Getting Started

[basic]

Hi Guys,

I've been lurking around for quite awhile, reading threads and listening to pod casts. I read both of HB's books in the last 6 months and am very excited to get started, but based on my account status a little unclear on the best accounts for each funds.

I have a 401k program at work with a 9% match. So I also contribute 9%, giving me 18% yearly into my 401k plan. This works out to ~$16,830. As of today, the account has ~$45,000 in it. However I can only tell that the 401k plan would fit the stock portion of the PP. My options are:

A money market account with 86% OTHER and 16% bonds (no ticker available)
CSIBX
FHAIX
OIBAX
A LifeTime Auto account dated for my retirement age
Large Cap Index Fund (woo an index fund!) It essentially tracks the S&P 500, but not quite
Mid Cap Index Fund (should I mix this with the large cap?)
ILSAX
MMUFX

Basically I only feel that this account can cover the stock portion of the portfolio and I am wondering how to make it work with the PP.

I also have 12,500 in a traditional IRA, and can contribute 10k into a ROTH for my wife and I this year, but it is unlikely I can keep up fully funding the roth every year. (Vanguard brokerage accounts)

I also have ~20k in cash accounts that if possible I'd like to double as my emergency fund.

How do you all suggest I setup the PP considering all this? Thanks for any advice!

[MediumTex]

I think your 401(k) money market would work okay for cash.  It's not perfect, but with a large 401(k) relative to your other assets you have to do the best with what you've got.

As I always tell people, see if your 401(k) plan offers a "brokerage window".  These things are in a lot of plans and often no one even knows about it (they are normally only used by a handful of highly paid employees to speculate).  A brokerage window if obviously a great tool for PP purposes.  Read your plan's summary plan description closely and see if your plan has one.  If your plan doesn't, ask about adding one.  It won't hurt.

[Pkg Man]

The large cap index fund should be fine for the stock portion, and as MT says, I would use the money market account for the cash portion.  None of the other funds are usable for the PP, and given the very high expense ratios, not very good for anything IMHO.  It appears that you have enough other cash on hand to buy gold bullion, and with the existing IRA plus 10K contribution you can buy Treasury bonds or TLT.  This gives you approximately 22.5K in each component of the PP so you'd have a balanced portfolio.

The problem will be keeping the PP balanced.  The generous match is not something you would want to give up, so I'd stick with contributing the maximum there.   I'd try very hard to save as much as possible outside the 401K.  As your income grows perhaps you will be able to devote approximately equal amounts to the 401K and non-401k vehicles.  If you can't do that you could run two separate portfolios, a PP and a VP (Variable Portfolio), and invest some of the your 401K contributions into the VP that is considered separate.  So you might take half or so of you 401k contributions and consider them for the PP, and half for the VP.  Although given your investment options, this is less than ideal.

Hope that helps.

[Wonk]

I second MT's advice regarding a brokerage window.  My wife works for an enormous Fortune 500 company and their 401k options are typical (typically bad).  It took some extra effort and phone calls, but we were able to establish the brokerage window and purchase PRPFX with her entire 401k lump sum. 

My sister works for a small firm (about 150 employees) and didn't have a brokerage window available.  BUT, she was able to talk directly with the contact who manages the 401k options for the company.  She asked if they would add PRPFX as an option and they had it available by the following week. 

The lesson is you just never know what options you have in a 401k unless you do some extra digging and asking--depending on the size of your company.  See what you can do here first and foremost and that may make the rest of your work easier.

[AdamA]

Index Fund (should I mix this with the large cap?)

It's a personal decision, but I wouldn't.  Keep things as simple as possible.

The problem will be keeping the PP balanced. 

View it as a dynamic process.  Things tend to come together once you make your initial purchases. 

You can actually take out a loan against some 401K's.  This can be a good way to rebalance as well.  It's a loan from yourself, so it's not like you're going to get into credit trouble...although, believe it or not, you usually have to pay yourself interest.

Doesn't show up on your credit report either. 

[basic]

Thanks for the great replies guys. I will check for the brokerage window Monday. It would be so great if they would allow that! If not I guess the best I can do is consider the extra in the 401k my VP... but as you see, the fund options are pretty terrible.

Will update Monday with more info.

[basic]

I spoke to the 401k company today, and they will not allow me to have a brokerage window at any cost, to buy treasuries, or to transfer my employer contributions out to another account.

They offered that I can take a loan out against the account (up to 50k or half the value, whichever is less), but I don't think a loan really gets me anywhere.

So since I have 45k in the 401k, 12k in a traditional, 10k roth (wife and I) and 20k available for a taxable account that is 87k total, or 21.75k per quarter.

That would give me:

401k
21.75k S&P 500
21.75k MM

1.5k S&P 500 VP

traditional IRA
12k TLT

roth 1
5k TLT

roth 2
4.75k TLT
.25k IAU

taxable account
20k Gold probably mix of physical and IAU

1.5k shortfall initially for gold

Unfortunately this shoots the idea of combining the MM with my emergency fund, which means in reality I may only have 10k available on the taxable account. Do you guys have any other ideas for how to lay things out?

[AdamA]

I wouldn't worry about $1.5K in an $80K PP.  It's close enough. You'll have the chance to rebalance later. 

Also, if you're really worried about it, borrow against your 401K and you can make it exact.

[Wonk]

basic,

Looks like you've got it about as perfect as possible with what you have to work with.  Good news is that when you change jobs, you'll be able to rollover your 401k into a TIRA and change the allocation to one that is more flexible for your needs.

Congrats on making the best of a tough situation for now.

[mbh]

basic,

If you buy IAU in a taxable account, make sure you understand and are comfortable with the tax consequences.  I bought IAU in a taxable account in January.  About a week or two later, I found out about the need to calculate adjusted basis as described here:

http://us.ishares.com/content/stream.js ... cation/pdf

I decided I didn't want to sign up for that.  I sold and decided I'll figure out other ways of owning gold.

[TBV]

So, anyone who holds IAU for the long term (i.e. lots of folks in the PP) will have to do these calculations every year for each lot.  An even greater nuisance if you're rebalancing or adding to your holdings.  This sure does lessen the appeal of this ETF in my eyes.  Goldmoney or BullionVault are looking better every day.

[bigamish]

Goldmoney or BullionVault are looking better every day.

When I first started my PP this January, I fully intended on using 100% IAU for my gold portion.  Fortunate circumstances got me to purchase bullion from the start, and now that I have experience with storage & purchase, not to mention having a better understanding of how gold ETFs work, I couldn't be happier.  Although I can't speak to Goldmoney or Bullionvault directly, I now plan on holding 100% physical gold within my PP as long as it is logistically possible for me to do so.

[basic]

basic,

If you buy IAU in a taxable account, make sure you understand and are comfortable with the tax consequences.  I bought IAU in a taxable account in January.  About a week or two later, I found out about the need to calculate adjusted basis as described here:

http://us.ishares.com/content/stream.js ... cation/pdf

I decided I didn't want to sign up for that.  I sold and decided I'll figure out other ways of owning gold.

Wow. I had not realized that at all. Maybe I will stick to IAU just in the Roth account and physical gold otherwise. Do all you guys who hold physical bullion just round to the nearest oz when purchasing? Then hold for the next ounce? Or do you buy an ETF until you have enough for the next purchase?

[Gumby]

basic,

If you buy IAU in a taxable account, make sure you understand and are comfortable with the tax consequences.  I bought IAU in a taxable account in January.  About a week or two later, I found out about the need to calculate adjusted basis as described here:

http://us.ishares.com/content/stream.js ... cation/pdf

I decided I didn't want to sign up for that.  I sold and decided I'll figure out other ways of owning gold.

Wow. I had not realized that at all. Maybe I will stick to IAU just in the Roth account and physical gold otherwise. Do all you guys who hold physical bullion just round to the nearest oz when purchasing? Then hold for the next ounce? Or do you buy an ETF until you have enough for the next purchase?

Just to be clear. The tax treatment applies to SGOL and GLD as well:

http://www.spdrgoldshares.com/media/GLD ... n-2010.pdf
http://www.etfsecurities.com/us/documen ... 010_us.pdf

[longeyes]

So...for those who want to implement the HBPP most efficiently and most easily, what IS the best way to go for the gold portion of one's portfolio???

ETNs?  PRPFX?  Something else?  Coins and bullion?

[MediumTex]

So...for those who want to implement the HBPP most efficiently and most easily, what IS the best way to go for the gold portion of one's portfolio???

ETNs?  PRPFX?  Something else?  Coins and bullion?

I would assume bullion and stick with that plan as much as you are able.

[bigamish]

Do all you guys who hold physical bullion just round to the nearest oz when purchasing? Then hold for the next ounce? Or do you buy an ETF until you have enough for the next purchase?

I personally don't use ETFs for rebalancing (yet). 

As far as purchasing to the nearest ounce, I generally don't stress exact figures so long as I am in the neighborhood of 25%.  If I find a low premium I have no problem rounding up, even it takes me a little above the 25% level (no more than 26 or 27% though).  So long as one maintains the spirit of the PP, I don't think it is a big issue.  At my current level of accumulation (post-initial PP buy-in) I generally purchase one ounce at a time, but as my portfolio grows that will change.

Also, one can occasionally find good deals on 0.5 oz or 0.25 oz bullion, but those are admittedly more rare.  I've been recently contemplating British Sovereigns (slightly less than 0.25 oz) as a possible source of fractional bullion.

[AdamA]

So...for those who want to implement the HBPP most efficiently and most easily, what IS the best way to go for the gold portion of one's portfolio???

This is a very personal decision.

I think at least a small percentage of physical gold is a must.

As far as funds go, I like the Candadian open-ended fund GTU the best.  The people who run it are, in my opinion, honest.  It also has tax advantages compared to the open-ended funds, and has been around much longer.