Gyroscopic Investing

Big thanks to craigr & other such knowledgeable users on this forum.

My profile: I am a US citizen living in the US, in my 30s, & am looking to roll over some old job 401Ks into 1 IRA account.  I am interested in implementing the Harry Brown Permanent Portfolio* for my IRA account, in a lowest total cost manner (eg total cost I am including custodian/annual fees, expense ratios, bid ask spreads, buy/sell trading fees).  The amount I have is sufficiently more than the $25K minimum at Wells Fargo Wells Trade, to make me consider Wells Trade as the custodian, since they offer 100 free trades annual with this $25K balance.

I would be using the standard HBPP rebalancing rules, to sell an asset when it's 40% above it's target (eg sell TLT if it hits 35% of total down to where post-sale TLT will be ~25% of total, & buy TLT if it hits 15% of total to where post-buy TLT is ~25% of total)

The ETFs I would use to implement this PP (data source http://seekingalpha.com 2010-may-17, for expense ratio (ER), avg bid ask (BA) ratio)

*stock - This is the 1 asset class where I am unorthodox-Harry Browne/craigr Permanent Portfolio (HBPP).  I believe in diversifying globally the stock portion, & feel it can be done reasonably well with Vanguard ETFs, in a portion approximate to 1/3 in each category
a. US - VTI (0.07%ER, 0.02%BA) &/or VBR (0.11%ER, 0.06%BA).  The VBR is if & only if I want exposure to small cap stocks.
b. non-US rich - VEA(0.15%ER, 0.03%BA).  Countries include rich Europe countries, Japan, Australia/NZ.
c. emerging - VWO (0.27%ER, 0.02%BA). Countries include BRIC - Brazil Russia India China; S Korea, S Africa, Mexico, Israel.

bonds: TLT (iShares 0.15%ER, 0.01%BA)

cash: SHY (iShares 0.15%ER, 0.01%BA)

gold: GLD (SPDR 0.40%ER, 0.01%BA) -or- SGOL (ETFS 0.39%ER, 0.03%BA)

QUESTIONS
1. Any reason to believe, given my profile, there is a better low-cost option than the aforementioned ETFs implemented at Wells Trade?

2. If you use a Wells Trade IRA to implement your HBPP, what has been your customer feedback?  Any bad customer service issues at Wellstrade, such as
2a. being misbilled a fee that you were not supposed to be billed per the terms of the Wellstrade account.
2b. poor trading execution?  If so, can this be avoided by always using a limit order instead of a market order?
2c. Any other issue I may not be considering?  Note that I am new to buying or selling ETFs at a brokerage type account.

Big thanks in advance

nomamesbuey wrote:
QUESTIONS
1. Any reason to believe, given my profile, there is a better low-cost option than the aforementioned ETFs implemented at Wells Trade?

2. If you use a Wells Trade IRA to implement your HBPP, what has been your customer feedback?  Any bad customer service issues at Wellstrade, such as
2a. being misbilled a fee that you were not supposed to be billed per the terms of the Wellstrade account.
2b. poor trading execution?  If so, can this be avoided by always using a limit order instead of a market order?
2c. Any other issue I may not be considering?  Note that I am new to buying or selling ETFs at a brokerage type account.

1. My strongest recommendation would be to own at least a small amount of physical gold outside of your IRA; then, if you are comfortable increase the position over time, keeping only an amount in the IRA that allows for rebalancing without incurring a tax penalty.

2a/b/c. My 401k has moved from Wachovia to Wells, and the brokerage account will eventually move as well (from Ameriprise). Others I have spoken with have been satisfied with Wells Trade. I have heard of no red flags, but good on you for the due diligence. Questions are good. In my brokerage account, when I have purchased ETF's I have done so with limit orders, but I am not so aggressive that the purchases I have made have not settled that day. I am already buying the lagging asset. No sense pushing it.

I think the ETFs you chose look fine. The stock thing is a personal choice if you know the risks involved. Although I always recommend you use index funds for whatever you choose and not an actively managed fund.

I like simplicity though as you know so I just encourage that whatever you do you keep it simple. Don't use the stock portion to do performance chasing. I'd setup some rebalancing bands inside the stock allocation and stick to it just as you do the other components. Just keep in mind transaction costs. Also realize that with 66% of your stock allocation to non-US you are taking on more currency risk and tracking error risk if the US markets and dollar are doing very well. I may be more inclined to keep the 25% in the total stock market with some smaller allocation to international. For more international exposure I'd just count it as part of the variable portfolio.

I also agree with 6 Iron about keeping some gold outside the IRA for emergencies. I'd also keep some cash outside of the IRA for emergency spending so you don't incur a penalty for withdrawals if you need the money. The basic order for tax shelters is:

1) Bonds/Cash First
2) Stocks Second
3) Gold last.

If you have room for all four assets in the shelter that's fine. But I would keep a portion outside of the shelter for emergencies.

Finally, if you are doing frequent contributions you may want to consider some open ended mutual funds that are linked to the ETFs at Vanguard which may be cheaper over the long run when you subtract commissions and bid/ask spreads.

EDIT: Updated my thoughts a little more clearly on the stocks.

6 Iron wrote:
In my brokerage account, when I have purchased ETF's I have done so with limit orders, but I am not so aggressive that the purchases I have made have not settled that day.

6 Iron, thx for your response.  Forgive me if this is an off-topic & newbie/dumb question, but I don't have experience buying ETFs (or other assets) on a brokerage account.

Let's take the example right now of VEA, in a supposedly real-time quote from Yahoo Finance, $30.35 @ 2:36PM EDT 2010-May 18

If I were to buy VEA with a limit order, would I enter a price of $30.35?  Or is it prudent to "give 1 (or more) penny" to increase the chance of the order actually executing, such as a price of $30.36 (or when selling, do the opposite & enter a price of $30.34)?

Also, with a limit order, IF the order executes, will the broker always give you the $30.35 price, even in the scenario where the spot price had dropped to say $30.33, & the broker will give you the $30.35 price & pocket the difference for themselves?  Or will they give you the actual spot $30.33 price?

Assuming high trading volume, low bid-ask spread ETFs, does a "non-agressive" limit order usually execute within say 10 minutes?  If a limit order did not execute within 10 minutes could I cancel that limit order?

Thx again

nomamesbuey wrote:
If I were to buy VEA with a limit order, would I enter a price of $30.35?  Or is it prudent to "give 1 (or more) penny" to increase the chance of the order actually executing, such as a price of $30.36 (or when selling, do the opposite & enter a price of $30.34)?

In a limit order, you will specify a price per share, the number of shares, and how long your bid is good for (e.g., just that day or good until filled). You will also specify if you want the order filled as "all or none", or allow for partially filling the order.

Also, with a limit order, IF the order executes, will the broker always give you the $30.35 price, even in the scenario where the spot price had dropped to say $30.33, & the broker will give you the $30.35 price & pocket the difference for themselves?  Or will they give you the actual spot $30.33 price?

Your order will be filled, if it is filled, at the price you specify. It is easy to get sucked into the penny game, and that is the method of profit for the big volume rapid trade folks, but not us. You can spend hours trying to game how to save yourself a buck and quarter, and it can wind up costing you. Or you can specify a price that you believe is likely to be filled during the market noise of the day, and get on with the rest of your life. I opt for the latter. This is also why some just opt for market orders. I do it because I enjoy placing the order in this fashion, because it will likely not make 12 minutes difference in my ultimate ability to retire.

Assuming high trading volume, low bid-ask spread ETFs, does a "non-agressive" limit order usually execute within say 10 minutes?  If a limit order did not execute within 10 minutes could I cancel that limit order?

If you split the difference between the bid and the ask, I would say most likely. I personally let my bid go a few hours, and have yet to not have one fill that day, but like everything in life, it depends. If you offer $50/share for VTI, and it is trading that day at $60, your chances of filling the order are low.The permanent portfolio is based on not predicting the future. With my limit orders, all I am predicting is that there will be statistical noise in the price of an asset that day. Remember, though, that except when you are first starting the PP, you will be buying a lagging asset. It is already on sale. Not a time for greed.