% of gold asset in ETF or CEF for rebalancing purposes

Discussion of the Gold portion of the Permanent Portfolio

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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by pugchief » Fri Jun 14, 2019 4:41 pm

Is AAAU trading commission-free anywhere?
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by sophie » Sat Jun 15, 2019 8:52 am

LittleDinghy wrote:
Fri Jun 14, 2019 9:31 am
So, it sounds like for the PP, the recommendation is to keep about 36% in physical gold in a taxable account, and a corresponding 64% in one or more ETFs in tax advantaged accounts. And from reading other posts in the gold forum, given that my wife and I are getting close to retiring (8-1/2 & 3-1/2 yrs away, respectively), the best type of tax advantaged account for us to use for the ETFs are our Roth accounts. Am I reading the advice correctly?

Of course the percentages above need to be modified a bit since we've decided to use more of a GB than a PP.
It doesn't have to be that precise, but it sounds like a good plan.

Because gold doesn't generate dividends, it's not a great use of Roth space. I do like it for tax-deferred accounts. Anything coming out of those gets taxed as ordinary income, so for most it's not worse than paying collectibles tax. This isn't the case for stocks, which get terrible tax treatment in those accounts. Ideally I want my Roth to make insane gains in the long term and my tax-deferred account to shrivel up and die. So I pack my Roth, HSA, & taxable accounts with stocks, and prioritize gold, cash, and bonds (about in that order) for tax-deferred.
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by LittleDinghy » Mon Jun 17, 2019 11:31 pm

My apologies for my probably poor way of writing the following. This is all so new to me that everything is not clear enough yet for me to be able to write about it well.

Our in-service 401k, SSP (Employer supplementary savings plan), 403b, 401a, and 457b do not contain treasury funds, or even good equivalents; the best choices for these accounts are the equities. We have most of our 25-30 year T-bonds and our cash (1-3 year T-notes and T-bills) in rollover IRAs that I've created by rolling over a 401k from a previous employer as well as by rolling over what I didn't need for equities in the current 401k (which latter allows partial in-service rollovers). We had some money in 2 Roths (his and hers). There is no way to get more money into her Roth, but in 2018 I started adding money to my Roth by rolling over both after tax deposits, as well as pre-tax deposits (up to my marginal tax rate ceiling), into my Roth, and I plan to continue such Roth conversions each year until I retire at the end of 2022. One of the Roth accounts is partially in equities (to make up the rest of the equity position for the whole Portfolio). The rest of that Roth and all of the second Roth are presently in long term Treasuries to make up the remainder of the whole Portfolio's long term treasuries position. So, all of that makes up the equity position, the 25-30 year treasury position, and most of the cash position. I made the conversion to all of the above in the last 2-3 weeks. What is left and not yet invested is the brokerage account. I was intending to cash out enough of the brokerage account to buy the full gold position in physical gold. The remainder left in the brokerage account would be in T-bills, rounding out the full cash position. I should also mention that I'm doing a nearly pure GB, rather than the PP, so the equity position is 40%, with the bonds 20%, cash 20% and gold 20%.

Now, with the advice I'm seeing here, it seems I should instead have, 20-40% in physical gold and 60-80% in funds (sounds like AAAU is preferred over Schwab's and Fidelity's commission-free gold fund options, despite the relatively small overall holdings in AAAU implying less liquidity than the others if selling of shares for rebalancing were required). So it seems to me that I need to decide whether to prioritize the portion of our Roth accounts after equities for gold (AAAU or other funds), long term treasury bonds, or cash (1-3 year treasury notes). Remember from the above that it seems we have no choice but to place our equities in our active 401k, SSP, 403b, 401a, and 457b.

Your thoughts on what to put in our Roths, given the limitation for where we can put our equities, would be much appreciated!

Also, one other concern. Despite mentioning in several spots that it might be a good idea to hold some of one's gold in funds for ease of rebalancing, the book, "The Permanent Portfolio" really seems to emphasize that gold should primarily be held in physical. Yet, thinking about three consecutive gold rebalancings leads one to primarily hold gold in funds. What is the reasoning that one can use to resolve this dichotomy one way or the other?
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by pmward » Tue Jun 18, 2019 9:36 am

LittleDinghy wrote:
Mon Jun 17, 2019 11:31 pm
My apologies for my probably poor way of writing the following. This is all so new to me that everything is not clear enough yet for me to be able to write about it well.

Our in-service 401k, SSP (Employer supplementary savings plan), 403b, 401a, and 457b do not contain treasury funds, or even good equivalents; the best choices for these accounts are the equities. We have most of our 25-30 year T-bonds and our cash (1-3 year T-notes and T-bills) in rollover IRAs that I've created by rolling over a 401k from a previous employer as well as by rolling over what I didn't need for equities in the current 401k (which latter allows partial in-service rollovers). We had some money in 2 Roths (his and hers). There is no way to get more money into her Roth, but in 2018 I started adding money to my Roth by rolling over both after tax deposits, as well as pre-tax deposits (up to my marginal tax rate ceiling), into my Roth, and I plan to continue such Roth conversions each year until I retire at the end of 2022. One of the Roth accounts is partially in equities (to make up the rest of the equity position for the whole Portfolio). The rest of that Roth and all of the second Roth are presently in long term Treasuries to make up the remainder of the whole Portfolio's long term treasuries position. So, all of that makes up the equity position, the 25-30 year treasury position, and most of the cash position. I made the conversion to all of the above in the last 2-3 weeks. What is left and not yet invested is the brokerage account. I was intending to cash out enough of the brokerage account to buy the full gold position in physical gold. The remainder left in the brokerage account would be in T-bills, rounding out the full cash position. I should also mention that I'm doing a nearly pure GB, rather than the PP, so the equity position is 40%, with the bonds 20%, cash 20% and gold 20%.

Now, with the advice I'm seeing here, it seems I should instead have, 20-40% in physical gold and 60-80% in funds (sounds like AAAU is preferred over Schwab's and Fidelity's commission-free gold fund options, despite the relatively small overall holdings in AAAU implying less liquidity than the others if selling of shares for rebalancing were required). So it seems to me that I need to decide whether to prioritize the portion of our Roth accounts after equities for gold (AAAU or other funds), long term treasury bonds, or cash (1-3 year treasury notes). Remember from the above that it seems we have no choice but to place our equities in our active 401k, SSP, 403b, 401a, and 457b.

Your thoughts on what to put in our Roths, given the limitation for where we can put our equities, would be much appreciated!

Also, one other concern. Despite mentioning in several spots that it might be a good idea to hold some of one's gold in funds for ease of rebalancing, the book, "The Permanent Portfolio" really seems to emphasize that gold should primarily be held in physical. Yet, thinking about three consecutive gold rebalancings leads one to primarily hold gold in funds. What is the reasoning that one can use to resolve this dichotomy one way or the other?
One thing to remember is that these things do not need to be perfect. There is some flexibility in the system. This is supposed to be a simple system, not a complicated one. We humans have this natural tendency to want to just complicate the hell out of everything. There's not much benefit in over complicating the PP. None of us have a perfect portfolio. We all have constraints that cause us to have to deviate from utopia in one way or another. It's ok, it's the fundamental principles that matter more than the tiny micro details. Don't overcomplicate things to the point that they are unmanageable, doing so is going to be a whole lot of work that is not likely to improve your return much. Good enough is really good enough.
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by LittleDinghy » Tue Jun 18, 2019 11:11 pm

pmward wrote:
Tue Jun 18, 2019 9:36 am
One thing to remember is that these things do not need to be perfect. There is some flexibility in the system. This is supposed to be a simple system, not a complicated one. We humans have this natural tendency to want to just complicate the hell out of everything. There's not much benefit in over complicating the PP. None of us have a perfect portfolio. We all have constraints that cause us to have to deviate from utopia in one way or another. It's ok, it's the fundamental principles that matter more than the tiny micro details. Don't overcomplicate things to the point that they are unmanageable, doing so is going to be a whole lot of work that is not likely to improve your return much. Good enough is really good enough.
Thank you for your kind remarks. But I still feel the need for guidance on my questions, which I'll try to state more clearly here:
1) Where should I put the gold funds and 25-30 yr T-bonds? Should I place the gold funds in Roths and 25-30 yr T-Bonds in rollover IRAs? Or should I place the gold funds in the rollover IRAs and the 25-30 yr T-bonds in the Roths? Recall that my equities are all in employer sponsored tax deferred accounts (401ks and the like) because there are no treasury funds or substitutes.
2) If I'm putting 60-80% of my gold in funds for rebalancing purposes (in the event of 3 consecutive gold rebalancings), does AAAU really make sense? Right now it has low total assets, $104.7M, compared to IAU, $11.8B (commission free at Fidelity), and even compared to GLDM, $693.3M (the commission free gold fund at Schwab). I'm wondering if lower total assets will make selling more difficult when rebalancing is required.
3) Despite mentioning in several spots that it might be a good idea to hold some of one's gold in funds for ease of rebalancing, the book, "The Permanent Portfolio" really seems to emphasize that gold should primarily be held in physical. Yet, thinking about three consecutive gold rebalancings leads one to primarily hold gold in funds. What is the reasoning that one can use to resolve this apparent contradiction one way or the other?

Thank you all!
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by pmward » Wed Jun 19, 2019 9:40 am

LittleDinghy wrote:
Tue Jun 18, 2019 11:11 pm
pmward wrote:
Tue Jun 18, 2019 9:36 am
One thing to remember is that these things do not need to be perfect. There is some flexibility in the system. This is supposed to be a simple system, not a complicated one. We humans have this natural tendency to want to just complicate the hell out of everything. There's not much benefit in over complicating the PP. None of us have a perfect portfolio. We all have constraints that cause us to have to deviate from utopia in one way or another. It's ok, it's the fundamental principles that matter more than the tiny micro details. Don't overcomplicate things to the point that they are unmanageable, doing so is going to be a whole lot of work that is not likely to improve your return much. Good enough is really good enough.
Thank you for your kind remarks. But I still feel the need for guidance on my questions, which I'll try to state more clearly here:
1) Where should I put the gold funds and 25-30 yr T-bonds? Should I place the gold funds in Roths and 25-30 yr T-Bonds in rollover IRAs? Or should I place the gold funds in the rollover IRAs and the 25-30 yr T-bonds in the Roths? Recall that my equities are all in employer sponsored tax deferred accounts (401ks and the like) because there are no treasury funds or substitutes.
2) If I'm putting 60-80% of my gold in funds for rebalancing purposes (in the event of 3 consecutive gold rebalancings), does AAAU really make sense? Right now it has low total assets, $104.7M, compared to IAU, $11.8B (commission free at Fidelity), and even compared to GLDM, $693.3M (the commission free gold fund at Schwab). I'm wondering if lower total assets will make selling more difficult when rebalancing is required.
3) Despite mentioning in several spots that it might be a good idea to hold some of one's gold in funds for ease of rebalancing, the book, "The Permanent Portfolio" really seems to emphasize that gold should primarily be held in physical. Yet, thinking about three consecutive gold rebalancings leads one to primarily hold gold in funds. What is the reasoning that one can use to resolve this apparent contradiction one way or the other?

Thank you all!
1) Until you are able to roll your 401k over after you retire, I would personally put the bonds in tax deferred and gold in Roth. This simply because you will want the bonds in tax deferred both before and after retirement. But it probably doesn't matter to be honest. Just do whatever you gotta do to get your allocation as close to your desired percentages as possible.

2) You're over thinking this. I wish they hadn't mentioned the mix and rebalancing thing. If you want to be super anal you can go that route. Or you can go all physical or all ETF. I mean these things really don't matter all that much. You're not going to be selling often so I wouldn't worry about the spread in AAAU. AAAU is still a very new ETF, by the time you actually need to do a rebalance it will have more assets under management / liquidity. It's an ETF, like GLDM, that is meant for buy and hold. The ER matters much more than liquidity for a long term hold.

3) The book did mention that things should be primarily held physical, and physical is a great way to hold gold. But the point we were getting at is that AAAU is "as good as gold" because it is an ETF that can be exchanged in kind for gold that is allocated and backed by the government of western Australia. This ETF did not exist at the time of the book. If it had, it is possible that their recommendations may have been stated differently, especially considering that a .18% ER is SO much cheaper than physical for anything other than a lifetime hold. Their main concern in the book with ETF's was safety. But I think AAAU checks all the boxes for safety. I think it's just as safe as a Perth Mint unallocated account at the end of the day. It's your choice. Don't overthink these things. Just do whatever is easiest and safe enough for you to sleep at night. Diversity in holdings isn't bad either, some physical, some AAAU, some in an unallocated account somewhere, etc can work, but it adds complexity. Don't complicate these things to the point that you will not comply with the rules. Simplicity is usually best, and this is a trait that Harry personally spoke a lot about that has kind of gotten lost in the book and on these forums. Harry routinely chose simplicity over optimization.
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by LittleDinghy » Fri Jun 21, 2019 2:21 pm

pmward wrote:
Wed Jun 19, 2019 9:40 am
LittleDinghy wrote:
Tue Jun 18, 2019 11:11 pm

Thank you for your kind remarks. But I still feel the need for guidance on my questions, which I'll try to state more clearly here:

1) Where should I put the gold funds and 25-30 yr T-bonds? Should I place the gold funds in Roths and 25-30 yr T-Bonds in rollover IRAs? Or should I place the gold funds in the rollover IRAs and the 25-30 yr T-bonds in the Roths? Recall that my equities are all in employer sponsored tax deferred accounts (401ks and the like) because there are no treasury funds or substitutes.

2) If I'm putting 60-80% of my gold in funds for rebalancing purposes (in the event of 3 consecutive gold rebalancings), does AAAU really make sense? Right now it has low total assets, $104.7M, compared to IAU, $11.8B (commission free at Fidelity), and even compared to GLDM, $693.3M (the commission free gold fund at Schwab). I'm wondering if lower total assets will make selling more difficult when rebalancing is required.

3) Despite mentioning in several spots that it might be a good idea to hold some of one's gold in funds for ease of rebalancing, the book, "The Permanent Portfolio" really seems to emphasize that gold should primarily be held in physical. Yet, thinking about three consecutive gold rebalancings leads one to primarily hold gold in funds. What is the reasoning that one can use to resolve this apparent contradiction one way or the other?
1) Until you are able to roll your 401k over after you retire, I would personally put the bonds in tax deferred and gold in Roth. This simply because you will want the bonds in tax deferred both before and after retirement. But it probably doesn't matter to be honest. Just do whatever you gotta do to get your allocation as close to your desired percentages as possible.

2) You're over thinking this. I wish they hadn't mentioned the mix and rebalancing thing. If you want to be super anal you can go that route. Or you can go all physical or all ETF. I mean these things really don't matter all that much. You're not going to be selling often so I wouldn't worry about the spread in AAAU. AAAU is still a very new ETF, by the time you actually need to do a rebalance it will have more assets under management / liquidity. It's an ETF, like GLDM, that is meant for buy and hold. The ER matters much more than liquidity for a long term hold.

3) The book did mention that things should be primarily held physical, and physical is a great way to hold gold. But the point we were getting at is that AAAU is "as good as gold" because it is an ETF that can be exchanged in kind for gold that is allocated and backed by the government of western Australia. This ETF did not exist at the time of the book. If it had, it is possible that their recommendations may have been stated differently, especially considering that a .18% ER is SO much cheaper than physical for anything other than a lifetime hold. Their main concern in the book with ETF's was safety. But I think AAAU checks all the boxes for safety. I think it's just as safe as a Perth Mint unallocated account at the end of the day. It's your choice. Don't overthink these things. Just do whatever is easiest and safe enough for you to sleep at night. Diversity in holdings isn't bad either, some physical, some AAAU, some in an unallocated account somewhere, etc can work, but it adds complexity. Don't complicate these things to the point that you will not comply with the rules. Simplicity is usually best, and this is a trait that Harry personally spoke a lot about that has kind of gotten lost in the book and on these forums. Harry routinely chose simplicity over optimization.
Thank you pmward for your very thorough and thoughtful guidance! In thinking again about my questions and your responses, there is one more possibility that occurs to me. As mostly previously discussed, if we buy the gold fund (probably AAAU) in our Roths, these gold funds would make up about 67% of our total gold allocation, leaving the other 33% to be physical gold using money that I'd remove from our brokerage account; This means the 25-30 yr treasury bonds would be in our traditional IRAs. The remaining funds in the brokerage account would then be for cash (some T-bills as our emergency 1 year of expenses, but mostly 1-3 yr T-notes). Being in our brokerage account the income from the cash would be taxable.

An alternative to the above is to just buy the gold fund (probably AAAU) in the brokerage account, as well as buy the physical gold using money removed from the brokerage account. This would leave enough money in the brokerage for the 1-3 year T-Bills portion of the cash allocation (also acting as our emergency fund), which would be taxable. The remaining cash would be in traditional IRAs. In this case the taxable amounts in our brokerage account would be the income from the emergency fund and any capital gain in the gold when rebalancing. Our marginal tax bracket is 24% and likely after our retirement will remain at 24% (but some small possibility of being 22%).

Any thoughts on which of the two above scenarios would be preferred?

Also, obviously I'm getting close to pushing the buttons on buying this gold right when gold is taking off (I pushed the button on the equities a couple of weeks ago). So, I'm also wondering whether I should buy gold (funds and physical) now or wait to see if they subside. Any thoughts on this question would also be much appreciated.
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by LittleDinghy » Sat Jun 22, 2019 5:25 am

In the second scenario in my last post I failed to mention that the 25-30 year T-bonds would be in our Roth accounts.
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by pmward » Sat Jun 22, 2019 10:22 am

It's a balancing act. I have most of my cash allocation in taxable as well because that just how my assets aligned. The real priorities are to have as much bonds in traditional as possible, as much stocks in Roth and HSA (if applicable) as possible, and then fill in the gold wherever you can (I prefer taxable on gold, but it's fine to hold in an IRA, preferably traditional, if that's the constraints you have). So I personally would choose the second option, that actually most closely matches the tradeoffs I made in my accounts. Some people prefer to have some gold in IRA's for rebalancing, but I don't think it's a big deal personally since it throws off no yield and can be offset with capital losses in other places.
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by LittleDinghy » Sun Jun 23, 2019 5:22 am

Thank you pmward. You are giving us a lot of confidence that we are doing the right thing. Now all I have to do it somehow decide to buy the gold at around 1400. It is hard psychologically when I almost bought it at 1280 a few weeks ago. It feels like I should just go ahead and do it as my sense is that its not going back down again any time soon, and may continue going up. How would you experts at this respond to this challenge? This will be the first gold I've ever bought, and on the heels of implementing the rest of the portfolio in the past few weeks, also for the first time. All big scary moves for us!
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by flyingpylon » Sun Jun 23, 2019 6:14 am

LittleDinghy wrote:
Sun Jun 23, 2019 5:22 am
Thank you pmward. You are giving us a lot of confidence that we are doing the right thing. Now all I have to do it somehow decide to buy the gold at around 1400. It is hard psychologically when I almost bought it at 1280 a few weeks ago. It feels like I should just go ahead and do it as my sense is that its not going back down again any time soon, and may continue going up. How would you experts at this respond to this challenge? This will be the first gold I've ever bought, and on the heels of implementing the rest of the portfolio in the past few weeks, also for the first time. All big scary moves for us!
I am by no means an expert and I have not followed every detail in this thread. But when faced with similar situations I always try to remember that I’m buying into an asset allocation, not just a specific asset. So you either believe in your allocation or you don’t. If you believe in it, then you have to buy the required assets and it all works out in the end. I bought some gold back in the $1700 range (ouch) but I’ve also bought some much lower than that and the overall portfolio has performed well over the years. You just never know what asset is going is going to lead the charge over any given time period, and you have to own them all to take advantage of that.
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by pmward » Sun Jun 23, 2019 10:06 am

LittleDinghy wrote:
Sun Jun 23, 2019 5:22 am
Thank you pmward. You are giving us a lot of confidence that we are doing the right thing. Now all I have to do it somehow decide to buy the gold at around 1400. It is hard psychologically when I almost bought it at 1280 a few weeks ago. It feels like I should just go ahead and do it as my sense is that its not going back down again any time soon, and may continue going up. How would you experts at this respond to this challenge? This will be the first gold I've ever bought, and on the heels of implementing the rest of the portfolio in the past few weeks, also for the first time. All big scary moves for us!
If it puts you at ease at all, from a technical standpoint there is no real hard resistance in gold until almost $1700. So if the breakout doesn't reverse in quick order here, there's a lot of room for this rally to run before the big institutional shorts will start to try to fade the rally. Buying a breakout is always tough, because breakouts like this either breakout like mad, or they reject and pull back. FWIW, while it is possible gold could reject, I don't think there is a lot of room for it to go down. It's about as safe of a breakout as you can buy, as the potential reward far outweighs the risks. If you are too nervous you could DCA once a week for the next two months or something like that? If we get a runaway breakout you might lose a bit on the whole, but you at least had some of your cash in play instead of standing on the sidelines too scared to do anything. Or you could wait until this coming Friday at the last hour of the trading day to see if we are going to get another weekly close above $1375, and if we do just pile it all in. I would feel reasonably comfortable with 2 weekly closes above that level. That also happens to be the end of month, so that gives some extra confidence as a lot of hedge funds make big moves on Fridays and on the last trading day of the month. Or you could do what flying said and just throw it all in tomorrow. Either way, the PP is set up so you are hedged, even if in the very slim chance gold should not only reject the breakout but have a violent breakdown (once again, I think this is very unlikely since gold has built a solid base over the last 5 years, there just isn't much room to go down, imo).
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