Gyroscopic Investing

I set up my PP last spring. I have 3 PP portfolios, maintained separately:

1. Our taxable holdings
2. My IRA
3. Wife IRA

I am retired, and not adding to these portfolios. In fact I am withdrawing from them regularly, at about a 4% annual rate, at most. As I draw out of them, it is easy enough for me to keep them all in balance, within the 15% - 35% bands.

Up to now all the gold has been held in SGOL and IAU, but I have started to convert some of these holdings in the taxable accounts to coins.

I am thinking I should leave some portion of the gold in ETF form, to reduce the frequency of trading the coins. I was thinking maybe 25% in the ETFs and 75% in coins in the taxable portion.

There are unrealized gains in the gold ETFs, so this conversion process is going to throw off some capital gains. However, I have significant losses carried forward from 2008, that I can use to offset these.

So, does this 75% physical, 25% ETF mix in the taxable account seem reasonable for a PP in "retirement mode?"

Thoughts appreciated.

So you maintain a 4x25 split in three different places?

It may be too difficult to rearrange now, but I think it is far easier to treat all accounts as one portfolio.  That way, you can optimize your holdings for maximum tax efficiency.  Sometimes that is difficult, though, if you have large tax-deferred holdings versus taxable (or vice versa).

Holding physical gold in taxable is extremely tax efficient (no dividends, no interest, don't sell unless you have to), and your idea about leaving some gold in ETF form for rebalancing makes good sense.

Yes, I maintain 3 different 4x25 way portfolios. I am in draw down mode, and in a little over 5 years, will have to start taking RMDs out of the IRAs. It just seems more convenient to me to draw the cash out of these and rebalance as I take them down and hit the rebalance bands.

I am in a position to keep my earned income below the threshold for problems with taxable income from interest, and as I said, I have a big fluffy pillow of capital loss carry forwards to make rebalancing tax free in the taxable portfolio.

If I were 10 years younger and without any accumulated losses. I would probably do as you say, and arrange these for more tax efficiency. But, for me now, I think it is moot.

In fact I am thinking much higher percentage of physical gold in the taxable account. I got my first coins today, and it felt pretty good. I realized there is absolutely zero counterparty risk on the gold you hold in your hand... 

My situation is very similar to yours except that I'm still working and have no definite plans to retire at this point (right now I figure I'll probably retire when they make me).

Went whole-hog with the PP last year with the only exception being physical gold. Was going to take care of that when I re-balanced this month but couldn't bring myself to pull the trigger. It's such a new concept it's hard to get my head around it. I think a lot of it is laziness because I've gotten used to just doing all my transactions with a click of the mouse. Physical gold actually requires physical effort, and also you don't get to see the numbers come up on the screen automatically when you view your portfolio.

Thought I'd start out buying a few coins at a time. Can't imagine going 75-25 all at once. One of the things that was stressing me out was where to store the gold. On this forum they seem to recommend safe deposit boxes but you read other places that this isn't a good idea, so it was making my head hurt. Figured it wouldn't be so big a deal if it was only a few coins and I'd have more time to think about it.

Actually, at this point I'm not as concerned about ETF gold as most PP'er's seem to be and it does make it easier to move assets around. Maybe when I read Craig and MT's new book explaining the perils I will change my mind.

So did you finally decide on the safe deposit box? I just opened one up myself but I feel funny about putting gold eagles in there. It almost feels illegal.

Reub wrote: So did you finally decide on the safe deposit box? I just opened one up myself but I feel funny about putting gold eagles in there. It almost feels illegal.

I empathize.  Stashing gold coins in a safe deposit box made me think of a dozen or so movies where every respectable spy has a safe deposit box with cash, fake passports and a pistol.

Reub wrote: It almost feels illegal.

Rather, it is freedom, freedom from fiat paper, freedom to hold savings outside the financial system, freedom to choose how you hold your assets.

Central bankers & gov't officials need to fear the people, not the people fearing the gov't.

murphy_p_t wrote: Rather, it is freedom, freedom from fiat paper, freedom to hold savings outside the financial system, freedom to choose how you hold your assets.

Central bankers & gov't officials need to fear the people, not the people fearing the gov't.

Well, that's kind of what was holding me back about the bank safe-deposit box idea? Doesn't feel that far outside the financial system to me.

jackh wrote:

murphy_p_t wrote: Rather, it is freedom, freedom from fiat paper, freedom to hold savings outside the financial system, freedom to choose how you hold your assets.

Central bankers & gov't officials need to fear the people, not the people fearing the gov't.

Well, that's kind of what was holding me back about the bank safe-deposit box idea? Doesn't feel that far outside the financial system to me.

What is in your SDB is not declared to the bank or anyone else.  In theory (one never knows with all the Patriot Act BS) a warrant would be required to open your box without your permission.  It is imperfect but much safer than home storage.

Ad Orientem wrote: What is in your SDB is not declared to the bank or anyone else.  In theory (one never knows with all the Patriot Act BS) a warrant would be required to open your box without your permission.  It is imperfect but much safer than home storage.

This is how the logic of owning physical gold was making my head hurt. A big part of the rationale seems to be protecting yourself from the gang of lawless thieves called government but then you walk down to the bank and put the coins into a safe deposit box telling yourself that the same bank which got billions of dollars in bailout money stolen from the taxpayers is going to zealously guard the contents of your safe deposit box and demand to see a warrant if the thieves decide they want it.

jackh wrote:This is how the logic of owning physical gold was making my head hurt. A big part of the rationale seems to be protecting yourself from the gang of lawless thieves called government but then you walk down to the bank and put the coins into a safe deposit box telling yourself that the same bank which got billions of dollars in bailout money stolen from the taxpayers is going to zealously guard the contents of your safe deposit box and demand to see a warrant if the thieves decide they want it.

Well, at the very least, you can choose to get a SDB at a strong local bank that did not need billions of dollars in bailouts...

What is in your SDB is not declared to the bank or anyone else.  In theory (one never knows with all the Patriot Act BS) a warrant would be required to open your box without your permission.  It is imperfect but much safer than home storage.
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That is correct.  There is nothing illegal, immoral or even remotely questionable about storing personal or investment property in a bank SDB.  As a practical matter, as long as the property is legal to own and you are not engaged in tax evasion or some kind of terrorist activity, the government (or anyone else) is extremely unlikely to waste their limited resources trying to find out what is inside.  There are no current "reporting requirements" by you or the bank and should any such requirements be proposed in the future, you will probably hear about the possibility beforehand.     

If you are still bothered by the idea of storing a particular asset in a bank SDB, by all means store it (or some portion of it) elsewhere, just don't expect to get the same combination of cost effectiveness and safety.

SteveGo, that first gold purchase really does feel good, doesn't it?

Storage: I haven't yet brought myself to use a safety deposit box. It's not out of laziness, but is instead due to reading a few stories about people losing their contents for one reason or another. Few and far between, I'm sure, but I have a burglar alarm, I live in a nice neighborhood, and thieves would never find my coins. If they do, or if they threaten my life, I'll give up the gold. It's not something I worry so much about, but perhaps I will when I accumulate a significant amount of counts. I do keep some in a relative's safe in another state.

Eventually, I may go for more than one S.D. box at more than one bank. Boxes are cheap, and it's a small price to pay for peace of mind Of course, there's always the chance that someone will hack my investment accounts and get at my gold ETFs, but that's not something I worry about either because there would be no violence involved.

ETFs vs coins: I like the idea of getting into coins "early" (I'm 41) so that I can take advantage of the complete lack of fees. The main cost is the dealer's premium, and while I've been paying 4%, through members here like FarmerD I've seen dealers that charge under 2%. Hold that for enough years, and it's comparable to GTU's low expense ratio. And no forms to fill out at tax time. Lastly, the fact that the value of coins doesn't automatically come up on your spreadsheet -- it does on mine -- could be an advantage: maybe you'll peek less frequently.