Gyroscopic Investing

Greetings, I slogged through all ~3300+ posts in the Boglehead forum over the last few weeks.  I'm a fan of the concept behind the PP, and am working to implement it in my retirement planning.  I would enjoy some advice on my retirement account options and the PP. 

Retirement Account Options -
PERF (Indiana Gov. Employees) - Total of around $4.5k-5k
Roth IRA - I have the max ($5k) going in yearly
453k - My employer loosely sponsors this, due to the high fees and poor account choices, I do not participate
Taxable - I have about 2-3k I can invest remaining, Physical Gold, I-Bonds, SmartyPig, etc are on that list, but can also do a taxable brokerage account.  For simplicity, let's say $12k total.

I'm hoping to convince my employer to find an administrator for a 401k or 403k plan that includes a brokerage window and Roth 401k option, it's a dubious proposition though, until then, this is what I have.

I have a year's worth of expenses in a SmartyPig account, some I-Bonds, and some funny money a friend who is a day trader is playing with.  I have no debt outside of a tiny 2.5% student loan and my 4.4% mortgage.  I feel this makes a strong cash anchor (I'm 29, my expenses could be met even if I lose my main job without touching any savings), and inside of my Roth, I plan to use an AIM buying strategy which should keep cash available inside of that account.  Thusly, I'm primarily looking at a 33% Stock / 33% LT Bond / 33% Gold portfolio from here down.  I'd also like to jazz returns a bit in stocks/bonds, as, essentially, all of this is my variable portfolio (I have other retirement income, this is Vacation/Play money), and like most men, I like to tinker. 

PERF plans (I've removed some of the bad ones, including target retirement date, MM fund, TIPS, International Equity Fund) -

- Guaranteed Fund (0.0%exp) - Currently 3.45%/yr, will go to 1.75%/yr starting in August for the next year - 100% currently in here (default) - Currently a Cash equiv account IMO, in the past it's been a juicy 5-7% returns
- Fixed Income Fund (0.13%exp) - 60% Northern Trust Fixed Income, 20% Loomis Core Plus, 20% PIMCO Total Returns Fund - Appears to be bond based, performs a tad over Barclays Aggregate Bond Index, probably not all treasuries though - Middling Long-Term and Cash substitute IMO
- Large Cap Equity Index Fund (0.02%exp) - 100% BlackRock S&P 500 Index - Great stocks option
- Small/Mid Cap Equity Fund (0.17%exp) - 80% RhumbLine Russell Small Cap Completeness Index, 12% Loomis SMID, 8% CS McKee Small Cap - Potentially a decent stocks option, not a huge fan of this vs. specific Vanguard funds though

Note - The PERF account, because of how it works, really must adopt a Warren Buffet maxims - Don't lose money.  I have a super-high sensitivity to long-term balance losses.  Quite frankly, if I could earn at least 4.5% in this account, I'd be one happy panda.  It has $2.5k in it now, and my target is only $150k by age 65.  The 4.5% and only 8 more years of contributing reach that goal, at which point I'll also have a small pension on top of this (total $1800/mo if I have the $150k+pension).  This account is my future medical expenses account at age 65, it has no other use in mind.

Thoughts -

33% Gold - I'd like to hold 60% Physical, and use the remaining 40% for re-allocation purposes to avoid selling physical, IAU inside Roth, GTU in Taxable if necessary
33% Bonds - I feel safest hedging deflation, plus I'd like to juice returns - 50/50 Long-Term Treasuries in Brokerage window and Zero Coupon (EDV) ideal, that being said, allocation issues mean I'll likely put a ton of this into the PERF Fixed Income Fund
33% Stocks - I've been thinking a few things, US Small Value/Int Small Value, EM/SCV, VTI/ISV, etc.  Any of those pairings will juice the returns a bit, but due to part of my money going into PERF, and the great expense ratio, I'm going to likely use the PERF S&P500 for a portion.

Theoretical $12k allocation -

Gold ($4k) -
$2.5k - Physical (I'll probably round up to buy 1oz coins and transfer some of the Roth IAU to LT Bond purchases or SHY)
$1.5k - Roth IAU (0.25%)

Bonds ($4k) - (0.13375%)
$1.5k - Roth EDV - Zero-Coupon Treasury (0.14%)
$2.5k - PERF Fixed Income Fund (0.13%) - Not super happy here, but would rather play it safe for now in the PERF

Stocks ($4k) - (0.1125%)
$2k - PERF S&P 500 (0.02%)
$1k - Roth VWO - Emerging Market (0.27%)
$1k - Roth VBR - Small Cap Value (0.14%)

I have about a year's worth of previous contributions I can re-allocate, plus enough to not have issues with Vanguard's minimums.  I'd be open to any suggestions, the main challenge is working with the PERF restrictions (quarterly changes only, conservative investing, and account plan limitations).  If the PERF Guaranteed Fund ever goes back up to 4.5%+, I'd just move everything back into it and play my PP variant in the Roth and Taxables.  As my income grows, I plan on allocating any non-Roth portions to a taxable account using GTU, VTI, and TreasuryDirect.  My total retirement income will really move me up tax brackets, as of now, I'm pretty darn low, so Roths are the most preferable.

Thanks in advance, and Craigr, Tex, Clive, and the others - I've really enjoyed your work and commentary. 

Welcome to the forum. I'm not familiar with all the options you are presenting, but I'll try to answer where I can.

brajalle wrote: Greetings, I slogged through all ~3300+ posts in the Boglehead forum over the last few weeks.  I'm a fan of the concept behind the PP, and am working to implement it in my retirement planning.  I would enjoy some advice on my retirement account options and the PP.  

Retirement Account Options -
PERF (Indiana Gov. Employees) - Total of around $4.5k-5k
Roth IRA - I have the max ($5k) going in yearly
453k - My employer loosely sponsors this, due to the high fees and poor account choices, I do not participate
Taxable - I have about 2-3k I can invest remaining, Physical Gold, I-Bonds, SmartyPig, etc are on that list, but can also do a taxable brokerage account.  For simplicity, let's say $12k total.

I'm hoping to convince my employer to find an administrator for a 401k or 403k plan that includes a brokerage window and Roth 401k option, it's a dubious proposition though, until then, this is what I have.

Unfortunately your situation is very common. Many retirement plans are quite bad with limited good choices and high fee/low performance funds.

- Guaranteed Fund (0.0%exp) - Currently 3.45%/yr, will go to 1.75%/yr starting in August for the next year - 100% currently in here (default) - Currently a Cash equiv account IMO, in the past it's been a juicy 5-7% returns

I don't know what this fund is. If you are getting 5-7% "juicy" returns on what is supposed to be a cash fund you may want to find out where and how they are getting the juice. Otherwise you can find you're the one getting squeezed in a bad market. (couldn't resist)

- Fixed Income Fund (0.13%exp) - 60% Northern Trust Fixed Income, 20% Loomis Core Plus, 20% PIMCO Total Returns Fund - Appears to be bond based, performs a tad over Barclays Aggregate Bond Index, probably not all treasuries though - Middling Long-Term and Cash substitute IMO

Any fund that is actively managed is going to be a show-stopper. If you can find one that is more passive and won't have a manager trying to guess bond market direction that would be a good thing. The total return funds have been a big buzzword the past couple years but I don't think much about them. It's kind of a deceptive name that really doesn't reveal much about the underlying strategy.

- Large Cap Equity Index Fund (0.02%exp) - 100% BlackRock S&P 500 Index - Great stocks option
- Small/Mid Cap Equity Fund (0.17%exp) - 80% RhumbLine Russell Small Cap Completeness Index, 12% Loomis SMID, 8% CS McKee Small Cap - Potentially a decent stocks option, not a huge fan of this vs. specific Vanguard funds though

The S&P index sounds like a good option. I'm not sure of these other funds again if they are actively managed. In this case I'd stick with the core S&P 500 first and then, if you just feel like you can't resist, put in a small amount of these other funds. Otherwise I'd just stick with the known quantity index because you know it will be cheap and not have a manager making decisions for you.

33% Gold - I'd like to hold 60% Physical, and use the remaining 40% for re-allocation purposes to avoid selling physical, IAU inside Roth, GTU in Taxable if necessary
33% Bonds - I feel safest hedging deflation, plus I'd like to juice returns - 50/50 Long-Term Treasuries in Brokerage window and Zero Coupon (EDV) ideal, that being said, allocation issues mean I'll likely put a ton of this into the PERF Fixed Income Fund

If you can just buy nominal bonds and not worry about the zeroes that is best. The Zeroes are an option MediumTex mentions often because it can provide more leverage for people with limited options or are using the stand-alone PRPFX fund and want more bond power.

Also you're getting too wound up on this juicing of returns. I'd urge you to be very cautious about reaching for yield. I've seen a lot of problems created when people were reaching for more returns but didn't consider some of the extra risks involved. So I would advise that you try to implement the permanent portfolio as close to the original formula as you can initially. Then, if you start to feel a little more comfortable taking some risks, I'd work first to increase the stock allocation a little as it tends to have the best historical growth over the long run. I wouldn't however start out trying to scramble for more returns by implementing a bunch of funds with unknown quantities, zero bonds, etc.

Start with the basics because in investing, like most endeavors, it's the basics that contribute the most to ultimate success. For me, that's trying to build a portfolio that is as close to the 4x25% split as you can. Then, take whatever money you can afford to lose and do these other tweaks if you feel like you need to in your variable portfolio.

Thanks for the response craigr!

I just rechecked with my employer's two 457 administrators, their fund options make me want to scream, their cheapest option is a 0.30ER S&P500 fund, the other options are 0.8-1.4ER managed funds.  It's like they haven't changed anything since the 1990's (Hartford/Nationwide).

The guaranteed fund is just that, a guaranteed fund by the state of Indiana.  There is zero risk of any losses, the state, once a year, sets the return they're going to pay on this account.  In the past it's been 5-7%, last year it was 4.5%, this year it was 3.45%, next year it's only going to be 1.75%.  It always pays the set return each year, divided into quarters.  Ie this quarter, it was a 0.85% or so return.  It's probably best to compare it to the Fed's TSA G Fund - it's incredibly safe, it just returns whatever the State wants to pay out.

Those are my only fund options inside of my PERF retirement plan, and my contributions are limited to that 4.5-5k - I can't go any higher.  Thusly, to integrate it in the PP, I have to make the best of their available options.  The Bonds fund, even if actively managed, has had good historical returns through thick and thin and has a low expense ratio.  It was my thought that I'd have to use at least 2 funds in this account in order to be able to re-balance, and that I'd have to limit those 2 picks to only a portion of each Bond/Gold/Stocks option I pick because of the 1x/Quarter limit on making changes to allocation - I'd be using my Roth portion of those Bond/Gold/Stocks to do anything more frequent on the re-balancing.

Thats probably some good advice in general on risk.  I continue to be intrigued on the zero's, I guess I need to find more information on the pros/cons, so far, whats been discussed in PP threads hasn't dissuaded me from wanting to make it a portion of my bond funds.  I guess with my limited options inside my PERF fund, it may be better to just go with Long's in my Roth. 

Thanks!