Permanent Portfolio using TSP

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

Post Reply
Indices
Executive Member
Executive Member
Posts: 245
Joined: Sun Apr 25, 2010 10:51 pm
Contact:

Permanent Portfolio using TSP

Post by Indices » Sun May 23, 2010 1:28 am

I've been modeling the permanent portfolio using the TSP for US government workers. I don't think it works too well, but my calculations might be off. The TSP does not offer long term government bonds, but only the F fund, which is sort of like Total Bond Market from Vanguard. There are no short term bonds, just the G fund, which sometimes underperforms cash, but outperforms it at other times. Here is what I have come up with:

25% F Fund
25% G Fund
25% GLD (held in taxable account outside TSP)
25% TSM (held in taxable account outside TSP)

I'm getting about .67% CAGR less than a standard PP over a 19 year period. Does that seem like a lot? I think the PP and the TSP might be incompatible. It figures, Harry was no fan of the government!  ;D
pplooker

Re: Permanent Portfolio using TSP

Post by pplooker » Sun May 23, 2010 9:33 pm

Doesn't the TSP offer a TSM fund of its own?  My understanding is that it's very similar to the Vanguard family of funds with much the same philosophy behind it, with a TSM fund and a Small Cap Index fund and an international index fund composing the entirety of the equity offerings.

The tricky parts with the Permanent Portfolio in a tax advantaged space with an employer benefit type plan seem to be gold and LT treasuries.  Now if it were me, I think the TSP is elegantly suited to my Variable Portfolio's approach and I'd just hold the VP in the TSP and the PP in my own accounts.  The TSP seems quite well suited for a Bogle like strategy so that's how I'd use it.  But that's just me and what I would do, and it doesn't answer the question.

I'd put the equity in the TSP and I think it's very reasonable to use the G fund as cash (it's my understanding the G fund consists of special issue short to intermediate term treasuries which are issued with a higher interest premium exclusively for the TSP) but I'm no expert. 

A lot of people have to use a Stable Value fund as cash, and I'd much rather have the G fund personally.  I think the C fund is a total stock index fund, I see no reason why that wouldn't work for the stocks.  In fact you could even do 20% C fund and 5% international fund.

Then you could open a Roth IRA, fill it with TLT or VUSTX or individual bonds, and I wouldn't mess with tax sheltering the gold component either.  I'd think that would work well enough.  It wouldn't even be that much hassle.

The only wrinkle is since you're on a government salary, depending on which government job you have of course (in my current area of study government salaries regularly trump private sector jobs), odds are you can afford to save a heck of a lot and the 5 grand you can stick in the Roth might not hold all your bonds.  In that case I'd fill it with LT treasuries as much as I could and take up the slack in the TSP with the F fund.  Is it perfect?  No, but it's the best you can do under the circumstances imho.
Indices
Executive Member
Executive Member
Posts: 245
Joined: Sun Apr 25, 2010 10:51 pm
Contact:

Re: Permanent Portfolio using TSP

Post by Indices » Mon May 24, 2010 12:18 am

pplooker wrote: Doesn't the TSP offer a TSM fund of its own?  My understanding is that it's very similar to the Vanguard family of funds with much the same philosophy behind it, with a TSM fund and a Small Cap Index fund and an international index fund composing the entirety of the equity offerings.

The tricky parts with the Permanent Portfolio in a tax advantaged space with an employer benefit type plan seem to be gold and LT treasuries.  Now if it were me, I think the TSP is elegantly suited to my Variable Portfolio's approach and I'd just hold the VP in the TSP and the PP in my own accounts.  The TSP seems quite well suited for a Bogle like strategy so that's how I'd use it.  But that's just me and what I would do, and it doesn't answer the question.

I'd put the equity in the TSP and I think it's very reasonable to use the G fund as cash (it's my understanding the G fund consists of special issue short to intermediate term treasuries which are issued with a higher interest premium exclusively for the TSP) but I'm no expert. 

A lot of people have to use a Stable Value fund as cash, and I'd much rather have the G fund personally.  I think the C fund is a total stock index fund, I see no reason why that wouldn't work for the stocks.  In fact you could even do 20% C fund and 5% international fund.

Then you could open a Roth IRA, fill it with TLT or VUSTX or individual bonds, and I wouldn't mess with tax sheltering the gold component either.  I'd think that would work well enough.  It wouldn't even be that much hassle.

The only wrinkle is since you're on a government salary, depending on which government job you have of course (in my current area of study government salaries regularly trump private sector jobs), odds are you can afford to save a heck of a lot and the 5 grand you can stick in the Roth might not hold all your bonds.  In that case I'd fill it with LT treasuries as much as I could and take up the slack in the TSP with the F fund.  Is it perfect?  No, but it's the best you can do under the circumstances imho.
This is good, except the G fund is not as good as holding some sort of short term bond. Remember, the returns for holding a short term bond are not just interest rates but also when its value increases on the secondary market. The G fund is not traded and all of its returns come from its interest rates. So in a deflation scenario, the G fund doesn't perform that well.
Indices
Executive Member
Executive Member
Posts: 245
Joined: Sun Apr 25, 2010 10:51 pm
Contact:

Re: Permanent Portfolio using TSP

Post by Indices » Mon May 24, 2010 1:59 am

Ok, I looked at the returns from 1988-2008 of the permanent portfolio and then substituted the G fund's returns for Short term bonds over that period. The TSP/Roth PP has a 7.61 CAGR, and the PP has a 7.54 CAGR over the same period, a difference of .07%. You have figured it out then! Thanks! The G fund's difference is miniscule. I didn't know you could use a Roth IRA with the TSP but that makes it work.

So in the TSP you use the C fund and G fund. In the Roth IRA you have TLT, and then gold in a taxable account. Great stuff!
Post Reply