Help with multiple accounts and a twist...

[MikeK]

Hi all.  First time poster and not that long of a reader....though what I've read so far about the PP has made the most sense of any investment strategy I've come across to date.

Like most people, I've got questions about how to allocate a PP given my current investment accounts.  I'll get to the twist below.

Currently, I've got a large percentage of my savings in my 401k, followed by my wifes 457 plan and finally our taxable and Roth accounts.


401k50%
457b13%
Roth112%
Roth28%
Taxable/brokerage17%


While I've not 100% ready to take the plug to a PP allocation yet, I did decide to try and simulate how I would implement it given my above options as a step in the right direction.  I looked over my 401k plans offerings and found something that would work fine for the Stock portion (a fund that tracks the Dow Jones US Total Stock Market Index).  This leaves the other half of the 401k to one of the other asset classes.  I don't have a brokerage window that I'm aware of (still looking into that), so Gold is not an option.  As for the Bond/Cash options, I see things that have some of the cautions mentioned elsewhere.

Bonds (both mention they can hold up to 20% non-Treasury)

• PGOVX
• VUSUX

Cash

• FFXSX
• FSGDX
• FVIRX

I've yet to look into the options for my wife's 457b, but I'm guessing it'll be similarly limited.

Now, the twist.  I'm also trying to implement "FIRE" (Financial Independence, Retire Early).  From my current holdings and projections on expenses, I believe that I've sufficiently funded my tax-advantage retirement accounts today such that they will grow to cover my needs at official retirement age (60).  My next goal would be to beef up my taxable accounts such that I can live off those assets until I'm able to access the funds at ~60 (I'm currently 37 and would like to have the choice to stop working in ~10 years...).

So, outside of contributing to my 401k to get the company match, I have no need to put any more funds into those accounts.  I plan to redirect the rest of what I'm saving to my taxable accounts.

Some specific questions since I've covered quite a bit of ground already in my first post

1. Is the PP even applicable for an investment portfolio that is expected to be needed in ~10 years and withdrawn from for current living expenses?  (my time from ~47 to 60 years old)

2. How best to allocate my assets to 4x25% given my above accounts holdings/options?

3. And also some thoughts on the mechanics of rebalancing between these accounts (For example, if the assets in my 401k are over/under, how can i shrink/grow them when I can't access the money until I'm 60?)

And finally, thanks to anyone willing to give a random guy on the internet advice.  I'm glad I stumbled on this forum and the Crawling Road blog, though I wish I'd found it many years ago....

mike

[AdamA]

And finally, thanks to anyone willing to give a random guy on the internet advice.

I think you'll find that most people on the site enjoy giving advice.

Bonds (both mention they can hold up to 20% non-Treasury)

• PGOVX
• VUSUX

Cash

• FFXSX
• FSGDX
• FVIRX

VUSUX is probably okay for the bond portion.  It's not as good as TLT.  Compare the two on Google Finance over the past 5 years and you'll see the difference.  I think it will work okay if it's all you have access to, though.

FFSXS is similar.  If it's all you have access to, it's probably okay.  The problem is that it holds a lot of non-treausry stuff (most notably Fannie Mae debt) but it looks like it's mostly Treasury notes, so that's good.

Neither are ideal, but they should both work okay...just beware of the risks and limitations.  

Craig wrote about this a few months ago.

https://web.archive.org/web/20160324133 ... n-a-leash/

1. Is the PP even applicable for an investment portfolio that is expected to be needed in ~10 years and withdrawn from for current living expenses?  (my time from ~47 to 60 years old)

Absolutely.

2. How best to allocate my assets to 4x25% given my above accounts holdings/options?

You're going to have to buy some gold in a non tax protected account.  It sounds like you might have a lot more in your retirement account than you do in your taxable account, so I have a feeling you won't be able get your gold holdings up to 25%.  

You might start with just 10% or so (or whatever you can get to) and add to the position over time.  Keep in mind that although 25% is ideal, just having 10% or so gold and 10% or so LTT's is going to offer A LOT more protection than most investors have, so don't freak out if you can't get to a 25% x 4 right off the bat.  

I also think you need to save some cash outside of your retirement account if you plan to make early withdrawals, so you should figure out how you're going to split things up in your taxable account between cash and gold.  I'd use either Treasury Direct, a Treasury Only Money Market Fund like CPFXX from American Century, or an ETF like SHY or SHV for the cash.

3. And also some thoughts on the mechanics of rebalancing between these accounts (For example, if the assets in my 401k are over/under, how can i shrink/grow them when I can't access the money until I'm 60?)

The more cash you can keep outside of the retirements the easier this will be, but there is no right answer to how to do this.  If I were you, I'd just try to implement the PP between all your various accounts, and sort out your withdrawal options when you're ready to start doing it.  

Also, can you take out a loan against any of your retirement accounts?  This can be a useful way to move money around between accounts.  

[kobe1]

Currently, I've got a large percentage of my savings in my 401k, followed by my wifes 457 plan and finally our taxable and Roth accounts.


401k50%
457b13%
Roth112%
Roth28%
Taxable/brokerage17%

2. How best to allocate my assets to 4x25% given my above accounts holdings/options?

Hi MikeK,

Welcome to the forum.  Here is one thought about establishing a 4 x 25 PP.

You could start by using 60% of your assets in your PP and 40% in a VP.  You can use 15% from your taxable account, 15% from your combined Roths, 15% from your 401K and 15% from your wife's 457b.  This way you can try the PP without going 100% in and you can achieve the recommended asset allocation.  Then each year you can rebalance by moving funds from your VP to your PP to complement the savings you add to your PP in your taxable account.

[MikeK]

VUSUX is probably okay for the bond portion.  It's not as good as TLT.  Compare the two on Google Finance over the past 5 years and you'll see the difference.  I think it will work okay if it's all you have access to, though.

Wow, VUSUX is better than PGOVX, but still horrible compared to TLT over the last 10 years.  I'd have given up a ~13% gain over the same time period.

FFSXS is similar.  If it's all you have access to, it's probably okay.  The problem is that it holds a lot of non-treausry stuff (most notably Fannie Mae debt) but it looks like it's mostly Treasury notes, so that's good.

Neither are ideal, but they should both work okay...just beware of the risks and limitations.  

I think this is where I've got a lot of my problems.  I don't know 'what's okay' vs. what might 'break the rules', yet....

1. Is the PP even applicable for an investment portfolio that is expected to be needed in ~10 years and withdrawn from for current living expenses?  (my time from ~47 to 60 years old)

Absolutely.

So this is one thing a person coming from a 'typical' investment strategy needs to change their thinking.  In the old way, I would have to modify my asset allocations from 'risky' to 'less risky' the closer one got to the time the funds are needed.  In the PP, this isn't even an issue as all the risks are dealt with up front, hence the first 'P' in the name.  Awesome!

2. How best to allocate my assets to 4x25% given my above accounts holdings/options?

You're going to have to buy some gold in a non tax protected account.  It sounds like you might have a lot more in your retirement account than you do in your taxable account, so I have a feeling you won't be able get your gold holdings up to 25%.

 
Can't I use my Roth IRA accounts for gold (one is at Vanguard, other is Fidelity)?  Or would these accounts be better suited for other asset classes?

You might start with just 10% or so (or whatever you can get to) and add to the position over time.  Keep in mind that although 25% is ideal, just having 10% or so gold and 10% or so LTT's is going to offer A LOT more protection than most investors have, so don't freak out if you can't get to a 25% x 4 right off the bat.  

OK, so the benefits of the PP are still applicable even if some of the asset classes aren't up to 25% (or others are >25%).  As long as I'm not trying to 'outsmart' the market by willfully changing the allocations?

I also think you need to save some cash outside of your retirement account if you plan to make early withdrawals, so you should figure out how you're going to split things up in your taxable account between cash and gold.  I'd use either Treasury Direct, a Treasury Only Money Market Fund like CPFXX from American Century, or an ETF like SHY or SHV for the cash.

Since I can't move funds from my retirement accounts to taxable accounts (for living expenses) for another ~23 years, would it be simpler to setup 2 PP plans, 1 in taxable accounts and the other in tax advantaged ones?  I don't plan on accessing the funds in the latter until I'm eligible to get at them w/o penalty (though your comment below is intriguing, maybe there are ways to get at it before then?)  This would help with rebalancing too (though again, I can't move funds from my 401k to Roth, so still might not be a trivial thing to do?)

3. And also some thoughts on the mechanics of rebalancing between these accounts (For example, if the assets in my 401k are over/under, how can i shrink/grow them when I can't access the money until I'm 60?)

The more cash you can keep outside of the retirements the easier this will be, but there is no right answer to how to do this.  If I were you, I'd just try to implement the PP between all your various accounts, and sort out your withdrawal options when you're ready to start doing it.  

Also, can you take out a loan against any of your retirement accounts?  This can be a useful way to move money around between accounts.  

Very intriguing, I'll have to do some more reading about that as I've never heard of the option before.

Thanks again for help/advice!
mike

[AdamA]

Wow, VUSUX is better than PGOVX, but still horrible compared to TLT over the last 10 years.  I'd have given up a ~13% gain over the same time period.

Yes, it's not great, but keep in mind that it's only 1/4 of your portfolio.  So your PP won't lag by 13% over 10 years, only by 3.25% (13 x .25), and that's over ten years.  

(I think that math is okay...). The point is that you have to use what you have access to.  I don't see where you really have a choice.  One hack that has been suggested would be to use something like VUSUX for 1/2 of the allocation and then EDV for the other half (maybe you could buy that in your Roth, b/c it's a pain in the neck as far as taxes go).  

http://gyroscopicinvesting.com/forum/ht ... 2264#p2264

Can't I use my Roth IRA accounts for gold (one is at Vanguard, other is Fidelity)?  Or would these accounts be better suited for other asset classes?

You can, but gold is probably the most tax efficient of all the investments.  

OK, so the benefits of the PP are still applicable even if some of the asset classes aren't up to 25% (or others are >25%).   As long as I'm not trying to 'outsmart' the market by willfully changing the allocations?

I think so.  Get as close as you can, but don't sweat it too much.  It's not going to effect your long term returns that much, as long as all of the asset classes are present in reasonably large amounts.  

Since I can't move funds from my retirement accounts to taxable accounts (for living expenses) for another ~23 years, would it be simpler to setup 2 PP plans, 1 in taxable accounts and the other in tax advantaged ones?  I don't plan on accessing the funds in the latter until I'm eligible to get at them w/o penalty (though your comment below is intriguing, maybe there are ways to get at it before then?)  This would help with rebalancing too (though again, I can't move funds from my 401k to Roth, so still might not be a trivial thing to do?)

I think that is one very reasonable approach.  It might not be the most tax efficient, but the PP is pretty tax efficient to begin with, even if all the assets are held in a taxable accounts.  

Definitely look and see if you can borrow money from yourself with your 401K.  I have a plan that allows it.   It's relatively painless and offers some versatility.  

One other thing to keep in mind is that the issues you're having are issues almost everyone has when they start.  It's always difficult to hold gold and bonds in a 401k (in fact, I think you're lucky to have access to VUSUX in yours).  With the resources you have, I think you should be able to set up a PP that functions as profitably and safely as anyone else on this board, so don't feel like you're limited.  

[MikeK]

Welcome to the forum.  Here is one thought about establishing a 4 x 25 PP.

You could start by using 60% of your assets in your PP and 40% in a VP.  You can use 15% from your taxable account, 15% from your combined Roths, 15% from your 401K and 15% from your wife's 457b.  This way you can try the PP without going 100% in and you can achieve the recommended asset allocation.  Then each year you can rebalance by moving funds from your VP to your PP to complement the savings you add to your PP in your taxable account.

That's a great suggestion!  By not going to 100%, I can still get some benefits of the PP, but also give myself time to learn how to get to a 100% PP that takes all the specifics of my situation into account.

[MikeK]

(I think that math is okay...). The point is that you have to use what you have access to.  I don't see where you really have a choice.  One hack that has been suggested would be to use something like VUSUX for 1/2 of the allocation and then EDV for the other half (maybe you could buy that in your Roth, b/c it's a pain in the neck as far as taxes go).  

It's these little hacks that I'm sure have been discussed before that I'm missing, it seems.  I'm trying to absorb all the excellent information that this forum holds, but it's been daunting, to say the least!

Can't I use my Roth IRA accounts for gold (one is at Vanguard, other is Fidelity)?  Or would these accounts be better suited for other asset classes?

You can, but gold is probably the most tax efficient of all the investments.  

Of course, you're right.  So many new 'rules' to keep track of! 

Since I can't move funds from my retirement accounts to taxable accounts (for living expenses) for another ~23 years, would it be simpler to setup 2 PP plans, 1 in taxable accounts and the other in tax advantaged ones?  I don't plan on accessing the funds in the latter until I'm eligible to get at them w/o penalty (though your comment below is intriguing, maybe there are ways to get at it before then?)  This would help with rebalancing too (though again, I can't move funds from my 401k to Roth, so still might not be a trivial thing to do?)

I think that is one very reasonable approach.  It might not be the most tax efficient, but the PP is pretty tax efficient to begin with, even if all the assets are held in a taxable accounts.  

Definitely look and see if you can borrow money from yourself with your 401K.  I have a plan that allows it.   It's relatively painless and offers some versatility.  

One other thing to keep in mind is that the issues you're having are issues almost everyone has when they start.  It's always difficult to hold gold and bonds in a 401k (in fact, I think you're lucky to have access to VUSUX in yours).  With the resources you have, I think you should be able to set up a PP that functions as profitably and safely as anyone else on this board, so don't feel like you're limited.  

Thanks again for the encouragement!  I'll update my allocations and see how things fall out after taking into account your (and others) suggestions. 

mike

[MikeK]

Well, after some spreadsheet thrashing, I've come up with a way to put ~60% of my assets into the PP with the optimal 4x25% using the balance of the 457b acct as the ceiling.  Leaving the rest in a VP (of sorts), with the goal of towards getting it into the PP over time as I learn how it works.

I looked over the funds available in the 457b plan and they are horrible.  About the only usable one appears to be VPFIX (tracks S&P500).  I also found some funds in my 401k that looks like they will do ok for the cash portion? (FFXSX, VSGDX and VFIRX)

Cash in RothIRAs (SHY)
Bonds in 401k (VUSUX)
Stocks in 401k (TSM Index) and 457b (VPFIX)
Gold in NQ Acct (IAU)

Since only 80% of VUSUX is true LTT, should I increase the amount there to cover the 'missing' 20%?  Or is this one of those, "it's close enough, leave it alone!" cases?

I also assume I can use new funds to aid rebalancing as I plan to keep socking money away at a good clip for the next ~10 years (mostly towards the NQ accounts but also the 401k to keep the company match) and use the remaining balances in the tax advantaged accounts to keep the allocations close.

And now, feel free to tell me what I screwed up!

mike

[AdamA]

Well, after some spreadsheet thrashing, I've come up with a way to put ~60% of my assets into the PP with the optimal 4x25% using the balance of the 457b acct as the ceiling.  Leaving the rest in a VP (of sorts), with the goal of towards getting it into the PP over time as I learn how it works.

I looked over the funds available in the 457b plan and they are horrible.  About the only usable one appears to be VPFIX (tracks S&P500).  I also found some funds in my 401k that looks like they will do ok for the cash portion? (FFXSX, VSGDX and VFIRX)

Cash in RothIRAs (SHY)
Bonds in 401k (VUSUX)
Stocks in 401k (TSM Index) and 457b (VPFIX)
Gold in NQ Acct (IAU)

Since only 80% of VUSUX is true LTT, should I increase the amount there to cover the 'missing' 20%?  Or is this one of those, "it's close enough, leave it alone!" cases?

I also assume I can use new funds to aid rebalancing as I plan to keep socking money away at a good clip for the next ~10 years (mostly towards the NQ accounts but also the 401k to keep the company match) and use the remaining balances in the tax advantaged accounts to keep the allocations close.

And now, feel free to tell me what I screwed up!

mike

I think that looks like a very good start. 

I would post the question about holding more VUSTX in the bond section, you'll probably get more answers.

My initial instinct is that it's good for a start, but as you continue to add to the portfolio you might try to pick up so TLT or EDV.

[kobe1]

Cash in RothIRAs (SHY)
Bonds in 401k (VUSUX)
Stocks in 401k (TSM Index) and 457b (VPFIX)
Gold in NQ Acct (IAU)

Mike,

Here is one way to divide your investments assuming you go with 60% of your total assets, using 15% from each account type.

50% stock 401  TSM index
50% stock 457  VPFIX

50% bonds 401  VUSUX
50% bonds roth  30 year treasury bonds

50% cash 457  not sure what options you have here
25% cash NQ    iBonds
25% cash roth  SHY

25% gold NQ  physical gold
50% gold NQ  IAU
25% gold roth  GLD or some other gold ETF

This will give you some directly held assets, allow more opportunities to add future funds and maintain the 4 x 25, and distribute assets so not all of your eggs are in one basket.  The basic concept of the PP is very simple.  The implementation can get a little more complex.

[MikeK]

The basic concept of the PP is very simple.  The implementation can get a little more complex.

That's an understatement! 

Here is one way to divide your investments assuming you go with 60% of your total assets, using 15% from each account type.

50% stock 401   TSM index
50% stock 457   VPFIX

50% bonds 401   VUSUX
50% bonds roth   30 year treasury bonds

50% cash 457   not sure what options you have here
25% cash NQ    iBonds
25% cash roth  SHY

25% gold NQ   physical gold
50% gold NQ   IAU
25% gold roth  GLD or some other gold ETF

This will give you some directly held assets, allow more opportunities to add future funds and maintain the 4 x 25, and distribute assets so not all of your eggs are in one basket. 

I was trying to put as much of a single asset class that I could in one account to make accounting easier (though I did wonder how I would rebalance by doing that...).  I didn't realize all those other conditions need to also be taken into account as well.

As for the options with the 457, I looked over the funds available and nothing outside the Stock class looked suitable.  I'll likely start another thread somewhere to get opinions on the cash options.

I'll also need to learn what iBonds are, haven't had any exposure to them yet. 

Thanks again for the help (though I seem to uncover more questions everytime I ask one...)
mike