Taxes: HBPP vs PRPFX

[Ad Orientem]

Question: For a person who is a high net worth individual with most of his/her assets in taxable accounts would the HBPP or PRPFX be the better choice for tax purposes? And could the difference in ER tip the scales?

[craigr]

There are too many details to make a blanket statement, but the HBPP is extremely tax efficient if you are not in there tinkering with stuff all the time. The two main taxable problems are interest and dividends. The interest from Treasuries is exempt from all state/local taxes and are actually much more tax efficient than people think because of this. The broad based stock index fund is also very tax efficient and does not have a lot of taxable dividends. Gold has collectibles gains, but again you are not transacting it a lot so it too is efficient.

Mostly this portfolio will have taxable gains from capital gains as it is not seeking "income" for income's sake. Capital gains are very good for taxable investors because:

1) They are usually taxed at a lower rate than other sources of income.
2) They can be culled only when you want them and are not forced on you.

Again though you don't want to tinker with stuff. Taxable investors should keep the portfolio as simple as possible with the idea that the assets they put into the portfolio will not be touched for years, possibly decades.

[sophie]

What Craig said about the blanket statement.

The tax cost plus expense ratio of the HBPP should be in the neighborhood of 0.7-0.8% per year if you're careful to minimize expense ratios (e.g. buy bonds directly and hold physical gold) and trade commissions.  This is a little better than what you'd get from PRPFX (around 1%).

So a nice side benefit of that calculation I did for the 401K vs taxable question:  use PRPFX for convenience primarily.