Im NEW and STUPID......

[bjt1879]

I have been reading about the PP for a few months now and have decided to use it as our (wife and I) long term investment tool.
With limited resources and intelligence (haha) we have put about 28,000 total into both of our IRAS over the last 4 years.
We are 32 and 31 respectively.
We are currently with Vanguard and I would like to mostly stay with them and max our IRAs out with the PP and hopefully soon increase our savings above the 10,000/year into other vehicles when we can afford to.

What is the simplest way to go about this to start out in the PP as I continue to learn?
I want 4 things to look at only and dont want to get too complicated off the bat.

It seems VTI, TLT are popular picks, what about cash and gold?  Any good recs?
Should I hold cash and gold through another company and keep the stocks/bonds w/ vanguard to separate things some?
I currently own Wellington and Dividend Growth and am at about an 80/20 stocks to bonds.
Thanks for any advice I love reading this forum!

[Khisanth]

Congrats on your first big step! An easy four is just buying ETF equivalents:
VTI - Vanguard Total Stock Market ETF
GLD - SPDR Gold Trust
TLT - Barclays 20+ year Treasuries

Cash I just keep in the Credit Union / Bank. Basically I have put my life into the Permanent Portfolio and my spending is me withdrawing from the Cash portion of my portfolio. A lot of people choose SHV or SHY as a Cash equivalent, but I wouldn't want to wait 3 business days for the ETF trade to settle.

Gold for me is a combination of "GLD" and "SGOL" ETFs. I'll be getting a safe deposit box to store bullion coins some day.

I'm still in an electronic/paper portfolio which is something of a risk in itself, but I am a slave to convenience.

[AdamA]

With limited resources and intelligence (haha)...

Join the club!

What is the simplest way to go about this to start out in the PP as I continue to learn?

Some will probably say that ETF's are the simplest way to start, and certainly you could start off with
VTI, TLT, GLD, and SHY or something like that, and probably be just fine.

My opinion is that the simplest way to do it is just as HB proposed.

S&P Index Fund
T-Bills in a Treasury only money market fund
Physical Gold
30 year Treasury bonds at auction or on the secondary market.

Maybe a little bit of a gold ETF to help with rebalancing.

Buying physical gold and participating in the bond market (even in the very simple way required by the PP) teaches you a lot about how the PP works and its underlying principles.  It also removes some of the counterparty risk, and is really pretty easy to do.

[bjt1879]

so with gold should I shoot for 50/50 physical gold/etf gold in order to help with rebalancing when needed? 
Im probably going to start with "paper" gold.

[AdamA]

so with gold should I shoot for 50/50 physical gold/etf gold in order to help with rebalancing when needed?  

I don't think there's an exact percentage...ultimately it probably doesn't matter that much, but, yes, the idea is that you have enough to rebalance if you need to.

Im probably going to start with "paper" gold.

Yeah, that's a fine to start, in my opinion.  You can think about physical later, if you want to.

Here's what Craig had to say about it recently:

https://web.archive.org/web/20160324133 ... ith-etfs//

[bjt1879]

adama,
he-man is my favorite show of all time, fyi, and thanks!

[MediumTex]

Although I think that ETFs are fine for gold to start out, I would suggest that you buy at least one gold coin just so you can begin to understand what gold is all about.

Until you have owned some physical gold, it's hard to fully grasp the gold "experience."

[Tyler]

Welcome!  I'm relatively new to the PP myself, and I think you're making a good decision.  :)

AdamA's link to Craig's blog post on the topic should be a great help.  Also, read through this thread on a very good alternative to TLT -- buying bonds yourself.  No transaction fee, no expense ratio, and lower counter-party risk.  I know it may seem intimidating if you haven't done it before, but I recently made the switch and it's actually quite simple.

http://gyroscopicinvesting.com/forum/ht ... ic.php?t=0

[Reub]

Tyler, did you swap all of your TLT for LTT's?

[Tyler]

Yep.  Treasuries were down slightly for my TLT, so I was recently able to transfer everything into LTTs without worrying about capital gains in my taxable account.  The timing was right, so I just jumped in. 

Buying LTTs through Fidelity was very simple, and I like being able to 1) reduce my expenses, and 2) reduce my counter-party risk since 75% of my money was with Blackrock previously (I have no personal issue with Blackrock, but trusting any Wall St. company these days is a crapshoot).  I realize it'll take slightly more planning on my part than just buying TLT and forgetting about it, but I figure 10 years is plenty of time to work out my plan on that. 

I'll probably buy some physical gold this year as well.  Just taking it one step at a time. 

[MachineGhost]

Although I think that ETFs are fine for gold to start out, I would suggest that you buy at least one gold coin just so you can begin to understand what gold is all about.

Until you have owned some physical gold, it's hard to fully grasp the gold "experience."

I find the experience to be quite overrated because I can't bite into the coin to get some chocolate.  The urge to do so is always there.

MG

[cabronjames]

if I read the OP correctly, 100% of the "pie" is in IRAs, at Vanguard as the custodian?

in this case, afaict you cannot hold a physical gold coin in a IRA, at least not at Vanguard.

Afaict you can not hold a gold coin in your own possession or at your local bank safe deposit box, & have it be considered part of an IRA.  such gold coin possession is always part of "taxable".

Personally I like Vanguard as a custodian, I'm a happy customer.

for stocks - VTI (US Stock Mkt ~3000 largest companies).  This is all you need for orthodox PP implementation for a US PPer.  Note: once your stock amount exceeds $10K, you may want to consider switching to the Admiral shares mutual fund cousin of VTI, VTSAX.  The expense ratio is the same 0.07%, but there is no bid-ask spread, so it should be slightly cheaper.  btw although not relevant for an orthodox US PP, the other Vanguard stock ETFs for other stock asset subclasses are also good, such as VBR for US small cap value, VWO for emerging markets, etc.

for bonds - EDV. I use EDV per an idea that MediumTex had.  Since EDV has ~3/2 volatility of individual 30 yr T-Bond or TLT, hold it in 2/3X amount you would hold TLT.  So this means that EDV is 2/11 ~18.1% target allocation, & the other assets stock, gold, cash are 3/11 ~27.3% target alloc.  Note that at Vanguard Brokerage Svcs, if your account's "Vanguard Funds" (Vanguard ETF + Vguard mutual funds + VMMXX sweep cash fund) exceeds 50K, you are a "Voyager" customer & don't have to pay the $20 annual account fee that default sub-50K customer accounts pay.  So EDV is considered a Vguard fund, individual 30 yr T-Bond is not.  So you might consider using EDV until at lest you build up your account sufficiently that you would still have $50K in "Vguard funds", even if you swapped EDV for individual 30-yr T-Bond(s).

for gold - Vguard doesn't have it's own gold "Vguard fund".  I personally like SGOL & GTU (if the closed-end fund GTU is currently trading at a discount).
http://www.gold-trust.com/asset_value.htm
currently GTU is at a 3% premium, so maybe go with SGOL, & when contributing new money in the future, consider using GTU if it's at a discount.

for cash - afaict Vguard's 1-3 yr short term bond funds are not exclusively Treasury; they have some minority amount of bogus non-Treasury issuer holdings like Fannie Mae or JP Morgan.  For now, you could use the VMMXX sweep fund despite it not being 100% Treasuries.  For future contributions, buy I Bonds from the US Treasury, in a Treasury Direct account, & bring your VMMXX holding down to near 0.  Your couple limit for I-Bonds is $25K per year ($10K per person + $5K refund as I-Bond on tax return overpayment), so it seems reasonable that you could eventually have most of your cash holding be represented with I-Bonds.  Holding I-Bonds in the Treasury Direct account will also give you some "custodian diversification".

hope that helps.  from my ~2 yrs experience, I'd say the PP asset alloc implemented at Vanguard VBS is a good plan.

[bjt1879]

wow great, thank you very much for your input and advice!

if I read the OP correctly, 100% of the "pie" is in IRAs, at Vanguard as the custodian?

in this case, afaict you cannot hold a physical gold coin in a IRA, at least not at Vanguard.

Afaict you can not hold a gold coin in your own possession or at your local bank safe deposit box, & have it be considered part of an IRA.  such gold coin possession is always part of "taxable".

Personally I like Vanguard as a custodian, I'm a happy customer.

for stocks - VTI (US Stock Mkt ~3000 largest companies).  This is all you need for orthodox PP implementation for a US PPer.  Note: once your stock amount exceeds $10K, you may want to consider switching to the Admiral shares mutual fund cousin of VTI, VTSAX.  The expense ratio is the same 0.07%, but there is no bid-ask spread, so it should be slightly cheaper.  btw although not relevant for an orthodox US PP, the other Vanguard stock ETFs for other stock asset subclasses are also good, such as VBR for US small cap value, VWO for emerging markets, etc.

for bonds - EDV. I use EDV per an idea that MediumTex had.  Since EDV has ~3/2 volatility of individual 30 yr T-Bond or TLT, hold it in 2/3X amount you would hold TLT.  So this means that EDV is 2/11 ~18.1% target allocation, & the other assets stock, gold, cash are 3/11 ~27.3% target alloc.  Note that at Vanguard Brokerage Svcs, if your account's "Vanguard Funds" (Vanguard ETF + Vguard mutual funds + VMMXX sweep cash fund) exceeds 50K, you are a "Voyager" customer & don't have to pay the $20 annual account fee that default sub-50K customer accounts pay.  So EDV is considered a Vguard fund, individual 30 yr T-Bond is not.  So you might consider using EDV until at lest you build up your account sufficiently that you would still have $50K in "Vguard funds", even if you swapped EDV for individual 30-yr T-Bond(s).

for gold - Vguard doesn't have it's own gold "Vguard fund".  I personally like SGOL & GTU (if the closed-end fund GTU is currently trading at a discount).
http://www.gold-trust.com/asset_value.htm
currently GTU is at a 3% premium, so maybe go with SGOL, & when contributing new money in the future, consider using GTU if it's at a discount.

for cash - afaict Vguard's 1-3 yr short term bond funds are not exclusively Treasury; they have some minority amount of bogus non-Treasury issuer holdings like Fannie Mae or JP Morgan.  For now, you could use the VMMXX sweep fund despite it not being 100% Treasuries.  For future contributions, buy I Bonds from the US Treasury, in a Treasury Direct account, & bring your VMMXX holding down to near 0.  Your couple limit for I-Bonds is $25K per year ($10K per person + $5K refund as I-Bond on tax return overpayment), so it seems reasonable that you could eventually have most of your cash holding be represented with I-Bonds.  Holding I-Bonds in the Treasury Direct account will also give you some "custodian diversification".

hope that helps.  from my ~2 yrs experience, I'd say the PP asset alloc implemented at Vanguard VBS is a good plan.

[cabronjames]

A small quibble:

Note that at Vanguard Brokerage Svcs, if your account's "Vanguard Funds" (Vanguard ETF + Vguard mutual funds + VMMXX sweep cash fund) exceeds 50K, you are a "Voyager" customer & don't have to pay the $20 annual account fee that default sub-50K customer accounts pay.  So EDV is considered a Vguard fund, individual 30 yr T-Bond is not.  So you might consider using EDV until at lest you build up your account sufficiently that you would still have $50K in "Vguard funds", even if you swapped EDV for individual 30-yr T-Bond(s).

From Vanguard:

For nonretirement accounts, UGMAs/UTMAs, traditional IRAs, Roth IRAs, SEP-IRAs, and education savings accounts (ESAs):

Vanguard charges a $20 annual account service fee for each Vanguard fund in which you have a balance under $10,000 in an account. You can eliminate this fee by signing up for our e-service package. This fee also does not apply if you're a Voyager, Voyager Select, or Flagship client. See how you qualify for our Flagship and Voyager Services.

https://personal.vanguard.com/us/whatwe ... ommissions

You are correct, if 1 holds strictly Vanguard mutual funds at Vanguard custodian.  If 1 has any ETFs or individual 30 yr T-Bonds, this is Vanguard Brokerage Services (VBS). At VBS, what I said about the $20 annual fee for accts with <50K in Vanguard funds, is true.

If 1 intends to implement the entire PP at their Vguard custodian account, afaict you need VBS.
for bonds: all the possibilites, EDV (doesn't have a mutual fund equivalent), TLT, or individual 30 yr T-Bond require VBS
for gold: any gold ETF like SGOL or closed-end fund like GTU require VBS.

[bjt1879]

so ive only had mutual funds through vanguard in my ira, now that I want to buy etfs I of course have to use my brokerage account, but I want the etfs to be sheltered in my IRA until I can go beyond maxing it out.  Is there an easy way to do this online, because I cant figure it out yet with Vanguard and I dont want to make some large purchases that dont fall in my taxable accnt.
In fidelity it is simple, any clues on vanguard? thanks

[AdamA]

so ive only had mutual funds through vanguard in my ira, now that I want to buy etfs I of course have to use my brokerage account, but I want the etfs to be sheltered in my IRA until I can go beyond maxing it out.  Is there an easy way to do this online, because I cant figure it out yet with Vanguard and I dont want to make some large purchases that dont fall in my taxable accnt.
In fidelity it is simple, any clues on vanguard? thanks

Just call Vanguard and tell them that you want brokerage services within you IRA.  They will tell you what you need to do.  I helped a friend do it a while back.  I don't remember the exact details, but it's not very hard.

[hoost]

so ive only had mutual funds through vanguard in my ira, now that I want to buy etfs I of course have to use my brokerage account, but I want the etfs to be sheltered in my IRA until I can go beyond maxing it out.  Is there an easy way to do this online, because I cant figure it out yet with Vanguard and I dont want to make some large purchases that dont fall in my taxable accnt.
In fidelity it is simple, any clues on vanguard? thanks

I just did this recently.  Once you log in you click the link at the top that says Open an Account.  Choose the option that says Open New Account.  It will ask you at some point for a reference account or something like that...just choose the IRA when you get to that point.  Mine was set up the next day for me.

Actually, here is an excerpt from the reply when I asked how to link the accounts:

You can use our secure online process to open a brokerage account that can
be linked to your existing Vanguard mutual fund Roth IRA account. To do so,
please follow these steps:

1. Log on to your account at vanguard.com.
2. Select "Open an account" at the top of the page.
3. Select ?Reference information in an existing account to open a new
brokerage account? in order to add brokerage to an existing account
4. Click ?Start? to begin the application.

This account will also allow you to buy Treasuries in your IRA.  Hope that helps.

[bjt1879]

thanks guys!

[bjt1879]

so Im going in this week, my wife and I have about 14,000 each in our IRA accounts.
Do you guys recommend doing each asset class 7,000 each and splitting them between us or 3,500 x 4 for each of our accounts individually?

Im still unsure of my gold and LTT etf/fund to chose, but Im going VTI and SHY.
Whats the latest word on sgld, gtu ??
or TLT??


thanks cant wait top get this started

[kobe1]

It's very exciting to take the plunge.

I think it is a good idea to have some of each asset class represented in each account.  As your balance grows you might want to diversify between more than one broker and two complete portfolios will provide you with a better balance in case something were to happen with one of the companies that has your money.  As a side note, you should seriously consider purchasing some physical gold.  Even one coin would be a great start and they are easy to buy.  Just take $1,750 with you to a coin shop and you walk out with an asset with no counter party risk. 

Good Luck!

[bjt1879]

minus the physical gold, what would you recommend for gold, do GTU in the IRA?  I cant decide which to do for the gold.

[Gosso]

The title of this thread always makes me laugh, good job bjt. 

[steve]

minus the physical gold, what would you recommend for gold, do GTU in the IRA?  I cant decide which to do for the gold.

GTU is trading at a 1.79% premium at Friday close April 27, 2012
If I needed Gold I would be a buyer at that price.

[bjt1879]

thanks steve, GTU going in on monday along with VTI, SHY, and probably TLT to start! 
Loading up our Roths with the PP 5,000 for each of us from here on out. Checking it twice a year to rebalance.  Any special concerns, tax or otherwise with any of these in my IRA?  Im assuming shouldnt be a problem until we can afford to invest more money beyond the 10,000 each year and start putting funds into the taxable areas.
Thanks guys

[bjt1879]

The title of this thread always makes me laugh, good job bjt. 

honesty is the best policy my friend!