months.

Before buying into the bond funds I did drill through the Morningstar reports. They like most USAA mutual funds. 2.5 months later we're still happy with our decision. Although bond fund returns are low, we knew we needed that piece larger in our portfolio given our ages and the need to generate reliable investment income in the near future.

If you like you can PM me again and I'll give you our planner's info.

Hope this info helps.

[Deleted]

Also with respect to your mortgage pay off question, without knowing your whole financial sitution and your age it's hard to give advice. We wouldn't have paid off the house early other than our upcoming retirement and our expected large drop in income. I think keeping the money in the market working for you rather than paying off the mortgage early probably makes the most sense and gives you the most options. However you should look into whether you can refinance at a lower rate. Even if the property is non o-o (owner occupied) I think you should be able to bring that rate down to 5.25%. You'll have to run the numbers to see if it makes sense but get a refi quote from USAA as well. Their posted rate for an o-o SFR is 4.62% for a 30 yr fixed for .5 points. I would guess the non o-o rate will be about .50% higher.

[sknight]

Thank you all for the feedback - and advice! More info below, to address some of the questions...

Henryclay, the house is at 6.1% interest, I'm about six years into a 30-year mortgage (originally). I was thinking exactly like you described when I dropped $10K of the $50K on the mortgage last week -- not an incredible investment % but better than nothing, right? (but then wondered if it was smart, and didn't put the rest on it). I automatically put an extra hundred dollars on the mortgage monthly, and then 'chunks' whenever I happen to have the extra. You're also right though, that it shouldn't have built up quite like that. I have no credit card debt, own my '09 Tacoma full-out (and am hoping it'll last a lot of years!). No problem with the Jones', I tend towards the "still living like a grad student" mentality instead! In fact, part of why I have this extra pot right now is that I have allocated about $500 "travel" money in my monthly budget (I'm stationed in Europe for a couple years) and sadly never seem to actually go anywhere or use it...so it builds up fast! I have renters in the house now, which covers the mortgage -- but I always keep a decent emergency fund, because I worry about having to cover it if for some reason I didn't have renters... I haven't thought about additional property (beerfan), office building or otherwise -- I like the idea, but I guess I'd have to hire a property manager? (for some reason that seems scary to me). How do you decide if it's worth it to refinance the house or not?

Bonnap -- wow, that's crazy about BofA and the being-overseas thing...I haven't had that happen yet with Vanguard or Fidelity, maybe because of the APO box instead of a German address? (fingers crossed). Ummmm, I'm definitely not at the "wealth manager" level yet, but I'm working on it! Would they even actually talk to me? I just broke the $200K mark for retirement/savings, but that includes this $50(now 40)K that I'm asking about... Oh, and I'm 31, single, with a dog...does that change the paying-off-the-house bit?

[sknight]

:)And thank you all for the welcome!

[Deleted]

Sknight,

The funny thing is that we have maintained our AZ post office box these past two years so we still have a US mailing address. But I don't think you have to worry about Vanguard. Two months ago I rolled over a 401k to an IRA and they didn't have any problem. And DH's 401k is with Fidelity so no problems there either.

Ask USAA about getting a holistic financial review and see what they say. The whole "Wealth Management" gig is about having a dedicated person to you vs a team. Honestly we don't need that much help but the annual review is helpful especially as we're making the transition to retirement.

With respect to a refi; your balance is so small you'll have to run the numbers to see if it's worth it. And many lenders may not make a loan for less than 50K; there's not enough profit in it for them. But give USAA a call and find out what rate you can get and the closing costs. If you're planning on keeping the house for a while the general rule of thumb is that you should recover the costs of the refi within 2 years or it's really not worth it. I refied a house we own in the San Diego area from 5.75% to 5% just before we moved and I recovered the costs within 8 months.

Although I do like real estate and think there are some smoking deals out there I share your reluctance about buying while you are abroad. We have 5 properties; 4 of which I manage, one is in Vacation Rental Service. I'm currently in the US on my annual trip "home" but it's really the property trip. I'm here for two months (3 weeks is mostly fun). I've staggered my leases so that the two most active come up every other year so I don't have everything coming up at the same time. I've been very, very lucky in that my one set of tenants will be in our old SF Bay Area house 9 years and the last two new renters have been Marines who have responded to Craig's List ads I placed while I was in Germany. But I've been in the real estate racket for over 30 years and know what I want in a renter. I am underwhelmed with the help I got renting out my AZ house and my vacation rental property manager. Maybe I'm just picky but my observation is that there's not enough money in property management for a PM to devote enough time into doing a good job for a single property owner.

But you might be a good candidate for what another poster (Phil) over on the Your Money Forum did/does. He has pulled equity out of his house/rentals and has reinvested it in the stock market and has done very well. If you have a lot of equity in your house it might be the perfect passive investment for an overseas 31 year old. You might try a post to "Uncle Phil" in YM...Thinking about pulling equity out of my house and investing in the stock market? You'll get some interesting responses.