Gyroscopic Investing

First thing I would say
is I like to split each account into its own portfolio.   This is because if you put 100% of a Roth in
Gold,  or I use GLD.  And GLD has a bad year like down 50%.  The portfolio might return 5% but
you are going to kill one of your best assets.  The Roth.  So diversity among the different investments
is important.  I think.

i have never heard this before is it a common practice for the pp, trying to create a small PP inside each tax deferred account?
- is it just for Roth's or for all Ira's?
- and is it just gold you see as having this risk or any of the pp asset classes?

for those of you who do this do you end up dropping the practice when tax advantaged space is at a premium and it becomes needed for tax inefficient portions of the pp like LT?

I don't think this potential difficulty is limited to gold.

I think what Bdahl was trying to say was that if you have an IRA with only one asset class, and that asset class has a bad year, the value of the IRA will obviously take a hit as a well.  Since you can only squeeze $5000 a year into IRA (less to none if you make a lot of money), you may not be able to rebalance within the tax-advantaged IRA, and may therefore have to use a taxable account.

The problem with breaking each of your accounts into its own mini-PP is that most retirement plans don't have funds that own gold or long term bonds. 

How you deal with this is a very personal choice.  Bdahl made some substitutions that he is comfortable with. 

My personal opinion is that it's best to keep it simple and not to tinker.  Having said that, you also have to be practical and do the best you can with what is available to you.  Probably the most important thing to ask yourself is if you will be able to stick to whatever plan you choose long term, and not panic at bad times.  For example, if you have real estate instead of a gold for a portion of you portfolio, how will you feel when real estate tanks?  Will you panic sell or rebalance and buy more? 

My solution is to stick to the 1/4 allocation with each asset.  I try to have at least two in each account to reduce killing one of my tax advantaged account with a bad year.

My two cents...

Adam

One quick suggestion I might make since your 401k doesn't allow you to purchase LT bonds:  I would use TLT instead because the tax burden is much less than getting those bond income checks every 6 months.  Of course there is a trading cost from your brokerage for TLT, and they have an expense ratio, but I think the benefit of being tax free for your bond income is much greater than the additional expense.

Luckily, I have a 401k brokerage window and have not had to worry about this particular issue.

MediumTex wrote: Also, with respect to the stable value fund in your 401(k) plan, while that is not a treasury fund, IMHO it's acceptable for cash in a PP setting (you've got to work with what you've got).  It's not perfect, but I wouldn't avoid it if a big chunk of your money is in your 401(k) account.

Is it acceptable enough to comprise almost 20% of my total investments and 80% of my cash asset class?

Adam1226 wrote: My solution is to stick to the 1/4 allocation with each asset.  I try to have at least two in each account to reduce killing one of my tax advantaged account with a bad year.

Is it worth having two asset classes in a tax advantaged account if it means having to put more assets with lower tax efficiency in a non-tax advantaged account?

Storm wrote: One quick suggestion I might make since your 401k doesn't allow you to purchase LT bonds:  I would use TLT instead because the tax burden is much less than getting those bond income checks every 6 months.  Of course there is a trading cost from your brokerage for TLT, and they have an expense ratio, but I think the benefit of being tax free for your bond income is much greater than the additional expense.

Weird. I was under the impression that the bi-annual payments from the actual Treasury Bonds was less of a tax burden than 12 monthly taxable dividend payments. If you think about it, TLT makes you pay taxes each month. Whereas, the actual Treasury Bonds defer the taxes — allowing the payout to grow tax free — over six month periods.

PRPFX, being "tax-advantaged," delays the dividend payments to the fund holders as long as possible for this reason.

"Is it worth having two asset classes in a tax advantaged account if it means having to put more assets with lower tax efficiency in a non-tax advantaged account?"

That all depends on your other accounts.  My IRA has long term bonds and gold.  I didn't really want to put gold in a tax sheltered account, but my 401k has stocks and cash.  There's no perfect solution, but between a 401K, a Roth IRA, and a regular brokerage account, you should be able to find a way to be relatively tax efficient. 


"Is it acceptable enough to comprise almost 20% of my total investments and 80% of my cash asset class?"

I think your 401K is a more than acceptable place for your stock investments.  That index fund should be fine.  It's the cash account that was not so great, in my opinion b/c there is some credit risk.  Like Medium Tex said, you have to work with what you have.  If it were me, I'd load up the 401K with the stock index fund and try to keep my cash in the vanguard short term treasury fund.  If you have to keep some cash in the 401K, then you have to. 

Not that this is a good way to make investment decisions, but I heard Medium Tex interviewed on the podcast and have read a lot of his posts.  If he's comfortable with your fund, it's probably okay.  (Again, not the best way to make investment decisions, and just my opinion). 

Adam1226 wrote:

SuperNoob wrote: Is it acceptable enough to comprise almost 20% of my total investments and 80% of my cash asset class?

I think your 401K is a more than acceptable place for your stock investments.  That index fund should be fine.  It's the cash account that was not so great, in my opinion b/c there is some credit risk.

That's what I was asking.  That would be the percentages of the cash account (DSRS1) in my 401(k).  That seems like a lot for a fund that is "not so great".

You have roughly 120K, right?  So even if you put 39K in your stock fund that's only 32.5% of your portfolio. The others are each at 22.5%.  When not just make that the bulk or your stock fund, maybe $30-$35K, keep a little cash in the "not so great fund," and then use a T-bill account (or I-bonds) in a taxable account for your cash? 

Adam

P.S.
I'm still trying to figure out if Ibonds are better than treasuries for a taxable cash account.  I haven't used them yet.

Adam1226 wrote: You have roughly 120K, right?  So even if you put 39K in your stock fund that's only 32.5% of your portfolio. The others are each at 22.5%.  When not just make that the bulk or your stock fund, maybe $30-$35K, keep a little cash in the "not so great fund," and then use a T-bill account (or I-bonds) in a taxable account for your cash? 

Adam

P.S.
I'm still trying to figure out if Ibonds are better than treasuries for a taxable cash account.  I haven't used them yet.

This post says that cash is the least tax efficient asset class.  Wouldn't putting it in a taxable account be a bad thing?

It's the least tax-efficient for how much it will grow, but 1) interest rates are extremely low right now, and 2) realistically, over time you expect your other assets to grow much more than cash.

In today's low interest rate environment, I don't worry too much about cash in taxable accounts.

If it were 15% like in the 70's... absolutely it'd be a bad idea to keep it in a taxable account.

That's why Ibonds may be a good idea.  I'm still trying to get a handle on them, though (discussing with Moda on a separate post in the bond section). 

Adam1226 wrote: That's why Ibonds may be a good idea.  I'm still trying to get a handle on them, though (discussing with Moda on a separate post in the bond section). 

Think of I-bonds as an IRA for cash.