minimizing expense ratio: PRPFX vs ETFs vs Mutual Funds

[krick]

I've been a long term holder of PRPFX (along with other mutual funds, ETFs and stocks), but I've recently grown more focused on minimizing fees and expenses in my investment accounts.

PRPFX has a net expense ratio of 0.71%, which seems kind of high compared to the expense ratios on many ETFs and some mutual funds.

Has anyone put together a basket of ETFs or mutual funds that's comparable to PRPFX, but with a focus on minimizing expense ratio?

[l82start]

i have a hunch the general recommendation would be to switch to the slightly better 4x25 ETF version of the PP over trying to recreate  PRPFX, and to using direct held gold and LTT over the four ETF version... 

each of those two options will shave costs, improve simplicity, and increase safety with the direct held version being the most economical and safest...





ps welcome to the forum..

[krick]

i have a hunch the general recommendation would be to switch to the slightly better 4x25 ETF version of the PP over trying to recreate  PRPFX, and to using direct held gold and LT over the four ETF version... 

each of those two options will shave costs, improve simplicity, and increase safety with the direct held version being the most economical and safest...

Actually, I didn't mean that I wanted to replicate PRPFX, I just wanted a comparable permanent portfolio made of either ETFs or mutual funds with lower expense ratios.

From your reply, it sounds like there is already a "community recommended" 4x25 ETF allocation.  Can you point me to more information on this?

I don't really have a desire at this time to directly hold gold, but I understand the reasons for doing so.

ps welcome to the forum..

Thank you for your hospitality.

[l82start]

http://gyroscopicinvesting.com/forum/ht ... ic.php?t=2 this is the "master list" of PP components, i haven't read the thread recently so i don't know if it got done, but there was talk of prioritizing them at one point..

the best option for you may vary depending on where you hold them and the options you have available

[Pointedstick]

Example:

VTI: 0.06%
SCHO: 0.04%
TLT: 0.15%
IAU: 0.25%
Total ER: 0.125%

You can get even lower by replacing funds with directly-held assets. Example:

SCHB: 0.04%
T-bill ladder: 0%
T-bonds: 0%
Bullion: 0%
Total ER: 0.01%!

[krick]

I have two non-taxable accounts at Scottrade.  One is a traditional IRA from a 401k rollover from a previous employer.  The other is a Roth IRA.  I also have a taxable stock account at Scottrade.

I fund the Roth IRA every year, and this is the account that I'd likely use for this endeavor.

I found a suggested 4x25 ETF portfolio in another thread on this site.  Here's their suggested ETFs with their expense ratios...

VTI 0.06%
TLT 0.15%
SHY 0.15%
GLD 0.40%

Assuming an equal weighted portfolio, the average ETF expense ratio is 0.19%, which is way better than 0.71% for PRPFX

Of course, with ETFs there will be transaction fees involved every year when I fund my Roth IRA and re-balance ($7 per trade).

With PRPFX, there is no transaction fee to buy more shares, as well as automatic re-investment of dividends.

So it's not a straight apples-to-apples comparison.

[Pointedstick]

Of course, with ETFs there will be transaction fees involved every year when I fund my Roth IRA and re-balance ($7 per trade).

With PRPFX, there is no transaction fee to buy more shares, as well as automatic re-investment of dividends.

So it's not a straight apples-to-apples comparison.

At Schwab, you can set up a 100% commission-free ETF portfolio using SCHO, SCHB, SGOL, and TLO. Most other brokers should offer good commission-free ETFs for everything but gold. Schwab also allows you to reinvest dividends, as do most reputable brokers. And if it happens in a Roth IRA, you obviously won't need to worry about taxes on those reinvested dividends.

[AgAuMoney]

VTI 0.06%
TLT 0.15%
SHY 0.15%
GLD 0.40%

Instead of GLD I use IAU, is only 0.25%.  But the spreads may be a bit higher.

Like you said, it is never apples to apples.

[cnh]

Isn't citing a cost of zero for directly held bullion a little disingenuous? If one holds bullion following recommendations in "The Permanent Portfolio," there would seem to be recurring storage and insurance costs.  For smaller portfolios, these costs are likely to be quite high on a percentage basis.  And this doesn't even factor in the commission or "spread" one pays on acquisition...3-5% based on the dealers recommended in the book. "Acquisition cost" for a gold ETF can be on the order of a flat $5 per trade, plus the bid-ask spread, which may only amount to fractions of a percent.

I understand the Portfolio's preference for bullion over "paper gold," but when we're discussing cost we ought to do so in a comprehensive manner for all the investment vehicles.

[AgAuMoney]

Why do I get so many 500 errors "and in addition a 404..." ?

Isn't citing a cost of zero for directly held bullion a little disingenuous? If one holds bullion following recommendations in "The Permanent Portfolio," there would seem to be recurring storage and insurance costs.  For smaller portfolios, these costs are likely to be quite high on a percentage basis.  And this doesn't even factor in the commission or "spread" one pays on acquisition...3-5% based on the dealers recommended in the book. "Acquisition cost" for a gold ETF can be on the order of a flat $5 per trade, plus the bid-ask spread, which may only amount to fractions of a percent.

If you are talking about a tax advantaged account, use a fund of some kind.  Physical in an IRA is all disadvantage and no advantage, IMHO.  But if you are talking about taxable moneys...

Trading costs are a one-time thing.  And physically acquiring something always costs more.  I believe it is worth more.  Shop carefully and pick up physical when you can get a good deal.  Most of my coins were less than $50 premium per oz, many less than $30 (scuffed maple or Krug), a few $10 or less (got lucky).  Of course, that was when gold was well under $1000 per oz, but it looks like $30-$50 is still possible today unless you have to have the new shiny.

Recurring expenses are another matter entirely.

Gold ETF fees start at 0.25%.  Holding $10,000 will cost you $25 per year plus a lot of annoying tax transactions as they continually sell little pieces of your gold to pay the fee.

$10,000 in gold coins can be sealed into a few inches of PVC pipe and dropped into a sewer cleanout or toilet tank or under your mattress or in the dead space under the lower cabinets or millions of similar places, or if you already have a safe deposit box will easily fit in the smallest box.  Storage cost $0.  And once you store the first $10,000 the second doesn't seem like that big a deal.  At some point you realize it is worth spending 1-2 oz of gold to get a serious safe or that paying a pittance every year on a safe deposit box or two is way cheaper than holding a fund.

[Pointedstick]

At some point you realize it is worth spending 1-2 oz of gold to get a serious safe or that paying a pittance every year on a safe deposit box or two is way cheaper than holding a fund.

+1

$30,000 in IAU = $75/yr, which is more than even most exorbitantly-priced safe deposit boxes. 30k is not really even that much for a decent sized portfolio. 100k in GLD would be costing you $400/yr!

[Pointedstick]

At some point you realize it is worth spending 1-2 oz of gold to get a serious safe or that paying a pittance every year on a safe deposit box or two is way cheaper than holding a fund.

+1

$30,000 in IAU = $75/yr, which is more than even most exorbitantly-priced safe deposit boxes. 30k is not really even that much for a decent sized portfolio. 100k in GLD would be costing you $400/yr!

True. But also realize that a $100k purchase of gold bars [lowest markup, $25] at Goldmart will set you back almost $1600 on the purchase. This will take 4 years to break even on vs IAU expense ratio. Then if you sell, it's another $1600 or probably more. Plus the cost of the bank wire. Plus the cost of shipping on the sale. Plus the small but ever present risk of theft.

Actually, you could buy two of these 1 kilo bars at $13.99/oz over spot for a grand total of $899.55 markup. However, their buy price is $20 below spot for a total of $1286 for those 64.30 oz, but you're right, that's still quite a spread.

For these reasons, in general I think it makes the most sense to rebalance and do your selling with a gold fund in a tax-sheltered account. I view physical gold as more of a catastrophic insurance policy built into the portfolio.

[BearBones]

VTI 0.06%
TLT 0.15%
SHY 0.15%
GLD 0.40%

Instead of GLD I use IAU, is only 0.25%.  But the spreads may be a bit higher.

And replace VTI with ITOT and you can be ALL BlackRock...

[cnh]

Purchasing 1-kilo bars doesn't seem like the best idea. Wouldn't one have to liquidate the holding en masse? If memory serves, the sole recommended way of holding physical gold in the PP is 1-oz coins. And the cited dealer who's selling the 1-kilo bars is also selling 1-oz coins at about 3.8% over spot, which seems a bit like paying a 3.8% load on a mutual fund.  If my math is right, I think one would have to amortize that cost over about 9-10 years before that cost is lower than GLD's 0.40 ER (about 15 years to beat IAU's 0.25 ER).  That may be the going rate and the cost of doing business, but reflecting the cost of holding gold at zero is not accurate because of the substantial cost of acquiring it.

Plus, Roland and Lawson explicit recommend insuring one's gold whether it's stored at home or in a bank safe deposit box, unless of course the bank provides insurance (unlikely).  So there's recurring cost as well.

Bottom Line: It's not clear to me there's a cost advantage to holding physical gold over gold ETFs. The main advantage seems to be the absence of bureaucracy, paper and legalese between someone and their gold.

[Reub]

"The main advantage seems to be the absence of bureaucracy, paper and legalese between someone and their gold."

Duh!

[BearBones]

Agree with Pugchief and cnh that the the cost of buying, selling, and storing physical gold are far from negligible, so we should not state it as such. The cost may be much higher than ETFs and CEFs unless bullion or bars are held many years.

But HB's suggestion for holding physical gold was not for cost, right? It is a means for diversification and adaptability in severe economic crisis. Each of us have to balance this positive with the inherent inconvenience and risks (e.g., burglary) that go with holding physical.

[MachineGhost]

I think you guys are underestimating how difficult it will be to sell buillion, GLD/IAU/etc. if the U.S. government decides to pull an Argentina.  You won't even need to liquidate it in your online brokerage account; it will be done for you at a price you have no choice but to accept.  Same with gold dealers.  As long as they are U.S. or do business in the U.S., the U.S. Treasury is uber alles.

HB said store it offshore.  Pay heed.

[krick]

VTI 0.06%
TLT 0.15%
SHY 0.15%
GLD 0.40%

Instead of GLD I use IAU, is only 0.25%.  But the spreads may be a bit higher.

And replace VTI with ITOT and you can be ALL BlackRock...

ITOT has an expense ratio of 0.07%, so it's very close to VTI.

However, ITOT is basically the top 1500 US stocks, which excludes a lot of small cap and micro cap stocks.

VTI is supposedly ALL 3000+ US stocks.

I don't know which of the two would be preferable based on that difference.

[BearBones]

And replace VTI with ITOT and you can be ALL BlackRock...

ITOT has an expense ratio of 0.07%, so it's very close to VTI.
I don't know which of the two would be preferable based on that difference.

Sorry. My comments were sarcastic, my point being do not put all of you eggs in the same basket. IMO, it does not seem prudent to put > 25% of one's assets in BlackRock's ETFs. Ditto for Schwab.

[AgAuMoney]

VTI is supposedly ALL 3000+ US stocks.

Actually it isn't.

There are way more than 3000 U.S. stocks.

VTI tracks an index (the MSCI U.S. Broad Market index) which intends to include 99.5% of the market capitalization (so already down from "all stocks"), but VTI reduces further as it only "samples the index."  Perhaps that is just a legal notice so that they do not need to hold all of them, because depending on the amount of money in the fund it would not be practical.  So maybe they actually do hold them now with the fund as big as it is.  Or perhaps they don't.

This is possible because the index (and the fund) is cap weighted.  Once you have the top few hundred the rest don't make much if any difference.  Now hold the top 1000.  Or 2500.  How many matter?  Logically, you can see this if you consider putting $1 into the fund.  How many stocks at 1/10th of a penny each will matter?  Or at 1/10th of a percent?  Or 1/100th of a percent?  Or 1/1000th?