Gyroscopic Investing

Im writing a PP investment plan and trying to figure out which is least efficient for taxable.  Gold or LT bonds?  Right now my plan is to put 50% of gold in taxable and 50% of gold in tax-sheltered.  Then shifting equity into taxable.  The theory is keeping a chunk of gold in tax sheltered to allow rebalancing tax-free.

Eventually I wind up having to decide between putting my last bit of gold in taxable or my last bit of long term bonds.  Should I write in an exception to base this on my marginal tax rate at the time compared to the tax rate of gold?  If I'm in a 50% tax rate in 20 years (who knows what rates will be) and gold is still 28% tax, then LT bonds may be more tax efficient.

Im 100% tax sheltered now and over time I expect to add taxable investments when my income allows more than just max 401k/IRA annually.  So Im planning now for what I do later when that happens and have to shift assets into taxable

I guess a more likely question for most people with the opposite problem (too little tax sheltered) is what asset do you keep in sheltered if suppose only 10% of your portfolio is Tax-Sheltered and 90% is taxable?  LT Bonds or Gold?

I also impliment across taxable and tax deffered.  My opinion for what it's worth:

Gold is only taxed when it is sold versus bonds which continually throw off dividends.  For this reason I think gold is better in taxable than bonds, if given the choice.

Along with minimizing taxes, the measure of safety form holding some portion of gold physically (taxable) is another factor which leads me to have no bond holdings outside of tax deffered accounts.  I do have gold in tax deffered also.

RickV42 wrote:  I do have gold in tax deffered also.

Let me rephrase to be more specific.  If you ONLY have a small portion of tax-shelters setup.  Perhaps 10%or less of your overall portfolio.  Should that 10% be all Long Term Bonds, All Gold, or a mix of things?

You MUST hold both gold and long term bonds in taxable because 90% of your money is taxable in this example.  There's no way to put all bonds or all gold in sheltered.

Which do you put in your precious tax sheltered space and why?

I agree with RickV42.

Worry Free Investing discusses this issue in terms of how each asset's returns are broken up:

Cash: 100% interest
Bonds: mostly interest, some capital gains
Stocks: mostly capital gains, some dividends
Gold: 100% capital gains

The tax rules get changed all the time, which makes it difficult to plan for long-term tax-efficiency, but one thing that will probably never change is that paying taxes once (capital gains) is cheaper than paying taxes every year (interest and dividends).

So the standard advice is to prioritize tax sheltering in that order: cash, bonds, stock, gold.

You're right that there are scenarios where taxable gold could turn out to be less efficient than other assets.  However those scenarios seem to involve gold and another asset hitting rebalance bands every year for several years, which is very unlikely in practice.  The wide bands really help with tax efficiency.

Also, that prioritization makes it convenient to hold some physical bullion directly, if you so wish.

MiniB,

If it were me, part of the answer depends on not splits you have now (10% you said) but how you plan on expanding the tax vs. tax deffered space going foward.

In any case, I would fill fill up the tax deffered space with bonds first, starting with TLT or equiv., then if room fill with SHY, then if room VTI, then if room GLD.

If no room at any point in above in tax deffered, start putting in taxable.

As you build tax deffered going foward, complete list in order above.