Page 1 of 2

Setting Up a Brand New Permanent Portfolio

Posted: Wed Nov 19, 2014 8:51 am
by tdepaula
Hello all, I hope everyone is well.

I'm brand new to this forum as a registered user although I have been reading threads here for a while and getting quite an education from everyone's candidness and wise perspectives.

I recently read through Craig's book and have been taking further steps to educate myself enough about all of the financial instruments available to me so as to set up a PP that works for my situation.

FYI, I'm a 37 yo, married filing jointly working professional with a small yet thriving business with no employees. Over the past decade, my financial priority was paying down my large college debt (120k once I graduated in 2001) and putting some money away into a savings account.  I finally completely paid off my debt this year (!!!) and am getting ready to set up a PP now hoping to grow what was a negative net worth for many years into a nice and positive one.

A few extra details about my situation: earlier this year, once I finished paying off my debt, I set up a brokerage account with Vanguard where I'm 100% invested in VTSAX (around $16,000 in there now).  Also this year, I also set up an individual401k with Vanguard and contributed about $3500 to it already into a VTSMX fund.  Both of these funds are low cost, total stock market index funds.  My intention is to have my VTSAX fund cover the stock portion of my PP.

Additionally, aside from the investments above, I have several checking and savings accounts, both for me personally and for my business.

With all of that in mind, my plan for setting up my initial PP is to do the following by the end of the year:

- Sell $5000 worth of my VTSAX index fund total and pour that plus $28,000 from my checking & savings accounts (a grand total of $33,000) evenly into TBills, US Long Term Treasury Bonds and a Gold ETF fund so that in total, I would start my PP with the following:

VANGUARD VTSAX - $11,000
GOLD ETF - $11,000
LT US TREASURY BONDS (Treasury Direct) - $11,000
TBILLS (Treasury Direct) - $11,000


That's where I want to get to.  Aside from the goal above, keep in mind I also have the following account as mentioned above:

INDIVIDUAL401k - $3600 in VTSMX

So, moving forward, in terms of taking the steps I need to take to set up the PP above, I had a few aspects of this plan that I was a little unsure as to how to handle and I wouldn't mind hearing opinions about it from you folks that have been at this game longer than I have.

So, here are some specific questions about my future PP set up:

1) TO 401K or NOT 401K?

What would be an optimum way of setting up a PP in my situation in terms of splitting it up between my tax advantaged account and my regular brokerage account / tbill / US LT Bond / gold set up?  Any advice here would be helpful as I'm having a hard time figuring a good model to follow.  Keep in mind that my individual 401k allows me to make pre-tax contributions of up to $17,500/year as the employee of the company and up to 25% of my total compensation package on top of that (a total of somewhere around $22,500 in my case per year).  The fact that I can't touch the money I put into my 401k until some 20 years from now is a little troublesome to me, but the tax benefit is nice in terms of offsetting my tax bill now... Your opinions are welcome.

2) REBALANCING BOTTLENECK
How would I handle rebalancing with the set up above?  I'm leaning towards keeping my cash as Tbills with Treasury Direct, but still don't know how that works exactly.  I remember that Craig recommended sending dividend payments from my stocks into my cash allocation.  Is that something simple to set up at Treasury Direct?  Also, when it comes time to rebalance, does the cash I hold as TBills operate similarly to a checking account?  Do I send checks out or make payments electronically with it?  Is it easy to transfer funds during my rebalance from my Gold ETF / Stock Index Fund / LT Treasuries Fund to my Tbill account and vice versa?  Any one with some rebalancing experience to share would help me a lot.

3) GOLD ETF, YOU SAY?
I know starting with a Gold ETF is not recommended as the safest way to hold gold.  But I have safety concerns with my present living location and am favoring an ETF, at least for now...  Do people have thoughts on this in terms of my cost for an ETF?  What are the drawbacks?

4) HOW COMPLEX IS TREASURY DIRECT?
People's general thoughts on holding Bonds and TBills with Treasury Direct as opposed to other financial institutions would be helpful to me also. I'm favoring TD since it's recommended by Craig, but don't understand why it may complicate my yearly rebalancing as he said it would in the book.

5) MONTHLY CONTRIBUTIONS
In terms of making monthly contributions to my PP fund as I generate income through my work, what's the recommended approach?  Simply pouring cash into my Tbill account with Treasury Direct until it comes time for a rebalance at the end of the year? Or spread my contributions into 25% increments evenly across all of my funds on a monthly basis? What is the best approach iin your opinion?

I think this is it for now.  Apologies for the long post and th ehigh number of questions.  I'm trying to get my brain wrapped around this whole thing now, so that going forward, I can just worry about living my life and making monthly contributions and an yearly rebalancing (if need be of course).

Thank you so much for reading though all of this!

Re: Setting Up a Brand New Permanent Portfolio

Posted: Wed Nov 19, 2014 9:33 am
by goodasgold
Welcome to the forum, tdepaula, and congratulations on clearing yourself from debt! It is sad to learn how many young folks today are burdened by a huge school debt, so you are definitely ahead of many of your contemporaries. Now you can concentrate on piling up savings.

I would like to focus particularly on your preference for gold ETFs. Although gold ETFs are convenient for rebalancing, holding most of your gold in physical is by far the most prudent way to go, as affirmed by Craig and MT's book.

And home storage, in my opinion, is quite risky. In my area, a bank safe deposit box costs about $80 per year to rent, and some banks throw in a free safe deposit box to account holders. And I also think it is advisable to insure the physical gold inside the box, just to be on the safe side. This precaution leads to a "SWAN portfolio" (Sleep Well At Night.) Just a suggestion, and once again, I wish you and your family the best in building toward a prosperous future. You are well on your way.

Re: Setting Up a Brand New Permanent Portfolio

Posted: Wed Nov 19, 2014 9:54 am
by MachineGhost
1. Do a seperate PP for each of your accounts.  It'll make your life and rebalancing easier.

2.  TeasuryDirect doesn't work like a checking account.  Interest is accrued until sold, then you transfer the proceeds from the Zero Interest subaccount to your checking account.  I would make sure all brokerage accounts are setup to reinvest dividends, not sure why you would not want to do so otherwise unless you felt stocks were overvalued (well they are, but thats besides the point).

3. If you want to use a gold ETF then stick to Sprotts Physical Gold Trust (PHYS) which lets you redeem your shares for gold.  Since it's a closed-ended fund, make sure you check the NAV so you don't buy at a premium.  For retirement accounts, you'll have to use a custodian that is specifically setup to deal with physical gold, but they are not cheap and not cost effective for a measly 11K.  There's no harm in buying gold buillion coins (besides the spread) and you may have future flexiblity in circumventing confiscatory taxes and/or capital controls depending on the political climate at the time.  I would make sure to get a bag of junk silver coins because in a SHTF scenario 1oz gold coins are not easily divisible.  Silver is more industrial and volatile than gold so don't give it any more attention than that.

4. TreasuryDirect is easy to use if not a bit archaic.  It's just a holding account for your Treasury securities.

5. Sophie looked into this so look for her thread.  I think given commission costs it may be better to lump sum once a year unless you can avoid commissions.  Automatic investing via brokers seems to be limited to mutual funds so far.  But you can setup free automatic checking accounting withdrawals and park it in cash until ready to buy.

Re: Setting Up a Brand New Permanent Portfolio

Posted: Wed Nov 19, 2014 11:23 am
by barrett
Hey tdepaula,

Are you self employed? If so, look into an individual 401(k) Roth as an option for retirement accounts. If you can't make use of that now, it's a good option to have up your sleeve for the future (but sadly can't be done at Vanguard from my own experience). I'm toward the end of my career - a few more years left most likely - and am trying to stash as much money into Roth accounts as I can at this point. If you can have a mix of a taxable, regular IRAs and Roths, it will give you a lot of options down the line in terms of tax efficiency. But if you are not self employed, I am just blowing hot air.

I'm more or less with Machine Ghost on the PP in every account, though I try to slant my IRAs to be weighted heavier in long bonds and stocks as they throw off interest and dividends respectively. Harry Browne recommended putting T-Bills in tax advantaged accounts as well but it's almost a given that he wouldn't recommend that in the current low-to-no interest rate environment.

Good luck! It's actually a fairly easy investment strategy to implement. Most of the PP-related stuff we talk about on here is just fine tuning.

Re: Setting Up a Brand New Permanent Portfolio

Posted: Wed Nov 19, 2014 12:26 pm
by stuper1
If you have safety concerns with your present living situation, then you probably need a safe deposit box for personal papers, etc., even if you don't put physical gold in it.  But do yourself a favor and start accumulating some physical gold anyway and put it in the safe deposit box.  Even if you just buy a few coins to start and one or more coins per year thereafter, it's good financial insurance.  You can keep some gold in ETFs for use in rebalancing, but the physical gold is a financial backstop.  Some people feel you need to insure your gold in the safe deposit box.  I don't insure mine, but maybe I will when the stash gets bigger.

Re: Setting Up a Brand New Permanent Portfolio

Posted: Wed Nov 19, 2014 1:15 pm
by PP67
Congrats on paying off you debt and getting your financial house in order at such a relatively young age!...

For what it is worth, having started a PP much later in life than you, for me it has been much harder psychologically to pull the trigger to buy a large amount physical gold at one time...  Just never had any experience with it. I have heard that once you buy it a few times, a lot of the fears are dissipated.  I do wish I had started much younger (for a lot of reasons!) when buying a single gold coin every few months or so would not have been a big deal...  My current plan is to buy a small chunk in the near future to stash in a safety deposit box and then add a coin to it every month or so so as to dollar cost average until I finally reach the amount I feel good about keeping physical at the bank...The rest will stay in an EFT for balancing...  I suspect whatever gold coins I accumulate will be handed down to my kids so they will have some fallback as well...

Re: Setting Up a Brand New Permanent Portfolio

Posted: Wed Nov 19, 2014 2:26 pm
by dragoncar
Make sure you read this thread to see how it resonates with you: http://gyroscopicinvesting.com/forum/go ... ream-room/

Re: Setting Up a Brand New Permanent Portfolio

Posted: Thu Nov 20, 2014 11:18 am
by tdepaula
dragoncar wrote: Make sure you read this thread to see how it resonates with you: http://gyroscopicinvesting.com/forum/go ... ream-room/
PP67 wrote: My current plan is to buy a small chunk in the near future to stash in a safety deposit box and then add a coin to it every month or so so as to dollar cost average until I finally reach the amount I feel good about keeping physical at the bank...The rest will stay in an EFT for balancing... 
stuper1 wrote: But do yourself a favor and start accumulating some physical gold anyway and put it in the safe deposit box.  Even if you just buy a few coins to start and one or more coins per year thereafter, it's good financial insurance.  You can keep some gold in ETFs for use in rebalancing, but the physical gold is a financial backstop.  Some people feel you need to insure your gold in the safe deposit box.  I don't insure mine, but maybe I will when the stash gets bigger.
MachineGhost wrote: If you want to use a gold ETF then stick to Sprotts Physical Gold Trust (PHYS) which lets you redeem your shares for gold.  Since it's a closed-ended fund, make sure you check the NAV so you don't buy at a premium.  For retirement accounts, you'll have to use a custodian that is specifically setup to deal with physical gold, but they are not cheap and not cost effective for a measly 11K.  There's no harm in buying gold buillion coins (besides the spread) and you may have future flexiblity in circumventing confiscatory taxes and/or capital controls depending on the political climate at the time. 
goodasgold wrote: I would like to focus particularly on your preference for gold ETFs. Although gold ETFs are convenient for rebalancing, holding most of your gold in physical is by far the most prudent way to go, as affirmed by Craig and MT's book.

And home storage, in my opinion, is quite risky. In my area, a bank safe deposit box costs about $80 per year to rent, and some banks throw in a free safe deposit box to account holders. And I also think it is advisable to insure the physical gold inside the box, just to be on the safe side. This precaution leads to a "SWAN portfolio" (Sleep Well At Night.) Just a suggestion, and once again, I wish you and your family the best in building toward a prosperous future. You are well on your way.
Goodasgold, dragoncar, PP67, stuper1, MachineGhost  thank you so much for you response regarding the Gold portion of my post.  I have since called my local bank about safety deposit boxes and will look into insurance also so that I know what the total cost for buying some gold coins and keeping them safe will be.  I'm now leaning towards a mixed bullion / Gold ETF approach for easier rebalancing. Thank you all for taking the time.

Re: Setting Up a Brand New Permanent Portfolio

Posted: Thu Nov 20, 2014 11:27 am
by tdepaula
barrett wrote: Hey tdepaula,

Are you self employed? If so, look into an individual 401(k) Roth as an option for retirement accounts. If you can't make use of that now, it's a good option to have up your sleeve for the future (but sadly can't be done at Vanguard from my own experience). I'm toward the end of my career - a few more years left most likely - and am trying to stash as much money into Roth accounts as I can at this point. If you can have a mix of a taxable, regular IRAs and Roths, it will give you a lot of options down the line in terms of tax efficiency. But if you are not self employed, I am just blowing hot air.
Dear Barret, thank you for your asnwer.  I'm indeed self-employed.  All my income comes to me via my LLC.  I have thought about setting up a Roth Individual 401K but in doing the math, it seemed to me that it would be more beneficial for me to benefit from tax write offs now that my wife and I are on a higher income bracket than later, in retirement, when we will likely be on a lower one and will pay our taxes upon our distributions based on our tax bracket then.  Does that make sense?  This is why I opted to set up a regular Individual 401K instead of a Roth now.

Re: Setting Up a Brand New Permanent Portfolio

Posted: Thu Nov 20, 2014 11:44 am
by tdepaula
Dear MachineGhost, thank you for your detailed answer. So, I understand the different portions of your answer, I will break them up below.
MachineGhost wrote: 1. Do a seperate PP for each of your accounts.  It'll make your life and rebalancing easier.
So, your suggestion here in terms of setting up my PP would be to to keep a PP portfolio set up within my retirement account and a different PP portfolio in my brokerage account, is that correct?  I'm all for simplicity and ease in terms of rebalancing.
MachineGhost wrote: 2.  TeasuryDirect doesn't work like a checking account.  Interest is accrued until sold, then you transfer the proceeds from the Zero Interest subaccount to your checking account.
MachineGhost wrote: 4. TreasuryDirect is easy to use if not a bit archaic.  It's just a holding account for your Treasury securities.
Would you recommend that I hold my treasuries straight from Treasury Direct as opposed to Fidelity, which I saw on a different post, offered the possibility of holding the treasuries is a free and easy manner?
MachineGhost wrote: 5. Sophie looked into this so look for her thread.  I think given commission costs it may be better to lump sum once a year unless you can avoid commissions.  Automatic investing via brokers seems to be limited to mutual funds so far.  But you can setup free automatic checking accounting withdrawals and park it in cash until ready to buy.
I will look for Sophie's thread.  Thanks again!

Re: Setting Up a Brand New Permanent Portfolio

Posted: Thu Nov 20, 2014 11:57 am
by stuper1
You won't be able to use Treasury Direct for your retirement account (unless I'm way off base); only for your money held outside of a brokerage.

Regarding insuring physical gold, be aware that there is a specialized insurance company that offers much better rates than your standard insurance companies.  They are mentioned in some older threads on this board, or maybe someone will remember the name.

Re: Setting Up a Brand New Permanent Portfolio

Posted: Thu Nov 20, 2014 2:33 pm
by goodasgold
stuper1 wrote:
Regarding insuring physical gold, be aware that there is a specialized insurance company that offers much better rates than your standard insurance companies.  They are mentioned in some older threads on this board, or maybe someone will remember the name.
The specialized insurance company is Hugh Wood Inc. (tel. 212-509-3777).