Tax Efficiency: Being 100% invested in the PP in a taxable account?

[dvcb]

Currently I am $15,000 invested in the Permanent Portfolio in a taxable account. I also have $50,000 that my parents have saved up for me tucked away separately in a savings account.

See, initially I was planning on moving $5,000 from my savings to the PP every year to take advantage of the Roth IRA. However, as I am currently working in Japan and I don’t know for sure when I will have taxable income in the US to be able to contribute to tax efficient accounts, I started contemplating whether I should just put all this money in a taxable brokerage account without worrying too much about tax efficiency. I plan to be fully invested in the PP and that comes out to $65,000.

Here’s my current allocation in the PP:
$5,000 VTI
$5,000 IAU
$5,000 TLT

I ignore the SHV/SHY cash portion for now since $50k seems plenty of cash and it’s not tied up in a CD or anything. I live on the Japanese Yen so it doesn’t really matter right now. Right? I mean I’m really 76.92% cash and 7.69% each in stock, bonds, and gold.

I do plan on utilizing SHV/SHY once I have $65,000 in the PP though.

Okay, so this is where my questions start so get ready!

Is it acceptable to have 100% of the PP in a taxable account?
If this is not recommended, what should I do instead? Maybe just invest in the PRPFX until I have taxable income in the states?
This question might need a thread on its own but, is there actually a way for expats to take advantage of tax sheltered accounts?
If there is a way, which assets should I throw in the Roth first?
In either case, if I’m going to do this and increase my PP allocation to $65,000, should I consider owning individual bonds, and gold bullion? Or can that wait until I have even more invested in the PP?

I am very convinced by the premise of the Permanent Portfolio, but this is my life savings so I am still a little concerned about making the move. What should I expect? What do you recommend?

[MediumTex]

Okay, so this is where my questions start so get ready!

I'm ready!

Is it acceptable to have 100% of the PP in a taxable account?

Sure.  No problem.

If this is not recommended, what should I do instead? Maybe just invest in the PRPFX until I have taxable income in the states?

The PP is pretty tax efficient, so I wouldn't worry about it throwing off much taxable income.  PRPFX is also very tax efficient, and with a side order of EDV is behaves a lot like the HB PP.

This question might need a thread on its own but, is there actually a way for expats to take advantage of tax sheltered accounts?

It's going to be a function of your U.S. taxable income.  If foreign taxes wipe out your U.S. tax liability, you wouldn't have any income to contribute to an IRA.

If there is a way, which assets should I throw in the Roth first?

I don't think it matters that much if you are just starting out.  I would say just start out with whatever mix of taxable/non-taxable/Roth accounts you have before you and get your PP set up.  Personally, I might put LT bonds in tax deferred space first, but I think it's important to have a little of all three PP volatile assets in tax deferred space so that you can rebalance down the road with little or no tax effects.

In either case, if I’m going to do this and increase my PP allocation to $65,000, should I consider owning individual bonds, and gold bullion? Or can that wait until I have even more invested in the PP?

It doesn't have to be all or nothing.  As soon as you can, I would buy at least one gold coin, just to see what all the hoopla is about.  After you own one gold coin, you can think about buying another one at some point (you can top off your gold holdings with one of the gold funds).  As far as bonds, I would buy some individual 30 year bonds just so you know how the process works, but if you want to top off your LT bond holdings with TLT or EDV that's fine.

I am very convinced by the premise of the Permanent Portfolio, but this is my life savings so I am still a little concerned about making the move. What should I expect? What do you recommend?

I would say read all you can about the strategy, learn as much as you can about yourself, and only proceed when you are comfortable that you understand the strategy and that it is right for you.

[dvcb]

Hey Medium Tex! I've been browsing these forums for several months now, but it wasn't until recently that I created an account. I have to say that your posts were what convinced me to consider the PP in the first place, so I couldn't thank you enough for that.  And of course, thank you for the fast reply!

While you're here, I have two more questions.

1. Since my wage is in Yen, my disposable income is also in Yen. And although I don't make much it's enough to cover basic living expenses. Japanese health insurance is pretty good so I don't have to worry much about having an emergency cash reserve for such occasions. Does this mean that I can be 33% gold 33% stock 33% bond, and just have my cash portion be in Yen in a Japanese bank account? Or will that some how destroy the magic of rebalancing between the 4 asset classes?

2. Although I have stated previously that I currently work in Japan, I plan to move back to the states in 3-5 years. When that happens I can start transferring assets out of the taxable account into the tax-sheltered accounts. In my case this will most likely be Roth IRA and 401k. For the year 2012 the IRA limit is $5000 and the 401k limit is $17000 for a total of $23,000 that I can contribute yearly. So theoretically, I could have all my assets in the PP in tax-sheltered accounts in less than 3 years (23,000 x 3 > 65,000) after moving back to the states, right? Or are there any complications in the transfer process that I should be aware of? Is this the most efficient way of approaching this?

[MediumTex]

Hey Medium Tex! I've been browsing these forums for several months now, but it wasn't until recently that I created an account. I have to say that your posts were what convinced me to consider the PP in the first place, so I couldn't thank you enough for that.  And of course, thank you for the fast reply!

Thanks, and welcome to the site.

While you're here, I have two more questions.

1. Since my wage is in Yen, my disposable income is also in Yen. And although I don't make much it's enough to cover basic living expenses. Japanese health insurance is pretty good so I don't have to worry much about having an emergency cash reserve for such occasions. Does this mean that I can be 33% gold 33% stock 33% bond, and just have my cash portion be in Yen in a Japanese bank account? Or will that some how destroy the magic of rebalancing between the 4 asset classes?

I would do everything you can to start out with a 25%x4 allocation.  After spending some time with this approach, you might consider moving to a 33%x3 if you can handle the increased volatility, but I think it's important to get comfortable with the basic strategy before you start making changes to it (even changes that are well understood such as 33%x3).

2. Although I have stated previously that I currently work in Japan, I plan to move back to the states in 3-5 years. When that happens I can start transferring assets out of the taxable account into the tax-sheltered accounts. In my case this will most likely be Roth IRA and 401k. For the year 2012 the IRA limit is $5000 and the 401k limit is $17000 for a total of $23,000 that I can contribute yearly. So theoretically, I could have all my assets in the PP in tax-sheltered accounts in less than 3 years (23,000 x 3 > 65,000) after moving back to the states, right? Or are there any complications in the transfer process that I should be aware of? Is this the most efficient way of approaching this?

Depending on your income, you might phase out of eligibility for a Roth IRA contribution.  You would also need to be working for an employer that offered a 401(k) plan that had suitable investment options for a PP (most don't).