Rebalancing "Flow" between Taxable and Non-Taxable Accounts

[John Matrix]

Hey everyone,

I'm new to the forum as a member, but I've read through many of the topics and I'm impressed with how knowledgeable many of you really are.

I first encountered the Permanent Portfolio about a year ago. I have read Harry Browne's "Fail Safe Investing" book and I'm currently getting through the new one that was just released by the resident experts of this forum (it's very, very good, by the way).

I'd say I'm 8-9/10's on board with converting my savings into a PP. I currently have ~$100k (~$22k in my 401(k), $45k in my IRAs, and ~$27k in my taxable account) that I can convert into a PP. The only reason I haven't done so yet is because I'm having a hard time reconciling how to efficiently rebalance between my taxable account, my Roth IRA, my Traditional IRA, and my 401(k).

My target portfolio allocation is:

1) Stocks - 401(k)
2) T-bills and bonds - IRAs
3) Gold - brokerage

However, any assets I place into my 401(k) (stocks) will likely balloon far quicker than my other accounts (except maybe my taxable account since it's completely discretionary) because I currently contribute 19% (7% company match plus 12% on top) of my pay into it every pay period. I don't know if it's because I'm not experienced with the actual mechanics of the PP or what, but I see this as problematic. If assets in this account grow beyond the 35% rebalancing band and I'm not able to use the proceeds from selling them to purchase struggling assets in my other accounts (because of the various tax restrictions currently in place) then I may end up with a lopsided portfolio.

Furthermore, as everyone knows the annual limit for IRA contributions isn't substantial so I may be unable to use this contribution to appropriately rebalance my expanding 401(k). I guess I could rely on my brokerage account as my swing account to keep my 25x4 allocation intact but I was hoping, in the spirit of tax efficiency, to use this account solely for my gold allocation.

Or, I could maintain separate PP's in each account to keep things as simple as possible (though at greater expense due to more reliance on my brokerage account). This may be possible as my 401(k) does have a BrokerageLink but I'm not sure how much flexibility it could provide (FYI I'm currently in the process of setting up my BrokerageLink so I should know soon).

Anyway, is there an ideal way to handle this? I know I shouldn't let perfection be the enemy of good but I'm just looking for some advice on this. I'm sure it's something many of you face.

Any and all help is greatly appreciated!

[Pointedstick]

I wrestled with this question too. In the end, I decided it would be better for my sanity to maintain separate PPs. Doing so has also given me institutional diversification across the brokerages and the fund providers.

If your 401k has a usable brokerage option, that's excellent. Mine does too, and it allows me to basically implement a whole PP inside my 401k that grows very rapidly due to my high 401k contributions. That's the fastest-growing PP, while my Roth IRA and taxable PPs grow more slowly. But they all stay well-balanced. Sounds like you'd be in the same situation.

You should also consider what this money is for. If you plan to retire early or use a chunk of it for non-retirement purposes, it can be useful to have a whole PP in taxable just in case you go to access that money and discover that gold was the Ruinous Asset™ this cycle. With a whole PP in taxable, you can be assured that that chunk of your assets is growing as fast as everything else.

[MediumTex]

I first encountered the Permanent Portfolio about a year ago. I have read Harry Browne's "Fail Safe Investing" book and I'm currently getting through the new one that was just released by the resident experts of this forum (it's very, very good, by the way).

Thank you for that.  It gave me a little endorphin pop.

One of our goals was to write a book that would be informative as well as worth reading.  It sounds like you are enjoying it.  I'm happy to hear that.

I'm sure you will get some good responses to your questions.

[John Matrix]

I decided it would be better for my sanity to maintain separate PPs. Doing so has also given me institutional diversification across the brokerages and the fund providers.

That's good to know, and that's a good point about institutional diversification. I may consider that!

Mine does too, and it allows me to basically implement a whole PP inside my 401k that grows very rapidly due to my high 401k contributions.

That's great. I hope my plan's BrokerageLink offers the same level of flexibility. By the way, do you mind if I ask you how you contribute to your 401(k)? Do you split your contributions evenly between each asset? Given the need to maintain balance I'd assume you do but I just want to check.

You should also consider what this money is for. If you plan to retire early or use a chunk of it for non-retirement purposes, it can be useful to have a whole PP in taxable just in case you go to access that money and discover that gold was the Ruinous Asset™ this cycle.

I don't have any plans to retire early per se (unless I have a windfall at some point). My retirement window is basically 30 years from now so I have plenty of time to let the PP do what it does best! Although I'd say the money in my taxable isn't necessarily for retirement, but I'd like to keep it that way.

Thanks, Pointedstick.

[John Matrix]

Thank you for that.  It gave me a little endorphin pop.

One of our goals was to write a book that would be informative as well as worth reading.  It sounds like you are enjoying it.  I'm happy to hear that.

I'm sure you will get some good responses to your questions.

You're welcome, MediumTex. Keep up the good work.

Also, is your avatar Billy from Predator?

[MediumTex]

Thank you for that.  It gave me a little endorphin pop.

One of our goals was to write a book that would be informative as well as worth reading.  It sounds like you are enjoying it.  I'm happy to hear that.

I'm sure you will get some good responses to your questions.

You're welcome, MediumTex. Keep up the good work.

Also, is your avatar Billy from Predator?

Ash from Evil Dead II

[Pointedstick]

That's great. I hope my plan's BrokerageLink offers the same level of flexibility. By the way, do you mind if I ask you how you contribute to your 401(k)? Do you split your contributions evenly between each asset? Given the need to maintain balance I'd assume you do but I just want to check.

25% of each pay period's contribution goes straight into stocks automatically, and the remaining 75% sweeps into a MM fund in the brokerage part. At that point, I contribute to whichever of the three remaining assets is lagging. I do this rather than splitting it evenly because the gold and bond funds I invest in have commission fees associated when them that I'm trying to minimize.

[jimbojones]

Thank you for that.  It gave me a little endorphin pop.

One of our goals was to write a book that would be informative as well as worth reading.  It sounds like you are enjoying it.  I'm happy to hear that.

I'm sure you will get some good responses to your questions.

You're welcome, MediumTex. Keep up the good work.

Also, is your avatar Billy from Predator?

Ash from Evil Dead II

I swear I thought that was Briscoe County Jr....

I wrestled with this question too. In the end, I decided it would be better for my sanity to maintain separate PPs. Doing so has also given me institutional diversification across the brokerages and the fund providers.

My main problem with this option is the tax implication.  Having stock funds, bond funds or individual treasuries in a taxable account could cause you to incur a significant tax burden each year.  VTI spits out a quarterly dividend.  Currently, dividends are taxed at the capital gains rate.  However, in 2013, dividends will be taxed at the ordinary income rate; the top tax rate on dividends will rise to 39.6% from 15%.  Bond funds and treasuries spit out interest payments every month (fund) or twice per year (treasuries).  That income is ordinary income and taxed at your marginal rate, which could be as high as 39.6%.  Gold ETFs and bullion do not make dividend or interest payments as far as I can tell.  Capital gains tax is only due when you sell.

Those tax rates can be huge drags on investment returns.  I recommend filling up your tax-advantaged accounts will the bond allocation, then stock allocation, and finally gold.  Conversely, put gold in the taxable account, followed by stocks, then cash/ST bonds, and only the LT bonds if you have to.

[Pointedstick]

jimbojones, it's not just for convenience, it's also because I have specific shorter-term uses for the money in the taxable PP. So while sheltering it from taxes is important, in my situation, I don't feel like it should trump being able to access that money when I need it.

Besides, I doubt that the dividend tax rate will really rise next year. Congress has been bumbling by, extending the current rates for several years now, and I'm doubtful it will be any different this year. I could be wrong, of course, but I don't want to make my investing decisions based on speculations about what a bunch of the world's stupidest people might do in the future.

[jimbojones]

jimbojones, it's not just for convenience, it's also because I have specific shorter-term uses for the money in the taxable PP. So while sheltering it from taxes is important, in my situation, I don't feel like it should trump being able to access that money when I need it.

Besides, I doubt that the dividend tax rate will really rise next year. Congress has been bumbling by, extending the current rates for several years now, and I'm doubtful it will be any different this year. I could be wrong, of course, but I don't want to make my investing decisions based on speculations about what a bunch of the world's stupidest people might do in the future.

Yep, I agree that the taxable accounts allow for much easier access to the funds, especially when compared to a 401(k). 

Regardless of what Congress does or doesn't do, your bond interest will be taxed at your marginal tax rate.  $10K in taxable LT bonds might spit out $400/year.  At 25%, you'd owe $100 tax.  It might not seem like much, but when compounded over 30 years, it starts to add up.  You could improve your total PP return if you were to switch the tax-advantaged gold portion of your IRA PP with the LT bond portion of your taxable account.  Your overall PP is completely unchanged.  Your taxable funds are just as liquid as they were before (though if you withdraw, rebalancing would be more complicated).  But now you wouldn't pay tax each year on the bond interest.  This is a risk-free increase to your investment return.

[Pointedstick]

Yep, I agree that the taxable accounts allow for much easier access to the funds, especially when compared to a 401(k). 

Regardless of what Congress does or doesn't do, your bond interest will be taxed at your marginal tax rate.  $10K in taxable LT bonds might spit out $400/year.  At 25%, you'd owe $100 tax.  It might not seem like much, but when compounded over 30 years, it starts to add up.  You could improve your total PP return if you were to switch the tax-advantaged gold portion of your IRA PP with the LT bond portion of your taxable account.  Your overall PP is completely unchanged.  Your taxable funds are just as liquid as they were before (though if you withdraw, rebalancing would be more complicated).  But now you wouldn't pay tax each year on the bond interest.  This is a risk-free increase to your investment return.

That is quite true in the aggregate, but it may not be true for each individual PP. I prefer to keep them separate so I can know that each one is growing at around the same rate, even though I fully acknowledge that I sacrifice some basis points from the total return.

For example, if gold turns out to be the Ruinous Asset™ for a period of time, I might go to my taxable PP to withdraw money and find that it's sunk very low because of its double gold weighting dragging down the rest of the portfolio. Maybe my Roth IRA would have done great due to its double bond weighting and I could withdraw some of my contributions to make up for it, but then I'm depleting a tax-sheltered investment to make up for a problem in a taxable investment. In the end, I sleep better having separate PPs, even if the taxable one is a little less tax-efficient as a result.

[jimbojones]

I don't want to make my investing decisions based on speculations about what a bunch of the world's stupidest people might do in the future.

LOL. Sad, but true.

Regardless of what Congress does or doesn't do, your bond interest will be taxed at your marginal tax rate.

Wouldn't that be at least partially mitigated in a taxable account that held a bond fund rather than individual bonds? I believe the 'interest' from a bond fund is considered a dividend for tax purposes.

If the bond fund receives and distributes interest, it is taxable as interest. Capital gains generated by the fund selling bonds are taxed as capital gains.  Everything is passed through to the fund investors.  Note that US Treasury Bond funds may be exempt from state taxes.  I don't know the details of the rules behind that comment.

From Fidelity:

Taxes on bond funds

Mutual funds that invest in bonds also seek to provide regular income from a portfolio of many securities. As a result, the tax on the income is dependent on the types of securities held by the fund. What’s more, since fund managers regularly buy and sell bonds, there may also be regular capital gains and losses incurred. Bond funds pass along the interest income and capital gains on their investments to shareholders, who are then taxed on the taxable portion of those distributions. While you will want to consider a fund’s total return when evaluating it as an investment, keep in mind that the stated historical return of a fund is usually expressed as a pre-tax number.

Tax on income. The interest generated by bond funds is typically calculated daily, but paid out to investors monthly. How that income is taxed depends on the underlying investments that are generating that income. Generally speaking, the income from bond funds is generally taxed at the federal and state level at ordinary income tax rates in the year it was earned. But exceptions abound: Funds that hold exclusively U.S. Treasury bonds, for instance, may be exempt from state taxes. Investors in municipal bond funds that are dedicated to holding the bonds of the state they live in may not owe federal or state tax on the income, though capital gains generated by the fund will still be taxable. Before you buy a fund, read its prospectus to determine whether interest from the fund is expected to be subject to federal, state, or local taxes.

Tax on capital gains. There are two ways investors could owe capital gains tax on a bond fund investment. First, there are the capital gains (and losses) generated by the fund manager, as he or she buys and sells securities. Whether the profit from the sale of a bond in the fund is taxed at ordinary income tax rates or is eligible for a reduced capital gains rate is dependent on the same factors as explained above. These gains or losses are generally distributed to investors once or twice a year; the fund company will account for how your total gain or loss is accounted for in terms of which portion is attributable to long-term capital gains, short-term capital gains, and interest income—all of which will affect the amount of tax you owe.

Secondly, when you sell shares of the fund itself, you’ll incur a gain or a loss depending on your cost basis, the amount of your initial investment plus any reinvested dividends. Any capital gains are taxable, and any capital losses may generate a tax benefit.

You may want to consult your tax advisor to find out how the specifics of your individual tax situation may affect the tax treatment of income generated by and on your investments.

[jimbojones]

And yet, here is how a bond fund distribution [vanguard] is shown


[/quote]

Yes, I see that's how Yahoo Finance reports them too.  It's easier than calling them capital gains and interest income disbursements.  But they aren't taxed as dividends.  Do you (or does anybody) have a 1099 Form from their broker showing how they actually treat the disbursements?

[John Matrix]

I recommend filling up your tax-advantaged accounts will the bond allocation, then stock allocation, and finally gold.

JimboJones, thanks for chiming in. While I understand the theory surrounding the taxable vs. non-taxable allocation pecking order, what I'm trying to come to grips with is how one can properly rebalance a portfolio between accounts growing at far different rates and siloed in terms of fund transfers.

As I state above, my main problem is my 401(k) in that it will grow far quicker than my other accounts. Therefore I have a hard time picturing all of my accounts as a cohesive and whole PP since, inevitably, fund transfers (i.e. rebalancing periods) between all of them are and will be limited and restricted. Is this something you wrestle with?

So far, the options I have are:

1) Use all of my accounts to create a traditional 4x25 PP and just try my best to keep it as balanced as I can.
2) Set up separate PP's in each account.
3) Treat my 401(k) as my variable portfolio (albeit with a some conservatism because I don't view it as money I can afford to lose) and use my taxable and IRAs to build a true PP.
4) Other?

Am I over-thinking this?

[John Matrix]

25% of each pay period's contribution goes straight into stocks automatically, and the remaining 75% sweeps into a MM fund in the brokerage part. At that point, I contribute to whichever of the three remaining assets is lagging. I do this rather than splitting it evenly because the gold and bond funds I invest in have commission fees associated when them that I'm trying to minimize.

Pointedstick, interesting strategy. I'll consider this as I develop my PP. Thank you.

[Xan]

I also go with the multiple PP strategy.  One taxable, one tax-deferred.  I looked into other options but the complexity spun out of control.

[BearBones]

Am I over-thinking this?

I too have decided that having assets unevenly divided among taxable and tax-deferred acts will eventually lead to rebalancing headaches, so despite the obvious initial tax advantages of having all of your LTTs in tax-deferred acts, I am migrating toward 4x25 in each.

I and others have posted on this before. Not sure that any of us in the evenly divided 4x25 camp have convinced others of its advantage. I suspect that this is because so many of us are relatively new to this and have not yet felt the headaches. Here are some discussions:
http://gyroscopicinvesting.com/forum/ht ... ic.php?t=6
http://gyroscopicinvesting.com/forum/ht ... ic.php?t=9
http://gyroscopicinvesting.com/forum/ht ... ic.php?t=8
http://gyroscopicinvesting.com/forum/ht ... 6#msg41036

[jimbojones]

I recommend filling up your tax-advantaged accounts will the bond allocation, then stock allocation, and finally gold.

JimboJones, thanks for chiming in. While I understand the theory surrounding the taxable vs. non-taxable allocation pecking order, what I'm trying to come to grips with is how one can properly rebalance a portfolio between accounts growing at far different rates and siloed in terms of fund transfers.

As I state above, my main problem is my 401(k) in that it will grow far quicker than my other accounts. Therefore I have a hard time picturing all of my accounts as a cohesive and whole PP since, inevitably, fund transfers (i.e. rebalancing periods) between all of them are and will be limited and restricted. Is this something you wrestle with?

So far, the options I have are:

1) Use all of my accounts to create a traditional 4x25 PP and just try my best to keep it as balanced as I can.
2) Set up separate PP's in each account.
3) Treat my 401(k) as my variable portfolio (albeit with a some conservatism because I don't view it as money I can afford to lose) and use my taxable and IRAs to build a true PP.
4) Other?

Am I over-thinking this?

The rapid growth in your 401(k) is due to contributions, right?  You could hold 3 funds within the 401(k) and 1 fund in the Roth IRA.  Your contributions would be $15K/year (incl. employer match) to the 401(k) and $5K/year to the Roth IRA.  So everything would stay in balance if each fund grew at the same rate.

Of course, the funds will not all grow at the same rate.  Say you buy Stock, Bonds, and Cash with the 401(k) and Gold with the Roth IRA.  If Gold drops below 15%, you sell Stock/Bond/Cash in your 401(k) and buy Gold in your 401(k).  You'd have 10% of your portfolio in Gold in your 401(k) and 15% in your Roth IRA.  If Gold rises above 35%, you sell Gold in your Roth IRA and buy Stock/Bond/Cash in your Roth IRA.  If Stock, Bonds, or Cash move outside of the rebalancing bands, you make similar adjustments.

401(k) funds usually let you buy and sell funds if you don't do it too frequently.  TD Ameritrade and Fidelity have zero-commission ETFs to use for your Roth IRA.  Gold ETFs are always excluded from the zero-commission list unfortunately, so you don't want to make too many gold-related rebalances.  Can anyone comment on the frequency of rebalancing?  I'm guessing it's not frequent enough to violate any of the typical 30/60-day trading rules.

Unless you're contributing the max $17K to your 401(k) each year and $5K to your Roth IRA, I'm not convinced you need a taxable trading account.  I know other people disagree and use their taxable account as a emergency-type fund, but I prefer to hold my emergency funds in a cash-equivalent, non-investing, non-retirement-related account.

[notsheigetz]

I have to do a lot of juggling between taxable, roth, and traditional IRA for both me and my wife.

I haven't come up with any hard and fast rules but one thing I do weigh in the back of my mind is long-term growth potential. Ideally I would like to end up in 20 years with my best performing investments having been invested in order of Roth (no tax), taxable (maybe some tax), and IRA (probably some tax). In some respects this violates a principle of the PP in that you are trying to predict the future but it seems to me a fairly safe bet, or at least one worth taking, that gold and stocks will do better over the next 20 years than cash and bonds. So my Roth IRA's are stock and gold heavy.

I don't think the gentlemen who wrote the book would necessarily agree with me but that's my way of thinking.

[HB Reader]

I recommend filling up your tax-advantaged accounts will the bond allocation, then stock allocation, and finally gold.

JimboJones, thanks for chiming in. While I understand the theory surrounding the taxable vs. non-taxable allocation pecking order, what I'm trying to come to grips with is how one can properly rebalance a portfolio between accounts growing at far different rates and siloed in terms of fund transfers.

As I state above, my main problem is my 401(k) in that it will grow far quicker than my other accounts. Therefore I have a hard time picturing all of my accounts as a cohesive and whole PP since, inevitably, fund transfers (i.e. rebalancing periods) between all of them are and will be limited and restricted. Is this something you wrestle with?

So far, the options I have are:

1) Use all of my accounts to create a traditional 4x25 PP and just try my best to keep it as balanced as I can.
2) Set up separate PP's in each account.
3) Treat my 401(k) as my variable portfolio (albeit with a some conservatism because I don't view it as money I can afford to lose) and use my taxable and IRAs to build a true PP.
4) Other?

Am I over-thinking this?

You aren't over-thinking this, and I applaud you for anticipating the problem.  Over the years, I found the differential growth rates to be a vexing problem (i.e., the higher growth rate of my 401k and Traditional IRA assets) and one that I wished I'd anticipated earlier on.  I don't think there is a perfect solution to the problem and everyone's situation will be a little different, although it has become a little easier to address with the advent of increased choices (like ETFs) in IRAs in recent years. 

Without getting into boring detail, from the early 80's until I retired in 2003 I basically used an approach similar to your #3 -- balancing IRA and taxable holdings around PRPFX (although I didn't always follow a strict 4x25 approach) and using my 401k as a VP.  Since I retired it has been much easier -- I've used a much more rigorous approach very close to your #1, although I still use a large portion of my former 401k (which I rolled over into a tradtional IRA) as a VP.  My "401k" was actually a federal government TSP. 

My only additional comment would be that letting cash build up in retirement accounts a little faster than the other asset classes during your "accumulation stage" isn't the end of the world, even in today's low interest rate environment, as long as you don't allow your allocations to get too out of balance for too long.  I know you probably won't make much on your cash (unless we enter an economic environment similar to the early 1980's), but at least you won't lose much either.  Obviously, the smaller the amounts involved in each new contribution to your portfolio the more you need to factor in transactions costs.  In general, I would be more concerned about having all four asset classes fully respected and substantially represented in your portfolio than trying to achieve balance nirvana.     

[AgAuMoney]

1) Use all of my accounts to create a traditional 4x25 PP and just try my best to keep it as balanced as I can.
2) Set up separate PP's in each account.
3) Treat my 401(k) as my variable portfolio (albeit with a some conservatism because I don't view it as money I can afford to lose) and use my taxable and IRAs to build a true PP.
4) Other?

Am I over-thinking this?

I think you are either over-thinking if you want it simple, or not thinking enough if you are trying for the be all, end all.


The simple case:

Just create your single PP spread across accounts.  You don't have to divide it evenly between accounts.  You can have all your bonds and part of the stocks and part of the cash in the 401(k), the rest of the stocks in the IRA with some of the gold, and the rest of the gold and cash in taxable.  Or whatever works.

When the time comes to rebalance, you might pick up a 3rd or even 4th asset in one of the accounts.  Whoopee.  So what.


Or if you want more complexity or willing to tolerate complexity for more optimal...

Keep in mind taxes.  Any kind of fund is uncontrollable tax consequences so keep funds in tax sheltered accounts.

Treasuries (individual bonds, not funds) and cash might be cheapest in taxable.

Cash in taxable can be part of your emergency fund and/or short and medium-term savings (like escrow for annual insurance or tax payments or down payment for a house).  You can gradually transition some of it every year into iBonds if you like, remembering that they are illiquid for the first 11-12 months and incur a 3 month interest penalty for the 48 months after that.  Or use bank CDs for some (remembering institutional risk and FDIC insurance limits) or use Treasury Direct to do rollovers in short-term T-Bills.

Cash in a Roth can also be part of your emergency fund, but only used in "worst case" because it is hard to replace once removed from the Roth.  (can take principal at any time without tax or penalty, but can only replace as the annual, limited contributions allow)

Gold physically held is best done in taxable because keeping physical gold in a tax sheltered account is painfully expensive.  Physical gold is more sure than funds and easier to move to different countries/jurisdictions if personally held.  Such can also be part of emergency fund, but is less liquid than cash and any significant sale will have tax consequences (as a collectible it is not cap gains, but is limited to 28%, or your marginal rate if you pay less than 28%).

Speculative stocks (variable portfolio) should probably be held in taxable.  Losses can be used to offset gains or even a little bit of regular income.  Gains are tax-advantaged at cap gains rates.

The key is to remember that you can have the same asset in multiple locations, and treat the entire pool as a single PP or as multiple PP's, whichever is easiest for you.

[BearBones]

I think you are either over-thinking if you want it simple, or not thinking enough if you are trying for the be all, end all...

Or if you want more complexity or willing to tolerate complexity for more optimal...

What if your taxable vs tax-deferred ratios are disproportionate, something like 1:3 or 3:1? What if, for example, you have 25% of assets in 401k and you load this up with LTTs (since that is the best tax-sheltered asset)? Then inflation kicks in, yields skyrocket, and lose most of your 401k. Is this really optimal? Or the converse, you have only 25% of assets taxable acts, and that is where you keep your gold. Then gold tanks...

I may not have thought this through enough, but it seems to me that having a 4x25 in each account is not just about simplicity or under thinking. It is also about preserving your various taxable and tax-deferred accounts, since when retirement comes, you may need the flexibility of having them all. What am I missing?

[John Matrix]

I and others have posted on this before. Not sure that any of us in the evenly divided 4x25 camp have convinced others of its advantage. I suspect that this is because so many of us are relatively new to this and have not yet felt the headaches. Here are some discussions:
http://gyroscopicinvesting.com/forum/ht ... ic.php?t=6
http://gyroscopicinvesting.com/forum/ht ... ic.php?t=9
http://gyroscopicinvesting.com/forum/ht ... ic.php?t=8
http://gyroscopicinvesting.com/forum/ht ... 6#msg41036

BearBones, thanks for digging this out. I haven't read through them yet, but I will!

Of course, the funds will not all grow at the same rate.  Say you buy Stock, Bonds, and Cash with the 401(k) and Gold with the Roth IRA.  If Gold drops below 15%, you sell Stock/Bond/Cash in your 401(k) and buy Gold in your 401(k).  You'd have 10% of your portfolio in Gold in your 401(k) and 15% in your Roth IRA.  If Gold rises above 35%, you sell Gold in your Roth IRA and buy Stock/Bond/Cash in your Roth IRA.  If Stock, Bonds, or Cash move outside of the rebalancing bands, you make similar adjustments.

Thanks, jimbojones. I've done some thinking about this and I think you're onto something. I admit I've been pretty rigid in my thinking about the allocation across accounts. Once I put the recently released book down and started putting pen to paper I was able to come up with some allocation combinations that work.

I haven't come up with any hard and fast rules but one thing I do weigh in the back of my mind is long-term growth potential. Ideally I would like to end up in 20 years with my best performing investments having been invested in order of Roth (no tax), taxable (maybe some tax), and IRA (probably some tax). In some respects this violates a principle of the PP in that you are trying to predict the future but it seems to me a fairly safe bet, or at least one worth taking, that gold and stocks will do better over the next 20 years than cash and bonds. So my Roth IRA's are stock and gold heavy.

While I understand this way of thinking, I'm going to assume that no economic environment will be more likely over another from here on out. Regardless, thanks for the input notsheigetz.

In general, I would be more concerned about having all four asset classes fully respected and substantially represented in your portfolio than trying to achieve balance nirvana.

After thinking long-and-hard about this I wholeheartedly agree. Thank you.

Just create your single PP spread across accounts.  You don't have to divide it evenly between accounts.  You can have all your bonds and part of the stocks and part of the cash in the 401(k), the rest of the stocks in the IRA with some of the gold, and the rest of the gold and cash in taxable.  Or whatever works.

AgAuMoney, as I state above after spending some time modeling this out I've become more comfortable with this approach. Thanks for contributing!

[sophie]

What if your taxable vs tax-deferred ratios are disproportionate, something like 1:3 or 3:1? What if, for example, you have 25% of assets in 401k and you load this up with LTTs (since that is the best tax-sheltered asset)? Then inflation kicks in, yields skyrocket, and lose most of your 401k. Is this really optimal? Or the converse, you have only 25% of assets taxable acts, and that is where you keep your gold. Then gold tanks...

I may not have thought this through enough, but it seems to me that having a 4x25 in each account is not just about simplicity or under thinking. It is also about preserving your various taxable and tax-deferred accounts, since when retirement comes, you may need the flexibility of having them all. What am I missing?

This plus the realization that my 403b will grow faster than all other types of savings, had me debating as I was setting up my PP.  For rebalance purposes you want at least two assets in each account, so it's unlikely any one account will be wiped out that badly.  The problem is that if you can only fit two assets in one account that will eventually grow to be much larger than 50% of your savings, then you're stuck.  I was also worried having cash and gold dominating my taxable savings. But that's OK, because they're complementary assets in a sense.  If gold tanks, then cash will be doing well.

I also wouldn't regard a non-PP-able 401K as a VP.  By the Harry Browne definition, "investing" means any portfolio where you are willing to accept market returns.  A Bogleheads-type portfolio qualifies.  It'll fluctuate more but in the long run should perform as well as a PP.

[AgAuMoney]

What if your taxable vs tax-deferred ratios are disproportionate, something like 1:3 or 3:1? What if, for example, you have 25% of assets in 401k and you load this up with LTTs (since that is the best tax-sheltered asset)? Then inflation kicks in, yields skyrocket, and lose most of your 401k. Is this really optimal? Or the converse, you have only 25% of assets taxable acts, and that is where you keep your gold. Then gold tanks...

You'll notice I discouraged keeping just one asset in an account.

And in reality, especially in a 401(k), there are some assets you may not be able to put into that account so you might not have all four in one place either, and I don't think you need to go thru contortions trying to do it.

In a typical 401(k) you are almost certainly going to be able to do stock index fund and some bonds but maybe not bonds that are exclusively "long-term treasuries", unlikely to be able to do gold, but cash is usually workable.

So just do the best you can.  It isn't like there is some magic formula that when you do it just perfect it works and if you mess up in the slightest you haven't a prayer.