N00b with questions about starting a PP

[Pointedstick]

Hello all! I'm getting ready to start my PP, and I've got a few questions for the collective wisdom of the community.

1. Vanguard or TDA? Both will offer free trades on the stock and bond ETF components, but I'm leaning toward TDA because TLT offers a dividend, while none of vanguard's bond ETFs do. The gold would be IAU, and I'm thinking about IWV for stocks. BTW this will be a non-tax-advantaged account.

2. Should I keep the cash component in a money market fund, or something like SHY that may offer a bit more? And does this really matter at all?

3. It seems like one achilles heel of the PP is a difficulty in taking advantage of rising interest rates. I know historically that they've declined over the last 3 years, but there's really nowhere to go but up when you're at absolute zero! They can't stay where they are forever, right? How do people account for this, or is it not a big deal?

4. I'm considering putting my emergency fund into the cash portion, because it's nearly as safe as the high-yield savings account I'm currently using and I can always take that cash back out if I really need it. I also have other short-to-medium term savings so it's not like all my cash would be in the PP! Does sound like a terribly foolish idea?

[AdamA]

Hello all! I'm getting ready to start my PP, and I've got a few questions for the collective wisdom of the community.

Congrats!

1. Vanguard or TDA?

Both, in my opinion.  Simply because it spreads out the institutional risk of your portfolio.

Should I keep the cash component in a money market fund, or something like SHY that may offer a bit more? And does this really matter at all?

I would buy T-bills through the bond window at either Vanguard or TDA.  If you don't want to do that, something like SHV is good.  I would not use SHY until I had a pretty big chunk of change saved in very short term US government debt.  I would definitely not use a garden variety money market fund. 

3. It seems like one achilles heel of the PP is a difficulty in taking advantage of rising interest rates. I know historically that they've declined over the last 3 years, but there's really nowhere to go but up when you're at absolute zero! They can't stay where they are forever, right? How do people account for this, or is it not a big deal?

It's not a big deal.  Don't worry about it.

4. I'm considering putting my emergency fund into the cash portion, because it's nearly as safe as the high-yield savings account I'm currently using and I can always take that cash back out if I really need it. I also have other short-to-medium term savings so it's not like all my cash would be in the PP! Does sound like a terribly foolish idea?

It sounds like a good idea.  It is actually safer than the high yield savings account you have, if you use T-bills. 

[hoost]

Hello all! I'm getting ready to start my PP, and I've got a few questions for the collective wisdom of the community.

Congrats!

1. Vanguard or TDA?

Both, in my opinion.  Simply because it spreads out the institutional risk of your portfolio.

Should I keep the cash component in a money market fund, or something like SHY that may offer a bit more? And does this really matter at all?

I would buy T-bills through the bond window at either Vanguard or TDA.  If you don't want to do that, something like SHV is good.  I would not use SHY until I had a pretty big chunk of change saved in very short term US government debt.  I would definitely not use a garden variety money market fund. 

3. It seems like one achilles heel of the PP is a difficulty in taking advantage of rising interest rates. I know historically that they've declined over the last 3 years, but there's really nowhere to go but up when you're at absolute zero! They can't stay where they are forever, right? How do people account for this, or is it not a big deal?

It's not a big deal.  Don't worry about it.

4. I'm considering putting my emergency fund into the cash portion, because it's nearly as safe as the high-yield savings account I'm currently using and I can always take that cash back out if I really need it. I also have other short-to-medium term savings so it's not like all my cash would be in the PP! Does sound like a terribly foolish idea?

It sounds like a good idea.   It is actually safer than the high yield savings account you have, if you use T-bills. 

The only thing I would change from that recommendation is to keep maybe 6 months of expenses (emergency fund) in a Treasury Money Market Fund. I'm not sure if TD offers this; Vanguard's is closed to new investors.  Most of my cash is in VMMXX right now, but I am exploring other options for that elsewhere as I'd prefer a Treasury-only money market with check writing privileges for quick/easy access.  I like the idea of keeping the balance in T-bills though.

[AdamA]

The only thing I would change from that recommendation is to keep maybe 6 months of expenses (emergency fund) in a Treasury Money Market Fund. I'm not sure if TD offers this; Vanguard's is closed to new investors.  Most of my cash is in VMMXX right now, but I am exploring other options for that elsewhere as I'd prefer a Treasury-only money market with check writing privileges for quick/easy access.  I like the idea of keeping the balance in T-bills though.

Definitely a good idea.

American Century has a good one.  CPFXX.  The expense ratio is a little steep (.47%), but it's very practical.

[MediumTex]

3. It seems like one achilles heel of the PP is a difficulty in taking advantage of rising interest rates. I know historically that they've declined over the last 3 years, but there's really nowhere to go but up when you're at absolute zero! They can't stay where they are forever, right? How do people account for this, or is it not a big deal?

A couple of comments on this one:

First, the PP has had its very best years on a nominal basis in the rising interest rate environment of the late 1970s, so I wouldn't worry about rising interest rates at all.

Second, interest rates on long term treasuries are currently nowhere near zero.  30 year treasuries are currently yielding 3.15%, which is pretty low, but German 30 year bonds are yielding 2.42% and Japanese 30 year bonds are yielding 1.90%, so the current 3.15% yield could easily fall a lot and still be above the long term debt of other developed countries.

[Pointedstick]

thanks for the advice, everyone!

I would buy T-bills through the bond window at either Vanguard or TDA.  If you don't want to do that, something like SHV is good.  I would not use SHY until I had a pretty big chunk of change saved in very short term US government debt.  I would definitely not use a garden variety money market fund. 

Cool, SHY does look a little longer-term. What's wrong with a money market fund, though?

It sounds like a good idea.   It is actually safer than the high yield savings account you have, if you use T-bills. 

What makes T-bills safer than a savings account? The savings account is FDIC-insured, and if the FDIC were to go broke, that's the sort of situation where I wouldn't expect a T-bill to be redeemable, either. Am I totally off-base here?

[MediumTex]

It sounds like a good idea.   It is actually safer than the high yield savings account you have, if you use T-bills. 

What makes T-bills safer than a savings account? The savings account is FDIC-insured, and if the FDIC were to go broke, that's the sort of situation where I wouldn't expect a T-bill to be redeemable, either. Am I totally off-base here?

We have talked about this topic from many angles, but the bottom line is that in a bank failure situation, you will probably get paid, it's just a question of when and what lines you might have to stand in before getting paid.  With t-bills, however, you are essentially standing with some very deep pockets in the form of China, Japan and countless other foreign investors who must not be spooked, and thus they will always be paid right on time and just as promised.

It's a remote risk, but in 2008 several dozen banks were probably about 15 minutes away from failing, and in such a situation the FDIC simply wouldn't have had the money or manpower to go into all of those banks at once.  In such a situation some depositors would almost certainly have had to wait a while to get their money back.

If it's what you want to do, there is nothing wrong with taking more risk with bank deposits in order to get a higher return than treasuries are paying.  Just make sure you understand the risks and are comfortable with them and are aware that such a modification may void the PP warranty. 

[cabronjames]

Bond: what is a good way to hold 30 yr Bonds in a taxable account?  Are individual 30 yr T-Bonds more tax efficient than TLT?  EDV is definitely inappropriate in a taxable account, others here have explained the odd/cumbersome taxation rules associated with 0-cupon bonds/bond funds.  Others here have recommended Fidelity for individual 30 yr T-Bonds.  Apparently Vanguard Brokerage Svcs (VBS) also now has free comissions to buy or sell 30 yr T-Bonds.
https://personal.vanguard.com/us/whatwe ... ommissions

Cash: consider using I Bonds (type of US Savings Bonds) for the "deep" part of your cash, especially if the $10K annual purchase limits isn't too cumbersome for your account specific situation.

Stock  imho VBS is great for stock, the ETF VTI, or its $10K min Admiral shares mutual fund cousin VTSAX.

Gold At VBS any gold ETF or closed end fund (such as GTU) will cost you a $7 commission.  Not sure if any brokers have free comissions for a gold ETF.  assuming per your comment that your account is 100% taxable, you don't get "rebalancing benefit" of holding a portion of the gold in tax-advantaged.  Perhaps at least your "deep" gold should be 1 oz bullion coins you control storage of.

[Pointedstick]

It sounds like a good idea.  It is actually safer than the high yield savings account you have, if you use T-bills. 

What makes T-bills safer than a savings account? The savings account is FDIC-insured, and if the FDIC were to go broke, that's the sort of situation where I wouldn't expect a T-bill to be redeemable, either. Am I totally off-base here?

We have talked about this topic from many angles, but the bottom line is that in a bank failure situation, you will probably get paid, it's just a question of when and what lines you might have to stand in before getting paid.  With t-bills, however, you are essentially standing with some very deep pockets in the form of China, Japan and countless other foreign investors who must not be spooked, and thus they will always be paid right on time and just as promised.

It's a remote risk, but in 2008 several dozen banks were probably about 15 minutes away from failing, and in such a situation the FDIC simply wouldn't have had the money or manpower to go into all of those banks at once.  In such a situation some depositors would almost certainly have had to wait a while to get their money back.

If it's what you want to do, there is nothing wrong with taking more risk with bank deposits in order to get a higher return than treasuries are paying.  Just make sure you understand the risks and are comfortable with them and are aware that such a modification may void the PP warranty. 

In a cascading bank failure situation, wouldn't/didn't the Fed simply create money and pay the banks to hold it? In the current political environment, and given the extraordinary powers the Fed has assumed, it's hard for me to imagine a major cascade of bank failures. Of course this is a ticking inflation bomb, but nothing's free in this world…

Not saying this is what I'm gonna do, just trying to feel it all out.


Next question!

Second, interest rates on long term treasuries are currently nowhere near zero.  30 year treasuries are currently yielding 3.15%, which is pretty low, but German 30 year bonds are yielding 2.42% and Japanese 30 year bonds are yielding 1.90%, so the current 3.15% yield could easily fall a lot and still be above the long term debt of other developed countries.

3.15% is only intermittently beating inflation, though. If that's the kind of yield you can expect from a 30 year treasury, wouldn't it make more sense to just go with a fund like TLT which can rise (or fall, of course) in value in addition to spitting out a dividend that's about as much as the 30-year coupon rate? At least the fund can adjust its dividend payment to match what the underlying bonds are paying out, while if I buy a 30 year treasury now, I'm stuck that interest rate for 30 years. And if rising interest rates cause the fund to fall in value below a rebalance band, I can buy it at a nice discount as well as get the bigger dividend on current and future shares, no? In other words, why would I want to lock myself into low interest rates? I guess it depends on whether you think they'll rise or fall, and my inclination is to believe they'll eventually rise sometime in the next 30 years.

[Lone Wolf]

1. Vanguard or TDA? Both will offer free trades on the stock and bond ETF components, but I'm leaning toward TDA because TLT offers a dividend, while none of vanguard's bond ETFs do. The gold would be IAU, and I'm thinking about IWV for stocks. BTW this will be a non-tax-advantaged account.

I don't have experience with TDA but Vanguard is a great outfit.  I have also had a good experience with Fidelity.  Both Vanguard and Fidelity offer free trades on US Treasury securities which is a fantastic perk for Permanent Portfolio adherents!

3.15% is only intermittently beating inflation, though. If that's the kind of yield you can expect from a 30 year treasury, wouldn't it make more sense to just go with a fund like TLT which can rise (or fall, of course) in value in addition to spitting out a dividend that's about as much as the 30-year coupon rate? At least the fund can adjust its dividend payment to match what the underlying bonds are paying out, while if I buy a 30 year treasury now, I'm stuck that interest rate for 30 years. And if rising interest rates cause the fund to fall in value below a rebalance band, I can buy it at a nice discount as well as get the bigger dividend on current and future shares, no?

Bonds also rise and fall in value just like you see TLT doing.  If interest rates fall, your bond at 3.15% will suddenly be more valuable and more attractive than what's currently offered at auction.  Your bond rises in value and you experience capital appreciation.  If this takes you past a rebalance band, you would sell part of your bond holdings and make cash/stock/gold purchases to bring yourself back into balance.

Likewise, if interest rates rise, your bond will have less value now that it has to compete with 4% (or whatever) 30-year bonds.  If this takes you below a rebalance band, you can purchase fresh bonds at this new 4% rate.

The Treasury market is so enormous and so liquid that the prices all work out very cleanly in the end.  So long as you buy a US Treasury bond with the correct approximate maturity you are doing it right.  TLT is just a convenient simulation of this process.  For a variety of reasons, I prefer to hold the bonds myself whenever possible.  TLT is a great option when direct holding is costly or ineffective, though.

[melveyr]

What makes T-bills safer than a savings account? The savings account is FDIC-insured, and if the FDIC were to go broke, that's the sort of situation where I wouldn't expect a T-bill to be redeemable, either. Am I totally off-base here?

We have talked about this topic from many angles, but the bottom line is that in a bank failure situation, you will probably get paid, it's just a question of when and what lines you might have to stand in before getting paid.  With t-bills, however, you are essentially standing with some very deep pockets in the form of China, Japan and countless other foreign investors who must not be spooked, and thus they will always be paid right on time and just as promised.

It's a remote risk, but in 2008 several dozen banks were probably about 15 minutes away from failing, and in such a situation the FDIC simply wouldn't have had the money or manpower to go into all of those banks at once.  In such a situation some depositors would almost certainly have had to wait a while to get their money back.

If it's what you want to do, there is nothing wrong with taking more risk with bank deposits in order to get a higher return than treasuries are paying.  Just make sure you understand the risks and are comfortable with them and are aware that such a modification may void the PP warranty.  

In a cascading bank failure situation, wouldn't/didn't the Fed simply create money and pay the banks to hold it? In the current political environment, and given the extraordinary powers the Fed has assumed, it's hard for me to imagine a major cascade of bank failures. Of course this is a ticking inflation bomb, but nothing's free in this world…

Not saying this is what I'm gonna do, just trying to feel it all out.


Next question!

Second, interest rates on long term treasuries are currently nowhere near zero.  30 year treasuries are currently yielding 3.15%, which is pretty low, but German 30 year bonds are yielding 2.42% and Japanese 30 year bonds are yielding 1.90%, so the current 3.15% yield could easily fall a lot and still be above the long term debt of other developed countries.

3.15% is only intermittently beating inflation, though. If that's the kind of yield you can expect from a 30 year treasury, wouldn't it make more sense to just go with a fund like TLT which can rise (or fall, of course) in value in addition to spitting out a dividend that's about as much as the 30-year coupon rate? At least the fund can adjust its dividend payment to match what the underlying bonds are paying out, while if I buy a 30 year treasury now, I'm stuck that interest rate for 30 years. And if rising interest rates cause the fund to fall in value below a rebalance band, I can buy it at a nice discount as well as get the bigger dividend on current and future shares, no?

Here is an easy way to understand bonds...

Let's say you want to purchase something that will give you $50 dollars a year. Let's say you find a bond that matches this description and you pay $1,000 dollars for it. You can think of this bond as providing a 5% yield on your cost basis.

Now, let's say that something happens in the bond markets and people value fixed cash flows to a lesser degree. People are now only willing to pay $500 dollars for your $50 dollars a year cash flow. Your bond is still yielding 5% on your cost basis, but the marketable yield for the bond is now at 10%.

So, the yield on your bond rose but you are still only receiving $50 dollars a month.

The real point that I am trying to make is that in a normal market holding TLT vs. buying individual 30 year treasuries and selling them when they hit 20 years, is the exact same thing. If you buy an individual Treasury bond, the price will adjust just like TLT does. The only real difference between the two is that TLT has some additional credit risk from securities lending in the fund, making it more of a weird hybrid of Treasuries and junk bonds. It is also perceived as easier to purchase for some who are not used to bond desks.

Craigr has a nice summary of the TLT risks here:
https://web.archive.org/web/20160324133 ... -and-risk/

Edit: Looks like LW beat me to the punch 

[Pointedstick]

Thanks everyone. I guess I wasn't considering the part where you can buy and sell the bonds themselves! Given that I fall into the category of "some who are not used to bond desks", would y'all recommend starting with TLT, or just biting the bullet and buying the bonds themselves?

I already have a vanguard account for my Roth IRA and I'm very happy with them. If I'm gonna hold the bonds directly, Vanguard offering commission-free treasury purchases definitely makes me lean back towards them! I intend to own some physical gold at some point too, but at the moment I'm considering IAU just for simplicity's sake.

So here's what I'm thinking of now:

Bonds: T-bonds
Stocks: VTI
Gold: IAU
Cash: Savings account/T-bills

One disadvantage I see from this is that Vanguard charges a $20/month maintenance fee if you hold any non-Vanguard funds or ETFs and have less than $50k, which I will for a while, and IAU will trigger that condition. Should I just bite the bullet and buy a bunch of coins now?

[MediumTex]

Thanks everyone. I guess I wasn't considering the part where you can buy and sell the bonds themselves! Given that I fall into the category of "some who are not used to bond desks", would y'all recommend starting with TLT, or just biting the bullet and buying the bonds themselves?

I already have a vanguard account for my Roth IRA and I'm very happy with them. If I'm gonna hold the bonds directly, Vanguard offering commission-free treasury purchases definitely makes me lean back towards them! I intend to own some physical gold at some point too, but at the moment I'm considering IAU just for simplicity's sake.

So here's what I'm thinking of now:

Bonds: T-bonds
Stocks: VTI
Gold: IAU
Cash: Savings account/T-bills

One disadvantage I see from this is that Vanguard charges a $20/month maintenance fee if you hold any non-Vanguard funds or ETFs and have less than $50k, which I will for a while, and IAU will trigger that condition. Should I just bite the bullet and buy a bunch of coins now?

TLT is fine to start with on the bond holdings.  If you really want to stick with Vanguard funds, you might split your LT bond holdings 50/50 between VUSTX and EDV.  That will give you roughly the same bond exposure as a 30 year T-bond.

On the gold front, I might buy a few coins, just to get a feel for what gold ownership feels like.

Overall, the most important thing is to get started if you have decided that the PP is for you.  There are mental lessons that can only be learned from actually holding the portfolio, and are impossible to describe to someone who hasn't spent some time as a PPer.

To me, one of the primary goals of investing should be peace of mind, since we all tend to make most of our bad decisions when our state of mind is something other than peaceful, and the PP can provide that peace of mind.

[Lone Wolf]

One disadvantage I see from this is that Vanguard charges a $20/month maintenance fee if you hold any non-Vanguard funds or ETFs and have less than $50k, which I will for a while, and IAU will trigger that condition. Should I just bite the bullet and buy a bunch of coins now?

Is this $20 per month or is the fee $20 per year?  $20 per year is probably not too big of a deal.  It won't be long before you grow your portfolio fat enough to where it's nothing but a memory anyway. 

On the gold, there's no perfect option.  When in doubt, choose what makes you feel most at ease.

IAU/GLD are super convenient but aren't really the same thing as real ownership of physical gold.  (Although you may find "convenient" to be a relative term when you discover how many tiny little entries gold ETFs force you to place on your form 8949 come tax time!) 

For physical, the closest thing to a "one-size-fits-all" solution is purchasing standard physical coins such as American Gold Eagles or Krugerrands and placing them in a safe deposit box.  The hurdle is getting comfortable with the idea of making your first gold purchase.  For most first-timers, screwing up enough courage to personally purchase a shiny lump of yellow metal is a non-trivial task!

From a long-term perspective, Medium Tex (very accurately) describes physical ownership as the only way to have a complete understanding of what it means to own gold.  It'll be there long after the rest of your investments have blown to dust and electrons.  If you've got a sense of history (or like to pretend to be a pirate), you can't beat a little physical. 

[cabronjames]

from your original post, it seemed you were 100% taxable.  If you wish, you could state what percentage of total amount/"pie" is nontaxable, such as your Roth IRA.  It's a good idea to consider your taxable & nontaxable money as 1 pie.

You will likely want to shield all of your 30 yr Bond with your nontaxable.  CraigR recommends this sequence for which assets you should shield with nontaxable accounts
1. 30 yr Bond
2. Cash (note I Bonds from US Treasury Savings Bonds program are a type of semi-nontaxable space for your "deep" portion of your cash you won't need to touch for 12+ months, others have written about I Bonds extensively here)
3. Stock
4. Gold (with the note that it is useful to have "some" (guesstimate 20-50% ?) of your gold holding in a ETF (SGOL, IAU) or closed end fund (GTU if you buy at a discount to NAV) in nontaxable, so you can make a rebalancing sale without the possibly 28% collectible gold capital gains tax)

Personally I also use Vanguard Brokerage Services (VBS) for my Roth IRA.  The $20 fee is ANNUAL not monthly.  

Personally I like using EDV for the 30 yr Bond funds, which as a Vanguard ETF, counts towards the $50K Vanguard fund-portion of your account size which for some could make the difference of hitting that limit & avoiding the $20 fee.  (Also note that VBS will consider your Vanguard funds across all your VBS accounts, whether nontaxable or taxable, to determine if you hit that $50K Vanguard funds threshold).  Just note that EDV should be only used in a nontaxble account, not in taxable
1. EDV, unlike Vanguard's VUSTX, is 100% US Treasury securities; VUSTX has a minority of non-UST securities like Fannie Mae, TN Valley Authority, etc
2. afaict Vanguard with its EDV is not behaving in iShares shady/questionable securities lending tactic which others here have written about (which is a unnecessary extra credit risk) with its TLT

EDV has a few negatives, to me these are acceptable for my situation, you have to decide yourself
1. its bid-ask spread is higher than TLT or typical Vanguard ETFs.  The reason likely is that EDV has less trading volume than those other ETFs.  Unfortunately their is no mutual fund cousin share class of EDV.
2. it typically trades at a small premium to NAV of <1%.  However, this premium is usually consistent, so you will likely get it back upon selling it.  (consistent premium situation is similar to what others have described with 1 oz sovereign bullion gold coins)

I use EDV per a MediumTex idea.  EDV has ~3/2 the volatility of 30 yr T-Bond/TLT, so you can hold your Bond portion in 2/3 proportion as you regularly would with TLT.  By doing this, the target allocations are slightly different than the HBPP 25% target allocs.  Your Bond/EDV target alloc is 2/11 ~ 18.1%, & the other assets stock/gold/cash are 3/11 ~27.3%.  The rebalancing treshholds remain the same: 0.6X or 1.4X the target allocs.

On cash, afaict the notion expressed here by CraigR/others that T-Bonds & T-Bills (directly held USTs or US Saving Bonds or indirectly through fund like EDV/TLT/SHY/etc) are safer than FDIC-backed savings accounts, is that US Treasury & Fed Reserve would almost certainly "print" money to avoid defaulting or missing a coupon payment on UST securities, to not annoy huge institutional holders like the China Gov & to help keep the US Dollar #1 reserve currency status.  This "safety" exceeds that of FDIC-backed savings accounts.

[Pointedstick]

cabronjames, I'm pretty young (24) and I'm planning to retire before I'm 60, so it dawned on me recently that all the money in my Roth IRA and 401k are inaccessible from the perspective of living off investments prior to the governmentally-defined "retirement age". So I'm starting a PP with the expectation of gradually increasing the income it throws off to enable me to retire sooner, à la EarlyRetirementExtreme. My wife and I are very frugal and we buy basically zero luxuries and plan to build our own house with land and building materials purchased with cash. The amount needed to sustain our very modest lifestyle isn't much than $2,200/month, with that hopefully falling to less than $1,000 once we've built the house. I feel that accumulating a $300,000 PP and living off 4% before the age of 50 is doable, but let me know if my assumptions are insane.

In the meantime, I'll be continuing to contribute to the tax-advantaged accounts, but I'm not considering them part of the PP since my plan is to use the PP itself for retirement income before 60. Maybe I should consider them my VP?

[cabronjames]

Pointed,

afaict, given what you described, you/wife should still consider taxable & nontaxable as 1 family "pie" that you manage against the Permanent Portfolio asset alloc targets.  You only have a (small relevant to the Permanent Port) Variable Port, if you wish to speculate AND you can "afford to lose the entire Variable Port".

Let's say you needed the money for your house down payment, retirement etc.  Assume you have an orthodox 4X25 HBPP of $100K, & have 20% taxable & 10% I Bonds & 70% nontaxable, & you need $20K (say for $17 for house downpayment + $3 for the tax liability of cap gains for the next April's tax bill - fake tax bill figure for purpose of this example).  Assume your port is all Perm Port, no/0 Variable Port.

taxable ($20K)
$20K SGOL (gold)

US Treasury Direct ($10K)
$10K I Bonds (cash)

nontaxable/Roth IRA ($70K)
$5K SGOL
$25K VTI
$25K ladder of individual 30 yr T-Bonds
$15K VMMXX (cash)

to raise $20K, sell the taxable $20K SGOL
--

now you're "pie"/port is

empty/$0 taxable

US Treasury Direct ($10K)
$10K I Bonds

nontaxable/Roth IRA ($70K)
$5K SGOL
$25K VTI
$25K ladder of individual 30 yr T-Bonds
$15K VMMXX (cash)

current allocs
gold: 5/80 ~6.25%
stock/bond/cash: 25/80 ~31.25%
--

within the nontaxable, to rebalance sell $5K each of VTI, VMMXX & 30 yr T-Bonds, & buy $15K SGOL. After the rebalance you'll have 20K of each asset, which is 20/80 ~25% of the port, back to the target alloc (of course, in actuality you will lose a few trivial dollars in the rebalance due to the bid ask spreads on VTI/SGOL/individual 30 yr T-Bond):

US Treasury Direct ($10K)
$10K I Bonds

nontaxable/Roth IRA ($70K)
$20K SGOL
$20K VTI
$20K ladder of individual 30 yr T-Bonds
$10K VMMXX

---

On the topic of say retiring early when your say ~45, & don't want the penalties of early withdrawl.  This is an interesting scenario I hadn't considered.  However, my qualitative/guesstimate judgement is that
your cumulative compounded tax savings from 20+ years (from your age 24 to ~45) of not paying 1 rebalance capital gains tax + 2 divididend tax
> are superior to/exceed
the penalty fee from early Roth IRA withdrawal

Your savings scheme for you & wife should be (would be interesting for others to comment on this):
1. IF you have job 401K/403/457 type account AND IF the employer matches up to X, fund.
2. after #1 if affordable, fund your Roth IRA up to the $5K limit
3. after #2 if affordable, fund the rest of the 401K beyond the employer match X amount, up to the $17K annual limit (401K limit as of 2012)
4. after #3 if affordable, fund I-Bonds up to the $10K personal limit & $5K IRS tax-refund-as-I-Bond limit.  Of course you might get limited before the I Bond purchase limie if your cash amount exceeds the 35% rebalancing trigger
5. after #4 if affordable, fund taxable, with gold &/or stock

I suppose if you have a huge planned purchase like your house/downpayment that is >1 yr away but less than 5 yrs, you may wish to use I Bonds or even EE bonds if you maxed the I Bond limit, even if this exceeds the 35% cash rebalance treshhold.  This issue is probably a "personal preference", just like the conversation an another post here about if 1 has enough funds, should they buy the house with cash vs using a mortgage.

[Tyler]

I'm on the ER track in a few years (knock on wood).  Personally, I manage the taxable and tax-deferred accounts as separate PPs with the goal to keep the taxable stable in my ER years. But in the event I need the tax-deferred money early, that's still possible penalty free.  Google 72t <--- learned that on this forum.  ;)

[Ad Orientem]

Pointedstick
Hi and a belated welcome.  There is nothing I have seen posted above that gives me any real heartburn.  Where the PP is concerned your mileage will vary and as long as you stay mostly within the 4 x 25% framework most of us don't get dogmatic.  A lot is based on your comfort level.  What will make you sleep at night?  What might keep you awake?  And for people like me, the question is how lazy am I?  In my case the answer is very. 

I am a big fan of what in the Navy we called the KISS rule (keep it simple stupid).  Less is usually better when it comes to moving parts or things you need to do yourself.  With this view in mind here is my answer to your initial questions.

Bonds: I like TLT.  It's simple and it works.  I don't have to do anything other than once a year review and rebalance.  Risk level versus TD? Slightly higher but not enough for me to lose sleep.  For me the convenience more than justifies the negligible added risk.

Cash: I use to like SHY but am now favoring SCHO.  Functionally it's the same thing but it has a different fund family.  So you get added diversification and slightly lower Fees and Expenses (F&E).  Risk level versus a TMMF? Again slightly higher but not unacceptable to me.  And you get the added yield.  Barring an SHTF scenario neither TLT nor SCHO is going to go under.  And SCHO is low enough on the curve that interest rate sensitivity is still very low.  That said there is nothing wrong with a TMMF or SHV if that's what will help you sleep better.

Gold: I agree with your choice of IAU for a bullion backed ETF.  That said I strongly encourage keeping at least some of your gold in physical form.  I don't spend a lot of time sweating end of the world as we know it scenarios.  But having some physical gold is the ultimate hedge against disaster.  If you have real gold you are not broke and chances are you will be able to keep a roof over your head and food on your table in case something catastrophic does happen.

Stocks: I favor a total US Stock Market Fund. VTI is my preference but I won't quibble if someone wanted to use VT.  A strong argument can be made that in the modern economy you need some global exposure in equities.  If you do decide to add some foreign equity exposure though, expect slightly higher volatility.  I am not a big fan of indexes that only track small cap or medium cap or are tech heavy etc.  You want broad based exposure to the stock markets. I would stick with VTI, VT, SPY or equivalent funds.

Emergency Fund: I would not fold the emergency fund into your cash allocation.  For that I favor a good old fashioned bank account or (gasp!) actual CASH.  As in dead presidents on green pieces of paper.  If you do decide to go with some kind of bonds for it you want to be as far down on the curve as you can reasonably get.  BIL might work.  Even then I would encourage keeping at least a month's essential expenses in actual cold cash stashed in a strong box somewhere safe in your house or apartment.

Anyway that's my advice, which along with $3.00 will get you and incredibly small cup of overrated coffee at Starbucks.  Bottomline: Try and stay within the 4 x 25% framework and beyond that go with whatever makes you comfortable.  Advice is good, but you're the one who has to sleep at night.