A Permanent Portfolio With An Expense Ratio of Two Basis Points

[MediumTex]

I was thinking about how to get the lowest conceivable PP expense configuration, and it looks like you could do it for .0225% a year.

Here's how:

Gold: Buy bullion. 
Expense: Zero.

LT Treasurys: Buy individual bonds through a broker that charges no commission on treasury purchases.
Expense: Zero.

Cash: Buy some combination of savings bonds (either I-bonds or Series EE bonds) and individual short term treasurys through a broker that charges no commission on treasury purchases.
Expense: Zero.

Stocks: Buy SPY.
Expense: SPY has a .09% expense ratio.

When you combine SPY and its expense ratio with the other three assets with no expense, you get a .0225% expense ratio across the whole portfolio.  Not bad.

[Maestro G]

Interesting MT.

Why not VTI @ .07? Even lower!

Maestro G

[MediumTex]

I didn't even think to look at VTI.  I assumed SPY would be the cheapest.

[MediumTex]

$40 per purchase I think.

[MediumTex]

Using VTI, the expense ratio would be under 2 basis points.

[Indices]

I'm confused. I thought buying bullion has high fees generally unless you buy in large amounts from gold dealers?

[KevinW]

In addition to very low expenses, this approach has very little counterparty risk.  Only 1/4 of the portfolio has a fund sponsor between you and the assets.

Vanguard TSM Admiral has the same expense ratio as VTI, but you can transact directly with Vanguard instead of going through a broker and stock exchange.

Schwab has free treasury trades, and their VTI-alike SCHB trades for free with an ER of .06.

[MediumTex]

I'm confused. I thought buying bullion has high fees generally unless you buy in large amounts from gold dealers?

You will pay a premium over the spot price of gold at the time you purchase bullion, generally in the 2-4% range, but this is a one time fee.

I'm thinking more in terms of ongoing administrative costs.

[Lone Wolf]

Two basis points.  I love it.

I'm embarrassed to admit that I'd never really hunted around for a broker that offers completely free trades on US Treasury securities.  I recall that my fees for such transactions were small but I don't believe that they were 0.  KevinW's suggestion of Schwab sounds excellent.  I was wondering if anyone else had good recommendations for free Treasury trades?

[LifestyleFreedom]

I'm confused. I thought buying bullion has high fees generally unless you buy in large amounts from gold dealers?

You will pay a premium over the spot price of gold at the time you purchase bullion, generally in the 2-4% range, but this is a one time fee.

I'm thinking more in terms of ongoing administrative costs.

Don't forget the rebalancing costs.  You have to sell some of the "appreciated assets" every once in a while and use the money to buy more of the "cheap assets" when you rebalance.  These ongoing buy and sell costs are part of the administrative cost equation.

[MediumTex]

I'm confused. I thought buying bullion has high fees generally unless you buy in large amounts from gold dealers?

You will pay a premium over the spot price of gold at the time you purchase bullion, generally in the 2-4% range, but this is a one time fee.

I'm thinking more in terms of ongoing administrative costs.

Don't forget the rebalancing costs.  You have to sell some of the "appreciated assets" every once in a while and use the money to buy more of the "cheap assets" when you rebalance.  These ongoing buy and sell costs are part of the administrative cost equation.

Nice handle LifestyleFreedom.  If I had to start over I might do something like HereTodayGoneToMaui.

In the last 40 years, using 15%/35% rebalancing bands, there have been 9 or so rebalancing events.  Since many rebalancing events would have had you buying gold (as opposed to selling it), I think that the transaction costs would have been minimal (since you can buy and sell the other assets at no cost).

For someone who is adding new money to the portfolio (depending upon how you do it), rebalancing events that require the sale of assets will be even more rare.

I don't think that rebalancing costs would make it difficult to realize the below-2 basis point PP.

[Lone Wolf]

I recall that my fees for such transactions were small but I don't believe that they were 0.

Hey, looking at it again, it seems that my Treasury purchases at Fidelity were free after all.  Brilliant.  Good work, Fidelity.

Since I am paying FSTMX's .1% expense ratio and .25% for IAU, I'm paying 8 or 9 basis points.  The MediumTex plan would slash my costs by 75%. 

[LifestyleFreedom]

In the last 40 years, using 15%/35% rebalancing bands, there have been 9 or so rebalancing events.  Since many rebalancing events would have had you buying gold (as opposed to selling it), I think that the transaction costs would have been minimal (since you can buy and sell the other assets at no cost).

I've never owned gold myself (other than what's in the PRPFX mutual fund, which I took a small position in last year so that I could become more familiar with its under-fire-in-the-real-world dynamics), but I've read and heard over the years about some of the costs associated with buying, storing, and selling gold (i.e., Is it really gold and not lead or tungsten?  Is it really your gold instead of belonging to someone else?  vault fees, insurance fees, and so forth).  These costs may be small when compared to the investment in the gold (I don't know), but they have to be paid somehow by someone, probably the customers.

http://en.wikipedia.org/wiki/Gold_as_an ... t_vehicles

It's possible that we'll continue to have a rebalancing event every four years on average in the coming years (I would imagine rebalancing is required more frequently during more volatile times and less frequently during less volatile times, but I don't know).  One of the strengths of the Permanent Portfolio is that it doesn't matter how frequently or infrequently a rebalancing event occurs because the strategy is based on following the markets rather than predicting the markets (and markets, of course, are unpredictable).  The rebalancing requirement makes this adjustment automatic for those who have the discipline and fortitude to follow through when rebalancing is called for.