Heavy in PRPFX

[portart]

  I have a question about my financial situation. I am 64 and still working making about $230k a year. I have an conservatively invested variable annuity that will pay $52,000 a year for life if I took it now and more if I wait as it goes up 7% compounded every year (it goes up about a $1000. each year that I don't start collecting.) I have SS that if I wait until 66 will pay another $30,000 a year. I have the rest in PRPFX ($2,650,000). I have some 20k in physical.  Do you think keeping all that in PRPRX is too risky? If so, what do you think would be a better idea. I owe about $500k in house and my son's school loan. I don't know when I will retire just yet although I probably could.

[MachineGhost]

PRPFX is extremely commodity heavy.  You need 10% in EDV to provide adequate protection to round it out to the PP.

But, I think you'd be better off running a PP yourself and saving on the management fee.  That will also let you own more physical gold as well.

[portart]

Thank you. I will check into EDV. PPRFX has been going down no matter if gold or the market is advancing so something is amiss.

[clacy]

I would say PRPFX is just fine for your entire balance, with no additional EDV (or long term treasuries, etc) because of the fact that you have many of your bases covered with a lifetime annuity. 

The annuity is guaranteed income so I would treat it like a large bond allocation.  That way with the rest of your $2.65m you have very good inflation protection by holding PRPFX.

[KevinW]

PRPFX holds a variant PP, so it's in the right ballpark, and one can do a lot worse. I'm OK with it for people that don't have the inclination or account balance necessary to maintain a 4-ETF PP. However a DIY 4x25 PP has lower expenses, is simpler, and IMO safer.

On a portfolio as big as yours the difference in expenses is significant. PRPFX' ER is 0.71%; a DIY portfolio can be implemented for around 0.15% (see e.g. https://web.archive.org/web/20160324133 ... portfolio/ ). On a $2.65 million portfolio, the difference works out to about $15,000 per year in expenses. Personally, I'd be happy to pay myself $15,000 to spend a couple hours per year rebalancing by hand.

[portart]

How would you break down the investment of the 2.65m by hand if I sold out of PRPFX? I am not comfortable holding that much physical either in a bank or elsewhere. 15k does sound like a lot. I never ran the numbers thinking that anything under 1% was better and safer then a money manager. My account for the last few months is doing nothing but losing steam. I am 100k off my highs and I don't trade or sell.

[KevinW]

First, my meta-advice is to do your own due diligence and make sure you set things up right the first time. It can be expensive tax-wise to rearrange a taxable account, especially one of this size. I recommend reading craigr and MediumTex' book cover to cover if you haven't already.

IMO an account that size needs to be diversified institutionally. I have a slight preference for mutual funds over ETFs, so If it were me I think I'd split it between Vanguard and Fidelity:

1/8 Vanguard Total Stock Market Index Fund
1/8 Spartan Total Market Index Fund

1/8 individual bonds @ Vanguard
1/8 individual bonds @ Fidelity

1/8 IAU @ Vanguard
1/8 physical bullion split between two bank boxes (or one of the storage services mentioned in the book if you refuse to hold physical)

1/8 Vanguard Prime Money Market (switch this to Treasury Money Market as soon as it reopens)
1/8 a single 1-year T-bill in Fidelity's "auto-roll" program

[dualstow]

It's hard to say without knowing your spending habits or, more importantly, how much you save every year.
And your financial goals, e.g. paying off the loans.

After that, you figure out how much drawdown you think you can stomach and decide on how much of a cash cushion you need. With such a superb income + the annuity, it seems like you're in good shape. (I was thinking portart stood for portrait artist. That would be a good gig for that level of earnings).

I feel the same as Kevin. PRPFX is not so bad, but 15,000 in fees, ouch.

[MediumTex]

I would be tempted to pay off the $500k mortgage before doing anything else.

That would create an annuity-like stream of income in the form of a house payment that you no longer have to make.

[dualstow]

I would be tempted to pay off the $500k mortgage before doing anything else.

I think that figure is the total of the two loans.
What're the rates on those loans, portart?

[portart]

Lots of interesting advice here. Back in the 90's I was very aggressive trader and did really well as my timing was good and luckily called it quits before the big bust. About ten years ago, after reading Harry's book which made so much sense to me, I wrote him and paid him for a breakdown on what to do with my money. I still have the paper he sent me and I should publish it here because you guys would probably enjoy what he said.

It was too complicated for me so  I bought PRPFX because I was afraid if I tried to do it myself, I would lack the discipline to stay with it. I had a lot of physical gold at the time and sold out at 1200.00 because I was over the 25% by owning the fund. There was a heavy tax bill from the gold which hurt but I bought most of it at around $300 0z and added to it at other amounts until I got out. I kept about 12 ozs. 

My ten year ave since I went all into PRPFX gain is about 8.75% a year and a cumulative 131% on the portfolio. This is after fees so the fund probably did about 10% ave per year. I currently save about 110k a year for one more year and then I will shut the plan down and roll it into the IRA as I get closer to retirement or at least slowing down. I run my own business so I can play it different ways but it's hard to walk away from a profitable business that I still enjoy but I want to travel and other stuff.

It feels like PRPFX has finished it's run as a leader and we are probably in for a protracted underperformance as equities catch up from being down for so long. So paying 15K a year in fees if it's going to do nothing but protect is probably not the best strategy. However when you have enough to retire, you become risk averse because lost money is a bitch to get back. I just have this feeling that the day I sell it, something bad will happen. I am thinking of taking any new money to put into a variable account and try to go back to trading to add some spice to the portfolio. I have a bunch of rare earth stocks left from earlier trades that are down like 65% and probably not worth selling at this point but it's a small percentage of my money, about 40k. Everybody hates commodities now after years of loving them. It's like a switch went off and it will take some serious inflation numbers to get them going again. Were nowhere near that so far. It's interesting to me that outside of Harry Browne, you don't hear of any investment pros who run their business using his philosophy. Its mainly individual investors like those here in this awesome forum. I am reading all the advice here and it really helps tremendously because you guys are really on top of the numbers. Great stuff!!

[portart]

PS. The rates on all loans are 3.75% because they are tied to my house as there is enough equity to qualify them.

[Reub]

Yes, please publish the paper that Harry Browne wrote for you. I would love to see it!

[sophie]

Yes, please publish the paper that Harry Browne wrote for you. I would love to see it!

+1.  I'd love to see it too!

Not completely sure from your post but it sounds like the PRPFX fund is all in taxable.  Given how long you've held it, selling it now would be a tremendous tax hit on top of your high income, it would probably cost you a lot more than $15,000/year.  Current performance notwithstanding, PRPFX is not a terrible place to keep your money, and its inflationary bent makes it a good backstop for the annuity and SS. 

And I'd also pay off the school loan now, and then the mortgage when you retire.  Given the size of your nest egg it may be worthwhile to consult an estate planning attorney, if you haven't already.  That might be a better use of your time & financial acumen.  You've done very well already, and you certainly are under no obligation to take on new financial challenges that probably won't make much difference for you in the long run.

Incidentally, does anyone think it might be useful to set up a separate "help & advice" category?

[frugal]

Yes, please publish the paper that Harry Browne wrote for you. I would love to see it!

+3








TALMUD ROCKS!

Diversify that big amount of money. But with such amount I don't think you have too much to hurry about. SAVE for Sons or daughters ?

[dualstow]

Incidentally, does anyone think it might be useful to set up a separate "help & advice" category?

I was thinking that, too. Something like bogleheads' Help With Personal Investments section, which I have found very useful over the years. (Separate from a News and Theory section).

[portart]

All of this money (except $180,000) , including the annuity bought in 2009, is non taxable money. That is of course, until I start using it. I can sell or redistribute it without a tax event inside of the 401k or IRA. If I pull some out to pay off the house or the loan, I will have to pay tax on it at a high tax rate because of my income. It's actually the same thing though when I pay a little at a time through profits because none of it is tax deductible. I just don't pay it in a big chunk. I don't want to use the cash $180k because it is my backup in case I need to buy a car or something goes awry.

Would you still pay off these loans (house and loan) now and pay the tax?

[portart]

What do you think of me selling my PRPFX and going to this...


Schwab Offers More Commission Free ETFs for the Permanent Portfolio
Forum member KevinW found this piece of good news from Schwab. They have expanded their list of ETFs that trade commission free to now include a gold ETF:

Schwab Commission Free ETFs

Notably, the list includes ETFS Physical Swiss Gold Shares (SGOL). So it is now possible to implement a 4×25 PP at Schwab with zero commissions: SCHB, SCHO, SGOL, and individual bonds.

Translated for the ticker-impared:

25% Stocks - SCHB – Schwab’s U.S. Total Stock Market ETF (Expense Ratio of 0.04%!)

25% Cash – SCHO – Schwab’s Short-Term U.S. Treasury Notes (Expense Ratio of 0.08%)

25% Gold – SGOL – Physical Swiss Gold ETF (Expense Ratio of 0.39%)

25% Bonds – Buy them directly from Schwab’s bond desk (Expense Ratio of 0.00%!)

First preference for gold ownership is still going to be one of the physical storage options we list out in our book. But if you need (or want) to use an ETF, SGOL is a definitely an option to consider and I’m glad Schwab now makes it available in this program.

Commission-free of course doesn’t mean you go in and start trading your Permanent Portfolio! What it means is, more than ever, it’s very cheap to setup and maintain the portfolio. With the above ETFs you can have an expense ratio well under 0.15% a year. The less you pay in management fees, the more money you keep!

[Ad Orientem]

I am a big fan of the KISS rule (keep it simple stupid). With that view in mind, and conceding that PRPFX is actually a pretty decent investment vehicle particularly given that you have income streams outside of it, I would favor the 4x25% PP for a few reasons. First it's cheaper. You save on fees and expenses and that adds up to big money overtime because those fees and expenses are like compound negative interest on your long term returns. We are talking a lot more than $15k here. Secondly you are more diversified. Third you are indexing your stocks which is almost always going to produce better returns than active management and stock picking. And lastly as mentioned by others it adds greatly to your safety.

So if I had 2.65 M this is how I'd invest it...

I'd set u a portfolio consisting of 2.6 million (keep the $50k in the bank for mad money)...

25% Held directly or you can use TLT which entails a slight increase in risk traded for greater convenience
25% SHV (or alternatively SHY or SCHO but I don't like my CASH being more than 12 months out on the curve right now)
25% VTI or VT if you want some international exposure in stocks.
25% Gold split between IAU and physical which you can hold in two safe deposit boxes at different banks. IAU would be mainly for rebalancing so you should not have to sell your physical.

And then just review every 6 months or so and rebalance as needed (15% and 35% for any asset).

All of the above having been said I will repeat that I think your current portfolio is not bad. Yes, I think you can do better with the 4x25% version but PRPFX is one of VERY few actively manged funds I would ever recommend to someone. My only real heartburn is the expense ratio which will really hit your returns over time.

P.S. Just saw the preceding post... I have absolutely no issue with what was written there.

[frugal]

I really would like to use USPP.
I have only a EUPP.

Do you recommend it?

[BearBones]

A couple of thoughts:
1. A risk free 3.75% rate of interest looks pretty good right now, so paying off the mortgage is attractive (but you will be kicking yourself if we get into high inflation).
2. I like the idea of institutional diversity if you can do it (as KevinW is promoting), especially when dealing with such large amounts.
5. I like the idea of holding bonds directly. Vanguard and Fidelity are tops for this, IMO, since there are no hidden fees.. If holding "deep" cash in t-bills/notes bought directly, I like the Fidelity autoroll option that has been discussed elsewhere.
3. I especially like the idea of not having 2 or more ETFs from the same institution. I would not hold more than one from Blackrock (SHV, SHY, TLT, IAU). And, similarly, I would not hold more than 1 Schwab ETF (especially if the account is at Schwab).
4. If going with ETFs, I'd focus on liquidity and ER. I would largely ignore free trades, since you will not be trading much. A $10 fee a few times a year is petty cash here.
Hope that is helpful.

[portart]

This is very helpful indeed! I am going to liquidate $50k at a time so I am not out of the market even though it's like seven bucks a trade. I will start diversifying into these other choices until I am at least half out of PPRFX and then re access. My issues will be learning out to rebalance in a timely manner correctly.

It is really bothering me that PPRFX is showing so little movement now. Harry's idea of the fund is to let any of the areas moving to carry the growth. He stressed being super sensitive aggressive growth companies so if the market moves, it will reflect growth.  Well the market is moving and the fund isn't showing even a fraction of the gains so when it stops going up, we are going to go down. Basically what ever market timing they are doing in respect to the companies being held are not volatile enough on the upside to overcome the other parts that are holding still. Holding only stocks heaving in materials and ignoring tech, etc. is market timing IMO and PPRFX is paying the price right now. 

In another but unrelated topic, I see the Rare Earth stocks have started moving quickly the last few days. I don't know if this is tied to the beginning of commodities making a recovery or inflation but it's something to pay attention to. They have been killed over the last year and the sellers are all washed out. I am holding them, down about 45 to 65 percent over what I paid for them believing in "wealth in the ground" rarely goes to zero. Take a look at REE if you want to check out the trend. No recommending anything but just to notice the change in this area. Some of the gold stocks are also waking up.

[dualstow]

It is really bothering me that PRPFX is showing so little movement now.

But you enjoyed a 10% annualized gain in PRPFX for quite some time. You've done well!

[Dieter]

"  It is really bothering me that PPRFX is showing so little movement now  "

While there are some general concerns with PRPFX (inflation tilt, cost, active stock picking, Swiss Franks, ....), is the current tracking error specific to its PP implementation?

For a pure PP:

Cash flat (25% of portfolio)
LTTs & Gold down (50%),
Stocks up (25%).

As you say, many years of 10% returns, driven by LTT and Gold, so not surprising to me.

PERM (the other one stop PP fund I'm aware of) isn't going gangbusters either.

FWIW, I have a little in both. Re-considering PRPFX due to the fees and active stock picking.

[portart]

I started moving money around already out of PRPFX, Breaking it up into SCHB, SGOL, SCHO and TLO in even amounts. Once I have about half my portfolio in those, I will watch both this combo and compare it against PRPFX when the market moves in different ways and see how they respond going forward. If we do a have big inflation push which is going to happen eventually (who knows when), I want to see if PRPFX will have a higher return.

Once again yesterday the Dow was up .47% and PRPFX went down .01 although gold gave back some gains from the day before. The thing to notice is when the market was up  and gold was also on Thursday, PRPFX show no gain. Now the market is up again and gold is down a little less, PRPXF is still going no where.  The question then is, what combination is necessary for PRPFX to get back to 50 a share??? It feels like it's stuck in no man's land.

When the party stops, it's time to find a way to have PP respond as it was designed to do which is respond positively to one of the four sectors experiencing a major upswing, in this case stocks. If you check out he performance of PPRFX over the last few months, it has dropped from 50 to 48 and change with gold hanging around 1600 and market up strongly. All things being equal, PPRFX should have at least held 50, if not gone higher.