Thinking about using the PP for intermediate savings goals

[Pointedstick]

I've got a financial goal for the intermediate term, maybe 2-6 years out. Right now I'm saving for it in a high-yield online savings account that's returning a paltry 0.8%. Being totally sold on the Permanent Portfolio, I've begun to toy in my mind with the idea of saving this money in a PP using one of the available funds, probably PERM. I can tolerate some capital losses since the amount I'm hoping to save isn't a hard-and-fast amount. Does anybody else do something like this? Does it sound incredibly foolhardy?

I know PERM is new and relatively untested, but I'm not a big fan of how heavily PRPFX is weighted toward inflation, and I don't like the high ER either. Also PERM trades commission-free at eTrade where I already have an account.

[0bserver]

I have been using the PP (UK version) for just such purposes for the last year.  So far its served me well, much better than I would have got from a bank account.  In the initial stages there was a period where I was very slightly down, but since then its done its job and crept up slowly and steadily, with pretty low volatility.  I definitely intend to continue using it.  I only wish I had started several years ago.

[shoestring]

I do this for open ended goals which do not have a set time frame other than being years away where I just don't know exactly how much I would spend but have a general idea.

Most of my saving is for things I will need in 2 years or less and I can put dates or at least months and years to them and I can also put dollar amounts to them.  When it is that well known I save cash.

The way I look at it, with a long term goal, it is important to preserve your purchasing power and be able to respond if something happens to make you alter that goal.

Buying a house is a good example.  It is a pipe dream and there are other issues at play tor the next 3 years at least.  It is something I save toward but I have no specifics in mind yet.

[dualstow]

I think of my treasury bills and notes as my savings.
The only savings account I have exists solely for the purpose of using the bank's penny arcade (coins-to-cash) without a fee.
So, if I've got a savings goal for 2-6 years, it's mostly 2- and 5-year-notes, and I don't worry about the low interest.
Now, the reason I own treasurys is the pp. Those shorter-term notes and all of the bills *are* my cash portion of my pp.

[Pointedstick]

Dualstow, the reason I don't do that is because I'm afraid it would unbalance the 25% cash allocation as I saved and spent the money. How do you deal with rebalancing when you save for intermediate goals using the cash portion of your PP? Or is your PP so huge that it's just a blip? Man, that would be nice. 

[Bean]

I've got a financial goal for the intermediate term, maybe 2-6 years out. Right now I'm saving for it in a high-yield online savings account that's returning a paltry 0.8%. Being totally sold on the Permanent Portfolio, I've begun to toy in my mind with the idea of saving this money in a PP using one of the available funds, probably PERM. I can tolerate some capital losses since the amount I'm hoping to save isn't a hard-and-fast amount. Does anybody else do something like this? Does it sound incredibly foolhardy?

I know PERM is new and relatively untested, but I'm not a big fan of how heavily PRPFX is weighted toward inflation, and I don't like the high ER either. Also PERM trades commission-free at eTrade where I already have an account.

I think this sounds great, I am a big fan of segregated accounts for different objectives (lots of ING accounts) and currently loath my savings accounts paying .8%.

I don't want to touch my primary or long term permanent portfolio, but I want to apply the same principles to intermediate savings goals. If you do this at least you won't be alone.  I just put in a limit order on E*Trade for PERM

[smurff]

Pointedstick, using the concepts from the PP for midterm (longer than a year or so) savings is okay if you like that idea. 

Investment is for long-term objectives (retirement, wealth preservation, children's/grandchildren's college education, legacy/bequests, etc.) whereas savings is for short- to intermediate-term goals (personal residence, car, boat, wedding, bass guitar, Transatlantic cruise, cooking school, etc.).

So if you were going to go the PP route for your savings, I would do as Bean suggests, and keep the savings in a separate brokerage or mutual fund account from your investments.  That way, there is no confusion and you won't be tempted to touch your investments, which otherwise might look the same as your savings.

Some financials services firms will allow you to have more than one account under the same name, or a single account in addition to a joint account, but it might be better to add diversity to your $$ by using a different brokerage where trading in ETFs like PERM might be free.  Especially if you can get in where they give you a bonus for signing up.

[kka]

I know PERM is new and relatively untested, but I'm not a big fan of how heavily PRPFX is weighted toward inflation, and I don't like the high ER either. Also PERM trades commission-free at eTrade where I already have an account.

Anyone know how PERM's 'Acquired Fund Fees and Expenses' can really be .01%, when 20% of the fund is PHYS (0.39% mgt fee), and 5% is PHAG (0.49% mgt fee).  Maybe it's a typo and should really be .1%?  If so, the total expense ratio wouldn't be all that different from PRPFX (0.58% vs. somewhere between .71% and .60% according to the latest PRPFX prospectus).

[sophie]

...I'm afraid it would unbalance the 25% cash allocation as I saved and spent the money.

I agree with PS here, although the 25% cash allocation serves as a decent cache for relatively small short term expenses (<10% of the allocation).  This forces me to consciously replace the money from new savings afterward.

Whether this might be wise or not I don't know, but I have been using PRPFX (now with EDV supplement) as intermediate-term, open end savings.  It started as my intro to the permanent portfolio, but after I set up my 4x25 PP it became a separate money pile.  Currently it's earmarked for home renovations.  It does have greater risk, but in my mind far less than holding money in cash with returns much less than inflation for several years.  Crucially, the expenses in question don't have to happen at a particular time - I can choose when to cash out the fund.

PERM would be a nice alternative but you might want to see how it fares in year 1 first, how tax efficient it will be, and whether the expense ratio stays at 0.48% (as reported on the global x website).  Also, if you're at Fidelity PRPFX is a no-fee fund while PERM isn't.

[Storm]

Pointedstick, I don't see anything wrong with doing this.  In fact, I use the PP not only for retirement, but also for those 2-5 year goals such as buying a house, which unfortunately I really don't want to do until Bernanke raises interest rates, due to their inverse correlation with house prices.

Basically, I just lump my money across 401k, IRA, and I have a regular brokerage account, and try to put bonds in the tax advantaged accounts.  It is all one big PP to me, and if I ever have to pull out $100K or so to buy a house, I'll simply pull from the brokerage account, and rebalance accordingly by selling some assets in the other accounts.

It really is liberating to be earning around 10% a year on everything, and I believe even Harry Browne approved of using the PP in place of regular savings, for the cash component.

The only thing I sometimes worry a little bit about is maxing out the I-bonds.  We've been doing that, but there is a 1 year time period before you can redeem them, so your money is not entirely liquid.  Luckily, we're now a couple years into our I-bond adventure so we are more liquid now.

I say go for it.  If it makes more sense for you to use the funds, I would recommend something like 95% PRPFX and 5% EDV.  The EDV seems to balance out the PRPFX volatility nicely, and if you're doing it in a taxable account, this combination is not too inefficient.