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Can I allow my gold assets to lag?

Posted: Wed Nov 26, 2014 4:10 pm
by lordmetroid
I have just started investing in my own Permanent Portfolio. The 1st of many to come monthly deposits will automatically be executed on the 1st of December. That transfer will purchase Stocks, Bonds and Cash in equal parts. I am keeping my expenses down to a total of 0.08% in administration fees for these assets.

However, to purchase Gold on a monthly basis I would only be able to purchase an extremely small amounts of gold at a time. Incurring huge freight overhead of 4.1%. If I instead purchases it on a yearly basis I could both lower my premium and the freight overhead would only be a mere 0.65% of the total price.

What would you recommend me to do? Purchase gold on a monthly basis so I do not lack an even exposure or purchase it on a yearly basis?
If I should purchase it on a yearly basis, should I do it at the start or the end of the year?

Re: Can I allow my gold assets to lag?

Posted: Wed Nov 26, 2014 4:52 pm
by Pointedstick
To get around this challenge, what I do is use all of my monthly contributions to purchase one single asset out of the four, on a rotating schedule. One month stocks, the next month gold, etc. That keeps them all relatively even, and it only requires four gold purchases per year, which helps keep the transaction costs low. To make it even more manageable, you could make your gold allocation half ETFs, which would mean only you buying physical gold twice a year. That would further cut down on the transaction costs and any time you felt comfortable, you could sell some ETF shares and buy coins with the proceeds.

Re: Can I allow my gold assets to lag?

Posted: Wed Nov 26, 2014 10:12 pm
by KevinW
The general principle is that any regime that keeps all four assets within the 15-35% rebalance bands will work OK, and the details don't matter that much. Pointedstick's rotation regime would achieve that, so it's fine. My approach is to dump all contributions into cash, and rebalance according to the plain 15-35 rule, which is also fine.

As you noted, it is difficult to keep four assets in rough balance when making regular contributions starting from scratch. Each month adds a huge amount to the portfolio as a percentage. So, you might consider just dumping everything into cash or PRPFX for the first year. Then switch to a 4x25 starting in year 2 when each month's contribution is a small percentage of the whole.

Re: Can I allow my gold assets to lag?

Posted: Thu Nov 27, 2014 3:07 pm
by sophie
Lots of solutions to this, limited only by your imagination!

My solution has been to purchase commission-free funds (cash, bonds, stocks) monthly, distributed as 50% cash, 25% stocks, 25% bonds.  Then I periodically buy gold with half of the cash contributions.  Or you could simply wait until you hit a rebalancing band (i.e. gold drops below 15% and you'll typically balance out of cash).

Or, you could use a gold ETF as an accumulator and buy it along with the other assets every month.  If you're in Schwab, SGOL is commission free; otherwise it's the same as a stock transaction.  Then once a year or whenever you want, sell part or all of the fund and convert to physical gold.  I would advise against using GTU for this, and also be aware of the tax implications if your shares have gone up in price.  Fortunately, gold ETFs and coins are not considered equivalent assets, so you don't have to worry about a wash sale.

Re: Can I allow my gold assets to lag?

Posted: Fri Nov 28, 2014 12:44 am
by MachineGhost
sophie wrote: My solution has been to purchase commission-free funds (cash, bonds, stocks) monthly, distributed as 50% cash, 25% stocks, 25% bonds.  Then I periodically buy gold with half of the cash contributions.  Or you could simply wait until you hit a rebalancing band (i.e. gold drops below 15% and you'll typically balance out of cash).
Since I don't use rebalancing bands, I'm wondering...  how close is gold to hitting the 15% since the peak in 2011?

Re: Can I allow my gold assets to lag?

Posted: Fri Nov 28, 2014 1:20 pm
by murphy_p_t
don't know...but you can check on here  http://peaktotrough.com/

i was checking this from start 2011...stocks hit 35% to trigger a rebalance recently

Re: Can I allow my gold assets to lag?

Posted: Fri Nov 28, 2014 2:32 pm
by Pet Hog
MachineGhost wrote: Since I don't use rebalancing bands, I'm wondering...  how close is gold to hitting the 15% since the peak in 2011?
Using peaktotrough's data, a PP started on August 22, 2011 (gold's all-time high) with 35/15 rebalance bands and reinvested dividends would have undergone rebalancing on May 17, 2013, because of stocks reaching 35% (gold was 17% at the time).  The current allocation would be 21% gold, 30% stocks, 26% bonds, 24% cash.  CAGR: 4.43%.

Without rebalancing, the current allocation would be 13% gold, 41% stocks, 25% bonds, 21% cash.  CAGR: 5.54%.

So rebalancing would have been no help (in terms of boosting return) because gold's decline has been relentless, and stocks' rise has been relentless, too!

Re: Can I allow my gold assets to lag?

Posted: Fri Nov 28, 2014 3:11 pm
by invst65
Of course you can let the gold assets lag if you want.

And if you do I can safely guarantee one of two results without hesitation.....

1.) It will turn out to be a wise decision
2.) It won't turn out to be a wise decision

Re: Can I allow my gold assets to lag?

Posted: Fri Nov 28, 2014 4:33 pm
by technovelist
Pointedstick wrote: To get around this challenge, what I do is use all of my monthly contributions to purchase one single asset out of the four, on a rotating schedule. One month stocks, the next month gold, etc. That keeps them all relatively even, and it only requires four gold purchases per year, which helps keep the transaction costs low. To make it even more manageable, you could make your gold allocation half ETFs, which would mean only you buying physical gold twice a year. That would further cut down on the transaction costs and any time you felt comfortable, you could sell some ETF shares and buy coins with the proceeds.
You have 16 months in your year? I assume that helps quite a bit in accumulating money, as long as you do it monthly. :P

Re: Can I allow my gold assets to lag?

Posted: Mon Dec 01, 2014 12:30 pm
by mukramesh
My solution has been to add new funds to the 'Cash' bucket. Whenever I hit a rebalancing band (i.e. Cash reaches 35% of the total PP size), I use the excess cash to purchase the other asset (Stocks, Bonds, Gold). This keeps transactions down to only a few times per year and will become less frequent as the portfolio increases in size.