best funds to start a 4 X 25 pp

[rhmetz]

What are the best funds to use for a newbie to start a 4 X 25 pp?

[moda0306]

TLT
SHY
VTI
IAU

[rhmetz]

Would it be best to dollar cost avg. into these funds or just do it all at once?

[moda0306]

I say here's your best choices in order of preference.  If you're not comfortable with one go to the next:

1) Go all in.  If you're not in it now, you're probably in something subpar and more risky

2) Go all in, but weight your preferences... instead of going 4x25, if you think stocks and goldare way overpriced and bonds are way underpriced, go 30/30/20/20   Bonds/Cash/Gold/Stocks

3) Dollar cost average in... but quickly.

What's your current portfolio?

[foglifter]

TLT
SHY
VTI
IAU

This is a great suggestion that could serve as a starting point for your PP portfolio planning. As a next step I would recommend to assess your tax situation, asset locations, and what brokerage firms you use. A few points to think about:

1. If you are a taxable investor with no or little space in tax-deferred accounts GTU could be a better deal than IAU. Besides it's preferable tax treatment GTU uses only allocated gold stored in Canada (if you are concerned about gold location). Many people also suggest to hold at least part of your gold bucket in physical bullion.

2. Fidelity and Ameritrade offer lots of ETFs with zero transaction costs, so you might want to use other total market or S&P500 ETFs for your equity portion. FSTMX or FUSEX are also good options for your stocks. Although VTI is still the cheapest.

There are plenty of threads on this forum regarding each specific corner of PP where you can find out more. You might want to start with FAQ in each of the four sections.

[Gumby]

I think there is a bit more to it than simply throwing your money into four funds. There are pros and cons to gold funds for instance, such as GTU. (GTU's tax advantages can turn into nasty penalties if you don't file certain timely forms). It's best not to rush into anything without fully understanding all of the risks. My recommendation would be to head on over to crawlingroad.com and carefully read each of the FAQs:

https://web.archive.org/web/20160324133 ... folio/faq/

Then come back here and ask your questions. You would also do yourself a favor to purchase Harry Browne's book, Fail-Safe Investing, which you can read in 30 minutes:

http://amzn.com/031226321X

In the book, Harry Browne discusses the best ways to move into the Permanent Portfolio, and what not to do.

If you're still having second thoughts, listen to Harry Browne's Investment Radio shows, which are still archived at crawlingroad.com. Harry Browne will put you at ease and he does an excellent job of answering most of the pressing questions about the Permanent Portfolio in those shows (especially episode #2 and #3). Good luck!

[rhmetz]

I am currently all in with a stable value fund in my 401k, however, they are discontinuing that as an option.  I know pp is more volatile and carries more risk, but that being said, I'm looking for a relatively stable fund with a chance for some growth. I'm retired and don't regularly use this money for living expenses. I did a small rollover into Fidelity a couple years ago and would roll over the rest if i go with pp. Would Fidelity Spartan Market Index fund (FSTMX) be an acceptable alternative for VTI since there would be no transaction fees associated with it. However, the fee for buying and selling VTI would only be 7.95 per transaction.

[TBV]

FSTMX has an expense ratio of 0.10% while VTI's is 0.07%.

[KevinW]

Would Fidelity Spartan Market Index fund (FSTMX) be an acceptable alternative for VTI since there would be no transaction fees associated with it.

Yes.  Any total stock market index with low expenses is acceptable.

[Gumby]

Would Fidelity Spartan Market Index fund (FSTMX) be an acceptable alternative for VTI since there would be no transaction fees associated with it. However, the fee for buying and selling VTI would only be 7.95 per transaction.

Fidelity also offers commission free trades for IWV, which is the iShares Russell 3000 ETF (their equivalent of (VTI) Total Stock Market). However, I believe the expense ratio of IWV is not as favorable as VTI. FSTMX is perfectly fine.

Again, your questions have been covered in great detail in the FAQ at crawlingroad.com. I can assure you that you will have far more success with your personal choice of PP funds if you read it carefully before going any further.

[foglifter]

IWV's ER is 0.20. Other acceptable free-trade large-cap ETFs at Fido are IVV, which tracks S&P 500 with ER of 0.09 and IWB (Russell 1000, 0.15).

[AdamA]

GTU's tax advantages can turn into nasty penalties if you don't file certain timely forms.

You're talking about the 8621, right?

[Gumby]

GTU's tax advantages can turn into nasty penalties if you don't file certain timely forms.

You're talking about the 8621, right?

The 8621 is a big part of it. Here's one account of tax issues associated with PFICs, such as GTU:

The potential tax rate on a PFIC (Passive Foreign Income Company) is up to 100% of realized gains. Some people claim there is the potential for fines of $10,000 per year per PFIC fund for not filing the appropriate tax forms. IF the PFIC makes its books, kept in accordance with US GAAP, available to US "persons", then it is possible, IF AND ONLY IF tax reporting is done correctly for the first year of ownership of the PFIC, that the normal long term capital gain rules applicable to US based companies can be used, resulting in a maximum capital gain rate of 15% up to the end of [2012], but scheduled to rise to 20% thereafter.

A "mark to market" election is available to certain securities, in which case taxes are due annually on gains, realized or unrealized, at ordinary income tax rates, which is still a better deal than the default treatment, among the worst there is under US tax rules, of PFIC gains.

PHYS also has some other potential nasty tax traps waiting for unsuspecting investors.

Most tax accountants are unaware of PFIC rules and are not interested in learning about them, and most if not all tax software available to individuals (and many professional programs) do not support the forms required for tax reporting on PFIC fund ownership and trades.

The instructions for tax filing on such funds are basically incomprehensible to mere mortals. http://www.irs.gov/pub/irs-pdf/i8621.pdf

At the bottom of Page 8 of the instructions for Form 8621 it says the following:

The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden for individual taxpayers filing this form is approved under OMB control number 1545-0074 and is included in the estimates shown in the instructions for their individual income tax return. The estimated burden for all other taxpayers who file this form is shown below.

Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 hr., 37 min.
Learning about the law or the form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 hr., 38 min.
Preparing and sending the form to the IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 hr., 14 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products Coordinating Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224.

See also:

Give Unto Caesar - What To Pay When You're Selling
In Depth: U.S. Tax Form 8621

I honestly don't know why anyone would recommend a PFIC, such as GTU, to a new PP investor without explaining these potential pitfalls and headaches. PFICs all sound too good to be true, but the truth is that there are significant risks. This is why GTU and other PFICs aren't mentioned in the FAQ.

[AdamA]

Is GTU a PFIC?  I thought it was simply a close ended fund.

[Boeing737]

If you are using Fidelity Funds to avoid transaction fees:  FLBIX for long term treasury and FSBIX for short term bonds

[chrikenn]

Is GTU a PFIC?  I thought it was simply a close ended fund.

It is indeed a PFIC.  Form 8621 required.

[AdamA]

How painful is this during tax time?

Is it really that involved?

Do you have to do it if you have GTU in a roth IRA?

[foglifter]

Do you have to do it if you have GTU in a roth IRA?

I don't think so.

[AdamA]

My accountant was not even familiar with a form 8621, and did not understand the 8 pages of instruction that accompany the two page form. 

[steve]

Regarding GTU
http://gyroscopicinvesting.com/forum/in ... opic=677.0

The drawbacks of GTU as far as I can see are: A few minutes filling out some paper work and you can't E File.
If you are a taxable investor and serious about GTU I can send you a filled out sample.


I agree with the fact that before someone invests in GTU this should be explained. But GTU is not some complicated
PFIC.
My personal feeling is having a percentage of you Gold in Bullion that you plan to never sell and the rest in GTU for rebalance purposes is the best way to go.

[AdamA]

If you are a taxable investor and serious about GTU I can send you a filled out sample.

I'd love one.  I will message you my email address.  Thanks very much.

One more question.  Say that you don't fill out the paperwork...what's the worst that will happen?  You'll get taxed at a collectibles rate?

My personal feeling is having a percentage of you Gold in Bullion that you plan to never sell and the rest in GTU for rebalance purposes is the best way to go.

I agree, and that's what I do, but I've had GTU in a Roth IRA until recently. 

[Gumby]

One more question.  Say that you don't fill out the paperwork...what's the worst that will happen?  You'll get taxed at a collectibles rate?

I'm not sure about that. However, improperly filing of the 8621, from what I've read about it, your gain may be considered ordinary income, forcing you to pay interest and penalties on top of the regular tax. In other words, you could be in much worse shape than the collectibles rate if you do something wrong with 8621 on any year. And even if you do everything right, there's also the chance that the PFIC could do something wrong as well, causing you to have tax issues. The tax consequences may also change in the years to come — especially if the Bush tax cuts expire.

I typically try not to take too much tax advice from a forum. So, the real question — at least in my mind — is whether or not you want to be in a tax situation even your accountant does not understand.

[steve]

Harry Browne said that you should not invest in what you do not understand, So I agree if you do not understand and accountant does not understand it do not invest in it.
I do my own accounting and my own taxes and I trust my own understanding of it so I choose to invest in it (GTU). I trust my own research far and above anything else. That is how I came to invest in the permanent portfolio.

[Gumby]

Do you have to do it if you have GTU in a roth IRA?

I don't think so.

Just curious, but why did you choose GTU in a Roth IRA? I'm not sure I see the benefit. The Roth already protects you from taxes. GTU has higher expenses than IAU and GTU's premium is all over the place. Seems like a straightforward gold ETF would be a better choice for a tax-free account.

[brajalle]

Do you have to do it if you have GTU in a roth IRA?

I don't think so.

Just curious, but why did you choose GTU in a Roth IRA? I'm not sure I see the benefit. The Roth already protects you from taxes. GTU has higher expenses than IAU and GTU's premium is all over the place. Seems like a straightforward gold ETF would be a better choice for a tax-free account.

One reason I could think of is that someone may prefer this particular company and their holding setup over the ETF's.  There's also some potential issues with the ETF's I recall reading about in regards to how they may handle physical withdraws and verification/etc.