Newbie needs help

[Momus]

I am interested in PP for over a year now and know I could not the stomach the volatility of 70/30 portfolio... sold during august-oct 2011 and tried to time the market because at one time stock component went -20% so I want something I can stick through ups and downs (hopefully not as a big). That's why I want to permanently shift them into HBPP.

$150k cash -> will be around $210k by the end of the year (if it makes any different selecting different brokerage for lower cost)
$70k in 401k.

What a low cost brokerage is best to hold 4 ETFs with low/minimal trading cost? What are the best ETFs for bond, cash, gold, stocks to hold to have the lowest expense ratio given I have $150k/4?

How do I go about using $70k in 401k to be a part of PP or should I just leave this alone in target date account (I know the ER is high -.-)?

My 401k selection:

Stocks
DODBX DODGE & COX BALANCED FUND 0.53%
RAIEF INTERNATIONAL EQUITY FUND 1.11%
RALCG LARGE CAP GROWTH FUND 1.00%
RALCV LARGE CAP VALUE 0.77%
RAMCF MID CAP FUND 0.82%
RASCF SMALL CAP FUND 1.14%
PEXMX TRP EXTENDED EQUITY MRKT INDEX 0.42%
PIEQX TRP INTERNATIONAL EQUITY INDEX 0.50%
VIIIX VANGUARD INST INDEX 0.02%
VSCIX VANGUARD SMALL CAP INDEX INSTL 0.13%

BONDS
PTTRX PIMCO TOTAL RETURN INSTL 0.46%
BAT TRP BOND INDEX TRUST 0.25%

Money Market
RADSV STABLE VALUE FUND 0.33%

RETIREMENT Funds Target date
TRRFX RETIREMENT 2005 FUND 0.58%
TRRAX RETIREMENT 2010 FUND 0.61%
TRRGX RETIREMENT 2015 FUND 0.65%
TRRBX RETIREMENT 2020 FUND 0.69%
TRRHX RETIREMENT 2025 FUND 0.72%
TRRCX RETIREMENT 2030 FUND 0.74%
TRRJX RETIREMENT 2035 FUND 0.76%
TRRDX RETIREMENT 2040 FUND 0.76%
TRRKX RETIREMENT 2045 FUND 0.76%
TRRMX RETIREMENT 2050 FUND 0.76%
TRRNX RETIREMENT 2055 FUND 0.76%
TRRIX RETIREMENT INCOME FUND 0.56%

[rhymenocerous]

You should use your 401k to hold to the following:

25% VIIIX VANGUARD INST INDEX 0.02%
25% RADSV STABLE VALUE FUND 0.33%

For the $150k cash, I would then hold:
25% individual 30 yr treasuries or TLT
25% GTU, IAU, or physical gold.

I like Vanguard and Fidelity as a brokerage because they offer free treasury trades, and their cost to buy/sell GTU/IAU is low.

Edit: If your taxable account is growing faster than your 401k due to new contributions, then I'd hold all of your stock portion inside the 401k and move the cash portion outside of it.

[hoost]

Is any of the cash in a tax sheltered account (IRA)?

[cabronjames]

Hi Momus,

My following post is detailed/long, but I think you'll find it helpful.

"How do I go about using $70k in 401k to be a part of PP"
imho you should treat both your $70K 401K & $150K cash/prep fund (total ~$220K, so $220K/4 ~$55K for each asset type) as part of your PP.  The idea is to prioritize the tax inefficient assets in the nontaxable account, which CraigR recommends to prioritize
1 30 yr Bond
2 cash
3 stock
4 gold

does your 401K have a Brokerage Window option?  afaict a situation like yours, where the taxable portion (Texas) dwarfs the nontaxable (Rhode Island) portion, is the situation where Brokerage Window would be most advantageous.  For instance, you could use Brokerage Window to buy 30 yr Bond asset type in the 401K.

Assuming you don't have Brokerage Window, & assuming in an attempt to minimize taxes, you're willing to start a Roth IRA, & Savings Bonds at US Treasury Direct, here's a possible implementation plan (I'm familiar with Vanguard Brokerage Service (VBS) for 2 years, & they are low-cost, so I will use VBS in this example, but you could use other custodian(s) like Fidelity, etc):

Startup plan now/soon:
1 Open a US Treasury Direct (USTD) account with $20K. Buy the 2012 annual limit of $10K in I Bonds, & $10K in EE Bonds.  Your prep fund goes from $150K to $130K.

2 Open a Vanguard Roth IRA account with the 2012 limit with $5K, buy T-Bond fund VUSTX (0.22%er).  (Note: Later if your "Vanguard Fund" portion (see below) across both your taxable & Roth exceeds $50K, it will be better to directly hold $30 yr T-Bonds.  But until then it's not fee efficient to pay an extra $20 annual fee for this small fund).  Your prep fund goes from $130K to $125K.  Make sure to select the "paperless" option for this Roth IRA; this way you avoid any annual account fee for your Roth IRA.

3 In the 401K, cash is more priority to shield than stock, since cash is less tax friendly.  You already have $20K in cash from I Bonds, so you need $35K more to hit the $55K of cash needed, so buy $35K of RADSV STABLE VALUE FUND.

4 With your remaining $35K in your 401K, buy the stock fund VIIIX VANGUARD INST INDEX

5 Open a VBS taxable account

6 Per your personal preference, determine which method(s) to hold your $55K of gold.  Orthodox HBPP doctrine would be to buy 1 oz sovereign bullion coins (like American Eagle) you control the storage of (bank safe deposit box, home, etc).  1 alternative to use the Perth Mint, which iirc has a $50K min which you would meet.  Of course another alternative is to hold in your VBS taxable acct, ETF(s) like IAU/SGOL or a closed end fund(s) like GTU (especially if at a discount to NAV).  For the purpose of this example, assume your gold as $55K in 1 oz sovereign coins.  Your prep fund goes from $125K to $70K.

7 In your VBS taxable, finish buying your bonds. You have $5K already, so buy $50K more of individual 30 yr T-Bonds. Your prep fund goes from $70K to $20K

8 In your VBS taxable, finish buying your stock. You have $35K stock already so buy $20K (which finishes off your prep fund) of VTSAX Admiral Shares fund, which is a cousin of the VTI ETF (both have 0.07% exp ratio.

9 Direct your Job 401K to allocate contribs from each paycheck, %50 RADSV, %50 VIIIX. (Actually you could have it be any mix of RADSV & VIIIX that you wish.  As long as you review to see if a rebalance is needed at least once yearly, it won't have much impact on your returns)

Your PP would then be (grouped by asset):
Port Exp ratio ~ 0.07% = (5*.0022 + 35*.0033 + 35*.0002 + 20*.0007)/210

Bond $55K ~25% of port
1 in VBS taxable, $50K of individual 30 yr T-Bonds (oldest bond available in the secondary market, maturity in 2042 or 2041) (0.00% exp ratio)
2 in Vanguard Roth IRA, $5K VUSTX (0.22%er)

Cash $55K ~25% of port
1 in 401K, $35K of RADSV STABLE VALUE FUND (0.33%er)
2 in USTD, $10K I Bonds (0.00%er)
3 in USTD, $10K EE Bonds (0.00%er)

Gold $55K ~25% of port
1 in your control (no custodian), $55K 1 oz American Eagle bullion coins (0.00% er). Note - if you store at bank safe deposit box &/or insure the coins, there will be some fees.  I don't know about this topic, but there are other threads/CraigR podcast/etc that address this, you can estimate the cost, "implied exp ratio" from that info

Stock $55K ~25% of port
1 in 401K, $35K VIIIX (0.02%er)
2 in VBS taxable, $20K VTSAX (0.07%er)
--

Analysis of VBS possible fees
-no trading/commission fees, unless you hold a gold ETF/closed end fund at VBS, in which case it will be $7 per trade, since these are non-Vanguard ETFs.
-Vanguard funds & individual T-Bonds have no commission fee to buy or sell.
-VBS counts the "Vanguard funds" portion of your account to determine the account size across all of one's VBS accounts (eg both your taxable & Roth IRA), to determine if one is a Standard (<50K "Vanguard funds") or Voyager (>=$50K "Vanguard funds")
-"Vanguard funds" defined as Vanguard ETFs, Vanguard mutual funds (VTSAX), & sweep cash money market fund VMMXX.  T-Bonds or non-Vanguard funds like IAU are not considered "Vanguard Funds".
-You have $25K in "Vanguard Funds" across both your Vanguard accounts.  As such, you're a "Standard" customer & will get a $20 annual account fee.
in Roth IRA, $5K VUSTX
in VBS taxable, $20K VTSAX
-Note, this $20 annual account fee is still less than the implied expense ratio fee you would've had if you used a Vanguard fund to buy bonds, as opposed to your no-expense ratio individual T-Bonds.  EDV (30 yr zero coupon bonds) has a 0.13%er, VUSTX has 0.22%.  Even with the cheaper-exp ratio EDV, $50K*0.0013 = $65, which is worse than this $20 account fee
--

Possible Annual Account maintenance & rebalancing:
1 In May 2013 (or whichever month, just pick once a year for this maintenance/rebal task): Check if any of your individual T-Bonds has <20 yrs until maturity. If so, sell it

2. Add $5K to your Roth IRA, use it to buy more VUSTX

3. Add $20K to your USTD, buy $10K I Bonds, $10K EE Bonds

4. Review your current allocations, to see if any asset class needs to be rebalanced to the 25% target alloc.  If any asset class hit 15%, you need to buy it up to 25%, using buy selling a portion the highest asset(s).  If any asset class hit 35%, sell it down to 25% & buy up the lowest asset(s)
4a.  If the rebal is cash-stock, or stock-cash, you will likely be able to rebalance it within your 401K alone
4b. If the rebalance is sell cash to buy gold or bond, in your USTD, sell your EE Bonds before touching your I Bonds.  Add the proceeds to your VBS taxable

5. check your "Vanguard fund" total across your VBS taxable & Vanguard Roth IRA.
IF "Vanguard fund" > 50K
 5a. sell VUSTX, & buy individual 30 yr T-Bond(s)
 5b. call VBS Client Service, request that they change your account type to Voyager.  You will no longer have a $20 VBS annual account fee
ELSE do nothing

--
Hope that helps!

[Momus]

I forgot, I do have about 10k in roth (backdoor) that I contributed once a year 5k. Darn cabronjames, that sounds complicated.. I'll review it soon lol