Gyroscopic Investing

New to investing. High tax bracket. Debt free.

--6 months living expenses in money market (1% interest)
--15 years worth of employer matched retirement contributions in retirement account (FERS).

--Only retirement account (TSP/FERS) options are:
1.  “Short term treasuries”? (special ones for TSP which paid 2.8% in 2010)
2.  Bond index fund   (paid 6.7% 2010)
3. S & P 500 index
4. Small cap index stock fund
5. International stock fund  

So of the choices above the only ones that fit into PP are 1 and 3.  if I transfer the money in this account so that it is 50%  cash (1) and 50% stock (3) and take cash sitting in my checking account and with it buy 1/2 gold and 1/2 long term treasury it would leave me with (not counting the 6 months living expenses cash):

Cash 42%
Stock 42%
Gold 8%
LTB 8%

QUESTION: This is much more stock than PP recommends and more than I am comfortable with given the market.  The only thing I can think to do is to only put as much in stocks as I can right now each in gold/LTB and keep the rest of the retirement account in cash or use some of it as VP and put in in the bond index fund for now.  Other suggestions?

--The gold and LTB will be in taxed account and I was going to use GTU for gold (since premium is only 6% now):
http://www.gold-trust.com/asset_value.htm

and TLT for long term bonds.

Thank you for your time.

You could borrow enough from your TSP to allocate to any asset you see fit.

It's generally not a good idea for people to borrow from a 401K or TSP, because it's often done to buy unessential but emotionally laden stuff that can ruin their future retirement finances--cruises, kid's quinceaneros and prom gowns, vacations, boats, day-trading Internet stocks, a new car for one kid's graduation present, the fixings for another kid's wedding, paying bail for yet another, transforming the basement into a family room (on a house in a flood plain, with no flood insurance!   ), a shiny BMW to impress the neighbors and help cheat on the wife with a new girlfriend, etc.  As you might have guessed, these are all examples of what certain friends and relatives actually bragged about using their 401K loan money for.  It's still a free country, but that doesn't mean these uses of money intended for retirement are sensible.

And many financial experts would tell you to never borrow money to invest in commodities, which to them, gold is but one of several.

But those same financial experts also believe gold is a "barbarous relic" and some of them, sad to say, regard a grown-up with no debt and six months of living expenses in emergency funds--in today's America, with its daily life subtext of debt slavery--as eccentric, if not unpatriotic.  
(Good work, BTW.  :) )  

But the kind of "borrowing" that merely constitutes moving your own funds from one account (tax-deferred) to another (taxable),  then replacing the tax-deferred amount you moved (paying yourself back), with "interest," over five years:  That might very well be a great idea, to address one of the few (positive) financial binds for which the retirement-fund loan process was designed.  

There are those on this forum who know more about retirement-related personal finance than Smurfs and other cartoon characters.  They can discuss double taxation of the interest you'll pay into the account, spousal agreement, the loss of protection from creditors and legal judgments that qualified funds in a retirement account may enjoy, the effects of being laid off after making such a loan, things like that.  I don't know your age, your retirement date, or the actual value of your accounts.  Your age/retirement date and the value of the accounts, particularly how much you yourself have put into the account, will matter when it comes to borrowing from your TSP.

A TSP loan can be used to release money from the TSP account without penalty, to allocate among whatever assets you see fit.  You could then go 25/25/25/25 HBPP if that's what you want without jumping through hoops.  Such a loan might be something worth considering.  Discuss it with a financial advisor who knows about government retirement thrift plans--but equally important, talk to one who is neither anti-gold nor a banner-waving gold bug.

I'm not an expert, and this is not financial advice.

Benko, could you use some of the retirement account cash and stock to match your LTT and gold so as to make a PP as you describe and also use the excess capacity of the retirement account to make a variable portfolio that looked a bit like the Vanguard Wesilian? fund people on here have mentioned (ie 60% corporate bonds:40%stocks rebalanced regularly)?

I'm 51 year old, single and plan to retire at 70 years old.  I'd prefer not to put my totals on a massage board but would be glad to PM them.

The TSP loan sounds like a good idea, but I need to check out the double taxation of interest to see how much money I'd be losing that way.  Could someone explain that to me? 

The 60 bond/40 stock as a VP is certainly possible.

Thanks

Benko wrote: The TSP loan sounds like a good idea, but I need to check out the double taxation of interest to see how much money I'd be losing that way.  Could someone explain that to me?  

Interest on money you borrow from your retirement account is (generally) not tax deductible, so will be paid back with after-tax, not pre-tax, money.  This interest money goes into your retirement account and, when you ultimately withdraw it, is taxed (again) as ordinary income.   There are other risks involved as well, see https://guidance.fidelity.com/viewpoint ... ment-plans.

Benko wrote: I'm 51 year old, single and plan to retire at 70 years old.  I'd prefer not to put my totals on a massage board but would be glad to PM them.

Your age matters if you're 59 or over.  In that case, you would not have to pay any penalties on a distribution.  At age 51 you are too young and in the event of failure to pay back, you would owe the IRS a 10% penalty.  And since you're single, you don't have to get the permission of a spouse.

Rickb gave a good description of the interest double taxation issue.  These days, interest rates are ultra low compared to even six or seven years ago, and the double taxation thing tends to be a major issue when interest rates are high.  It won't really affect you until you're well into retirement, and the sooner you pay off the loan, the less of an issue this becomes because even less interest will be paid.  

You can look at an amortization schedule for the amount you want to borrow at the interest rate the plan sets.  The amortization schedule will tell you what your monthly payment will be, how much of it is principal, and how much is interest.  From there you can extrapolate how much in taxes you paid on your interest payment (or at least, how much you had to earn pre-tax to make the after-tax payment).  If you google "amortization schedule," a bunch of good ones come up.

There may be other options.  I don't know all the flexibilities included in a TSP--like, for example, whether it offers a self-directed mutual fund or brokerage option; or whether or not you are eligible for a transfer from your TSP to another qualified account, or even a rollover.  (Usually with 401Ks, you can do a transfer or rollover if you're moving from one company to another, but some companies allow employees of a certain age to rollover even while they're still working.)  That's why I suggested you talk with a financial advisor who is familiar with TSPs, 401Ks, IRAs about how to get the maximum into and/or out of these type accounts while incurring the least expense.  

And 8/8/8/8 HBPP with 41/27 VP (same as 60/40 VP) is a good idea, if you choose to leave the funds in your account.  It gives you time to adjust to the HBPP while you consider all of your current and future options.  

Again, I am not a financial advisor and this is not financial advice.

Thanks all.

You're welcome.  Please let us know what you decide to do.  It's an interesting situation.