Almost all of my retirement savings is done in my tax deferred portfolio and a Roth which I max out. I have a 403 B with access only to TIAA CREF products. I am trying to figure out how one could implement a PP in such a situation. My annual contributions to tax deferred are: $24K to 403b (includes employer match) and $5K to Roth. In particular there is no access to LT bonds and gold within the 403B choices.
I guess besides your contributions %% we would need to know the %% allocation of your existing portfolio between IRA and 403B.
Also, these CREF funds - are they index funds? Can you provide any other details, like expense ratios?
Thanks very much.
My existing portfolio is:
403b (TIAA-CREF):
63% CREF Stock
27% TIAA Traditional
Roth IRA (also with TIAA-CREF)
7% CREF Stock
3% TIAA Traditional
All of the CREF accounts are technically annuities but in practice work like mutual funds with expense ratios between 0.3-0.5%. The only index fund is the CREF Equity Index account. The remaining accounts say that they follow enhanced indexing which probably means that they are somewhat "active". The Social Choice is a balanced account with 60% Equities and 40% Fixed Income.
The Equity Index fund is suitable for the stock part of the permanent portfolio. None of the other funds on your list correspond directly to any of the other three PP assets. You will have to decide for yourself whether to
a) implement a pure PP, using mostly taxable accounts, holding only stock in the 403b, and pay the tax hit
b) take liberties with some of the asset classes so you can fit more in the 403b
c) use the PP in accounts that support it, and a different conservative strategy for the 403b until you can roll it over
All those options are distasteful, but sometimes all you can do is play the cards you've been dealt.
For route (b), the Money Market account is one step removed from a treasury money market, so that might be acceptable for the cash component. Using 50% intermediate treasuries is only one step removed from 25% cash and 25% long bonds, so if you had an intermediate treasury fund that might be OK; but you don't. The Bond Market Account looks like an intermediate bond fund, so that is one more step removed, although its bonds have credit risk which is a significant departure from PP strictures. You could consider using 50% Bond Market as the cash and bond components; I'm not sure I'd do that myself, though. None of the TIAA-CREF funds are suitable for the gold component.
For (c), you could create a PP in the Roth, and something like a conservative Boglehead portfolio in the 403b. When you eventually change jobs and roll over the 403b you can merge those funds into the PP. A conservative portfolio might be something like 1/3 Equity Index and 2/3 Bond Market.
I also had to deal with a problem of slicing my PP among limited/lousy 401(k) and IRAs so here's what I did (I skipped some slicing for the sake of example simplicity):
401(k):
25% stocks - TSM fund,
12.5% bonds - TBM fund
25% cash - short-term bond fund
IRA:
25% gold - SGOL and IAU
12.5% bonds - EDV (Long-term Treasuries)
As you see I'm using MediumTex's great (and used by several people) idea to imitate TLT with aggregate-bond-index-based total bond fund + EDV.
"Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve."
- Talmud
foglifter wrote:
I also had to deal with a problem of slicing my PP among limited/lousy 401(k) and IRAs so here's what I did (I skipped some slicing for the sake of example simplicity):
401(k):
25% stocks - TSM fund,
12.5% bonds - TBM fund
25% cash - short-term bond fund
IRA:
25% gold - SGOL and IAU
12.5% bonds - EDV (Long-term Treasuries)
As you see I'm using MediumTex's great (and used by several people) idea to imitate TLT with aggregate-bond-index-based total bond fund + EDV.
foglifter -- thanks.
In my case the 403b is greater than 75% of our total portfolio and therefore requires all 4 classes.
Could you also please point me to the thread which discusses MediumTex's above idea of using EDV?
It's incredibly frustrating to not be allowed to invest your hard-earned money in a way you see fit... Even more irritating, I find it deplorable that the management companies are making money offering products which may or may not even be competitive with Vanguard or Fidelity funds.
IMHO: A portfolio of 50% Total bond market, 25% Total stock, and 25% Gold will fairly closely mimic the PP. Averages 9.47% vs. PP of 9.53% with similar standard deviations.
A portfolio of 80% Total bonds, 10% Gold and 10% TSM will yield results that are inferior to a pure PP, but still are very good at preserving capital. Averages 8.53% but with a really tight standard deviation of just 5.28%.
To be honest, I think that the reason it works is that total bond funds are intermediate bonds, which sort-of react to interest rates in a way similar to the combination of LT and ST bonds preferred in the PP.
You could hypothetically take as much money as you have in your IRA and put that into GOLD, then match that percentage in the Equities portfolio and subsequently put the rest into the bond portfolio...
It's incredibly frustrating to not be allowed to invest your hard-earned money in a way you see fit... Even more irritating, I find it deplorable that the management companies are making money offering products which may or may not even be competitive with Vanguard or Fidelity funds.
Second that. I thought my Fidelity 401(k) was bad until I saw what my daughter's just-opened plan offers
Reido wrote:
A portfolio of 50% Total bond market, 25% Total stock, and 25% Gold will fairly closely mimic the PP. Averages 9.47% vs. PP of 9.53% with similar standard deviations.
That's not a bad idea given the limitations of the plan. One thing to keep in mind though: total bond fund contains lots of corporates and some junk bonds too, so in those hopefully rare moments of falling skies when LTT will jump TBM will stumble.
"Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve."
- Talmud
Agreed!
It is only ~50% gov't bonds and treasuries (at vanguard), so it's not perfect... It may perform slightly better in good times, but not add as much to stability.
I don't know how heavily your bond fund would is weighted to corporates, so it's a tough decision no matter what you do.
Reido wrote:
Agreed!
It is only ~50% gov't bonds and treasuries (at vanguard), so it's not perfect... It may perform slightly better in good times, but not add as much to stability.
I don't know how heavily your bond fund would is weighted to corporates, so it's a tough decision no matter what you do.
Best of luck!
Oh boy... its about 28%. I can't complain actually most of the time, but in 2008 FTBFX did zag.
"Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve."
- Talmud
I have access to 2 bond funds -- the CREF Bond Market Fund and the CREF Inflation Linked Bond Fund. The CREF Bond Market Fund appears to be around 20% treasuries (33% MBS and 25% Corrporates) and has an average duration of approximately 6 years while the CREF Inflation linked Bond holds TIPS with an average duration of ~9 years.
