The PP gold portion vs EU UCITS requirements

[ulrik]

Hi all,

I am trying to set up a PP for some of my tax-deferred pension funds and have some struggle in this regard with the gold part: I live in Denmark where there are some heavy restrictions on what you can do with such savings - physical gold is completely out of the question and ETFs must be UCITS approved. I assume most Europeans are in the same situation?

I found a few different funds, e.g. "ETFS Physical Swiss Gold" that were UCITS "eligible" but wondered why I couldn't buy them in any banks - it turns out, "eligible" is not the same as "compliant". This just means that they "might" qualify to be included in another UCITS compliant fund. But apparently no such exists.

I have been suggested to invest in mining ETFs instead as they are available - but that is completely out of the question for the PP. Sad that some politicians have decided that this is safer for me than diversifying into gold...

Pulling out the money of the tax-deferred pension incurs an immediate tax penalty of 60% so this is not an option. As funds cannot freely be transferred in or out of the pension, it is not an option either with a gold portion outside the tax-deferred savings as rebalancing is impossible.

Do anybody have some good suggestions? Simply start from scratch now outside the tax-deferred pension account?

Thanks for any input!

[Pointedstick]

It sound like you are in the same situation as many U.S. residents with 401k accounts that have limited options. In these situations, it's usually easiest to stop trying to swim upstream and just implement a fairly conservative stock-bond mix using what's available. Since the money is effectively locked up for decades, it's not the worst thing in the world if the portfolio experiences more volatility than the PP would. Just make it progressively more conservative as you approach retirement, replacing more and more of the stocks with cash and short-term bonds.

[rickb]

Can you buy stocks on US or Canadian exchanges?  If so, the gold closed end funds GTU or PHYS might be an option.  These don't track the price of gold as closely as the gold ETFs (they can trade at a discount or premium that might vary from about -20% to +20%), but they are far simpler than the ETFs as well - i.e. there are pluses and minuses.

If there is simply no way to include gold in your tax deferred account you can invest in a conservative stock/bond mix as PS suggests, or you can accumulate gold outside of this account.  With the latter approach when you're rebalancing selling gold would not be an issue (sell gold and invest in the other assets outside of your tax deferred account).  Buying gold when rebalancing would be an issue.  If you're accumulating you could rebalance to 1/3, 1/3, 1/3 in your tax deferred and accumulate gold as possible - this means your rebalance (in this direction) happens slowly. 

[ulrik]

Thanks a lot for your comments, @Pointedstick and @rickb!

I can buy foreign stocks with no problems but ETFs are restricted to the UCITS compliant ones . It is up to the individual banks to enforce these restrictions, I have heard about people who managed to trade the non-compliant ETFs despite these - and were then forced to immediately back out of the investments when the flaw was discovered. I will double check the closed end funds you mention!

My portfolio is already fairly conservative but I decided to separate out 1/3 of it into the PP and would really prefer if it is possible to set it up. I didn't think of rebalancing to the other assets outside the tax deferred account, this is a splendid idea !

[ulrik]

Just tried - GTU and PHYS are not possible to buy either

[LC475]

In keeping with the PP philosophy of diversification, one does necessarily not want 100% of one's savings tied up in a tax-deferred pension anyway.  If you agree, that means a sizable portion of your savings should be in "taxable" accounts -- outside of the tax-deferred lock box.  And so, as you implement this diversified plan the solution will become apparent:

* Use the tax-deferred pension for the stock and bond divisions of the Permanent Portfolio, and perhaps some, or up to most, of the cash as well.

* Use your outside-the-pension funds for buying physical gold.  And of course enough of the cash to cover your spending needs should also be liquid, not locked up in the pension.

Gold generates no taxable income anyway.  No interest, no dividends, no profit, nothing.  It just sits there.  So, it is a perfect candidate to be kept outside of a tax-deferred plan.  There's nothing to defer!