PP Heresy: Recommendations for a Boglehead 401k

[Lowe]

I don't think I have access to Closed End Funds like GTU.  Only traditional mutual funds (Open End).

[Libertarian666]

I don't think I have access to Closed End Funds like GTU.  Only traditional mutual funds (Open End).

Unfortunate, if true. I much prefer plans that have a "brokerage window" option so you can buy just about whatever you want, but of course that's up to the employer.

[Lowe]

I do have a brokerage window, but the list of funds available is limited to traditional mutual funds, from what I remember.

It has been some time since I directly asked about the brokerage window, with a Fidelity rep.

[Libertarian666]

I do have a brokerage window, but the list of funds available is limited to traditional mutual funds, from what I remember.

It has been some time since I directly asked about the brokerage window, with a Fidelity rep.

That would be very weird. As far as I know, if you have a brokerage window, you can buy almost anything other than options. I would definitely check with Fidelity.

[Ad Orientem]

Even if a brokerage window is available I would not advise trying to set up a PP with GTU. Closed ended funds do not track a specific index. Their price per share is subject to other variables and there can be, and often is, dramatic deviance from the index. GTU does NOT track the price of gold. As such it is not IMHO appropriate for a PP although it may be fine for speculative purposes.

[flyingpylon]

I do have a brokerage window, but the list of funds available is limited to traditional mutual funds, from what I remember.

It has been some time since I directly asked about the brokerage window, with a Fidelity rep.

That would be very weird. As far as I know, if you have a brokerage window, you can buy almost anything other than options. I would definitely check with Fidelity.

The choice of what to offer through the brokerage window is up to the employer, not Fidelity.

For example, my employer's 401k is through Fidelity, and we have access to a brokerage window.  There are a pair of restrictions, though: (i) a maximum of 50% of 401k can be invested in the brokerage option and (ii) only mutual funds can be purchased.

Also, employees have to specifically request access to the brokerage option, and have to take an on-line 15 minute training class to obtain the brokerage window application.

FWIW, a few years ago, I asked my employer if they would consider changing it to allow investing in ETF's via the brokerage option, but was told "no".  Here's a little more info in this old thread:

401k discussion with HR

And in contrast, my 401k is also at Fidelity with a brokerage window and as far as I can tell we have no restrictions at all.  All I had to do was sign a short form.

But if they eliminate that, it might be the straw that breaks the camel's back...

[Libertarian666]

Even if a brokerage window is available I would not advise trying to set up a PP with GTU. Closed ended funds do not track a specific index. Their price per share is subject to other variables and there can be, and often is, dramatic deviance from the index. GTU does NOT track the price of gold. As such it is not IMHO appropriate for a PP although it may be fine for speculative purposes.

Since the assets of GTU, as far as I know, consist almost entirely of gold bullion, it should track the gold price pretty well other than the swings in premium (and discount). What is the tracking error over a ten-year period? I can't imagine it would be significant, as for that to happen the premium or discount would have to grow enormously.

In fact, their annual report says there is a means to cash units out, although I can't understand exactly how it works:

"The Units of GoldTrust are redeemable by a Unitholder at any time at a price equal
to the lesser of: i) 90% of the weighted average of the market prices per Unit during
a 10 day trading period commencing immediately following the date on which the
Units were tendered for redemption (the redemption date); and, ii) 100% of the
closing market price per Unit on the redemption date."

If I understand this at all (which may be a mistaken assumption), the discount could never be more than 10% for any significant amount of time, and of course if the premium gets too high, one should just avoid buying and probably sell to capture the premium. So I don't see why it is unsuitable for the PP.

Anyway, I have written to them to ask them what that procedure actually means, so maybe I'll have more information about that soon; of course I will share their reply if anyone is interested.