Starting From Scratch

[JonathanH]

Greetings!
I discovered the permanent portfolio concept about a month ago and it struck me as the best idea. I spent the last few years confused as to the direction of the economy and how to invest as each asset class has it's risks. I've read the new book as well as a lot of posts on this forum. This place has great ideas!

After spending my savings on a side business which is doing "ok", I have enough for a 2 month emergency fund and will be starting the permanent polio from scratch. It's also looking like the side business will be bringing in positive cash flow near the end of the summer, so I will be able to contribute at a greater velocity in the future.

I found some advice here and in the book on starting from scratch and a few ideas stood out to me. Yet, I'm still struggling with how to start from zero. I'm honestly not very sophisticated so a lot of these may seem like simple questions.

* Start with owning PRPFX or 4 ETFS up to $10,000 before buying physical gold?
I would like to own all assets at once. If I want to own a gold coin, I'd need around $8,000 to properly hold the portfolio. I also want to own bonds directly, but want to get my feet wet with this portfolio by keeping it simple by only checking 1 (or 4) stock funds.
Fidelity, Schwab, and TD Ameritrade all list PRPFX on their list of no transaction fee mutual funds.  And there are plenty of no commission ETFs available.
It's simple and I can contribute a little bit every month.

This option seems like a good way to hold the portfolio in a taxable account while I accrue even more months of "emergency savings". I like PRPFX because I read it is  tax efficient. I really dislike how they pick stocks though.

* Should I max out me and my wife's Roth IRA contributions before growing a taxable account? I want to have even more funds readily available in case of an emergency and understand that I can withdraw contributions from a Roth, but I'd rather not take anything out of there. And if I don't want to take out contributions from a Roth then I should first grow a few more months of savings within a taxable account.

* Does it make sense to contribute to all three types of accounts at the same time?
Fortunately, over the course of a year I should be able to max out the Roth IRA accounts and contribute to a taxable account so the issue may be a wash over the long run.

* This one is the most boring but perhaps it's the best one. Just hold cash until I can get the coin and buy the stock index fund and bonds directly. That would require me to have more patience, and perhaps that's not a bad thing!

Thanks in advance for reading through my questions. What are your thoughts?

[whatchamacallit]

I want to point this thread out regarding EE bonds for someone starting out and accumulating. I recently started a PP as well and wish I had found this or thought about it before I bought long term treasuries at such low rates. They are closer to 3.5% now so it isn't as big of a deal but in case they go lower than 3 again I wouldn't buy them when I still have space available in EE bonds.

http://gyroscopicinvesting.com/forum/ht ... ic.php?t=4

[KevinW]

* Start with owning PRPFX or 4 ETFS up to $10,000 before buying physical gold?
I would like to own all assets at once. If I want to own a gold coin, I'd need around $8,000 to properly hold the portfolio. I also want to own bonds directly, but want to get my feet wet with this portfolio by keeping it simple by only checking 1 (or 4) stock funds.
Fidelity, Schwab, and TD Ameritrade all list PRPFX on their list of no transaction fee mutual funds.  And there are plenty of no commission ETFs available.
It's simple and I can contribute a little bit every month.

IMO portfolios under around $3k should just be in 100% cash. Above $3k and below $10k or so, transacting in multiple funds and individual coins is expensive and awkward, so IMO in that range a single fund should be used. PERM, PRPFX, or a different conservative single-fund portfolio. If you will reach $10k within a couple years you could just leave it in cash until then. Above $10k a DIY 4x25 becomes more feasible and cost effective.

* Should I max out me and my wife's Roth IRA contributions before growing a taxable account? I want to have even more funds readily available in case of an emergency and understand that I can withdraw contributions from a Roth, but I'd rather not take anything out of there. And if I don't want to take out contributions from a Roth then I should first grow a few more months of savings within a taxable account.

* Does it make sense to contribute to all three types of accounts at the same time?
Fortunately, over the course of a year I should be able to max out the Roth IRA accounts and contribute to a taxable account so the issue may be a wash over the long run.

The question of how to prioritize tax deferred account options can get quite complex as it involves your personal tax situation, income stability, retirement horizon, and other factors. My generic advise is

1) House in order: pay down all consumer debt and save a few thousand dollars in operating cash.
2) Employer 401k match, or similar, if any.
3) Max out Roth(s).
4) Max out 401k-style plan(s).
5) Taxable.

[sophie]

This is a really good question...

Since you sound like you're chafing at the bit to implement a 4x25 PP, I'm going to suggest you pile up the $8K in cash and then go for it.  I suggest setting up automatic investments after that, with 1/4 going to stocks, 1/4 to a bond fund like TLT, and 1/2 to cash.  Then use the extra cash to buy coins periodically.

One question is whether all this is in taxable or if you want to incorporate your 401K and Roth in this scheme - in which case you may not have long to wait.  Take a look at the many threads on this topic or post more questions if you like.

[MachineGhost]

Fidelity, Schwab, and TD Ameritrade all list PRPFX on their list of no transaction fee mutual funds.  And there are plenty of no commission ETFs available.
It's simple and I can contribute a little bit every month.

PRPFX should be banned around here.  It is expensive and no longer performs the job it was originally designed to do, plus it is even more dangerously overweight to real assets than the PP is.  PRPFX is only "tax efficient" because its turnover is low, not by design.

So, I would advocate you look into Schwab for doing free ETF's for all the four assets or E*Trade for the free PERM.  ETF's are far more tax efficient than mutual funds. 

If you still insist on PRPFX (I can't imagine why unless it is due to Automatic Investing), you're going to need to balance off the risk by buying at least 10% (probably higher now) of assets in Zero Coupons or EDV.

[JonathanH]

Thank you for the great advice. The strategy that I think will work best for me, considering my low starting point, will be to contribute to our Roth's on a monthly basis and max those out using a 4 ETF strategy in each. For the time being, I'll consider my taxable account a separate permanent portfolio and save up enough dough to hold all assets directly. I really look forward to my first gold coin!
Every now and then I'll read an article that says "XYZ Company has run out of gold coins to sell". Shouldn't that suggest the price is too low and the market clearing rate should be higher (if there is a real supply problem)? Anyhow, hearing things like that motivate me to hold some of my gold directly.
I have to really recommend the book, I've read many sections several times. The book plus this forum and perhaps bogleheads really compliment each other well.

[AgAuMoney]

IMO portfolios under around $3k should just be in 100% cash. Above $3k and below $10k or so, transacting in multiple funds and individual coins is expensive and awkward, so IMO in that range a single fund should be used. PERM, PRPFX, or a different conservative single-fund portfolio. If you will reach $10k within a couple years you could just leave it in cash until then. Above $10k a DIY 4x25 becomes more feasible and cost effective.

This seems like a good general guideline to me.

When my wife and I first started IRAs in the early 1990's the annual limit was $2000.  The first year we put in the $2000 each for the previous year into bank 1yr CD's.  Within that first year added another $2000.  The next year we opened brokerage accounts rolling over the CDs and adding $2000 to start each account.  Tax deferred the entire time.