PP Strategy And My 401k

[flyguy]

Hello Everyone,

I'm a new member and relatively new to the PP strategy.  I've read both books on the PP, and have implemented the basic strategy through my brokerage account (TLT,SHV,VTI,GLD).  That's the easy part.  My 401k however is giving me fits.  Here are my issues:

1) None of the treasury money market funds available to me are currently open to new investors.  Therefore, I'm at a loss on what to do with the cash portion.  Is a regular money market account acceptable in this case?

2) All of the long term bond funds available to me have a $50 transaction fee.  Suck it up and just rebalance yearly to keep costs down?

3) The only gold fund available is TGLDX, which is made of of mining companies and other stuff besides gold assets.

4) Trading ETF's is not allowed by my company program.

Just wondering how the gurus on this board would handle my situation.  I'm currently invested in PRPFX until I figure it out, however the more I read about it the quicker I want out.  Plus I'm already down THOUSANDS in the short few months I've been invested in it.  Any help would be appreciated!

[Pointedstick]

Welcome, flyguy!

It sounds like your 401k is sadly not well set up to implement a PP. Rather than swimming against the tide, it may be easier and more effective to instead implement a conventional stock and bond portfolio. You should hopefully have access to a decent stock fund and an assortment of decent bond funds. Going this way, you'll save a ton on commissions and wind up with a pretty good portfolio anyway.

[sophie]

Company 401Ks and 403bs give all of us fits...this is a very common problem.

We could offer more specific advice if you list the funds you have available along with their expense ratios and fees.  A $50 transaction fee sounds pretty toxic!  It sounds like you are ok for stocks and cash, which is typical of 401Ks, but bonds may be a problem - it's likely that the funds include corporates and mortgage backed securities.  Those do not behave like Treasuries and are not suitable.  The gold fund is definitely not a substitute and similarly has no place in the PP.  You basically have two choices:

1) Spread your PP among multiple accounts, and use the 401K for stocks, cash, and maybe deep bonds if the funds are appropriate.
2) Forget about including the 401K in your PP.  Go with a simple Boglehead portfolio instead.

The problem with option #1 is that a big drop in gold may make it impossible to rebalance.  I ran into that situation and ended up solving the problem by excluding my active retirement accounts from the PP, but some people have managed by (I suspect) simply living with a small gold allocation, or having enough taxable savings.  Of course, you might think that gold has already dropped as low as it's going to get, so maybe this isn't going to be an issue for you.

Another solution is to divert money away from your company 401K if you can.  I have some side consulting work, and I pour all of that into a solo 401K and reduce my company 403b contributions accordingly.  Others have successfully negotiated with their employers to provide a brokerage window.

Good luck!

[madbean]

It sounds like your 401k is sadly not well set up to implement a PP. Rather than swimming against the tide, it may be easier and more effective to instead implement a conventional stock and bond portfolio. You should hopefully have access to a decent stock fund and an assortment of decent bond funds. Going this way, you'll save a ton on commissions and wind up with a pretty good portfolio anyway.

I have to agree with this. One of the things that drew me to the PP was the simplicity of it but when you factor in the 401k issues + multiple types of accounts (roth+traditional IRA+company roth+company 401k+taxable+Treasury Direct) * multiple investors (husband + wife) I've found it becomes quite a juggling act to try to implement a pure PP and keep it in balance. I think a traditional Bogleheads portfolio might be much simpler and sometimes I'm tempted to go that way while keeping all the physical gold I've accumulated.

[MachineGhost]

http://www.brightscope.com/financial-pl ... l-employed

[madbean]

http://www.brightscope.com/financial-pl ... l-employed

Not all companies allow in-service rollovers. Mine does starting at age 59 1/2 and I've done it a couple of times to aid in re-balancing. The thing I don't like about having to do it is you have to liquidate all the assets, wait for checks (roth + traditional), and then mail them to the institutions and wait for them to post to your account(s) so you can then purchase the assets you want. All this takes time, usually weeks, while your money is sitting idle.

My company just switched from Wells Fargo to Vanguard and now has good options for stocks and bonds so I think I'm going to just let it all ride this year and maybe not re-balance at all. All depends on how lazy I'm feeling.

[KevinW]

+1 to

• Actually ask whether a brokerage window exists. Often they exist but no one in HR bothers to publicize them.
• PRPFX is not that bad. Would it really be so bad to just let your 401(k) sit in PRPFX?
• If all else fails, a conservative Boglehead portfolio is not so bad either. If I had to, I'd just clone Vanguard LifeStrategy Conservative Growth Fund (https://personal.vanguard.com/us/funds/ ... IntExt=INT). Approximately 60% total bond index, 30% total stock index, 10% international stock index.

How long will you be working at this company? Most people change jobs every few years. When you change jobs you have the opportunity to rollover the 401k into a brokerage IRA that holds a pure PP. Letting a few years' 401k contributions sit in an imperfect-but-decent portfolio for a few years is not really a big problem. This is only a big dilemma when you're confident you'll be working at this employer for the long haul (decades).

[Ad Orientem]

Welcome, flyguy.

FWIW, a PP-unfriendly 401k is a common issue, and there have been many threads about this over the last few years.  Here are a couple that I started:

PP Heresy: Recommendations for a Boglehead 401k

Welcome to the forum! I stand by my advice in the first post of the linked thread. Investing should not require setting up highly complicated portfolios that require more than a semi annual glance to verify if it's rebalancing time. A lot of 401Ks are just not PP friendly and are not fixable without going to more trouble than it's worth. In those cases I think you are better off just setting up a 2-3 fund Jack Bogle special and calling it a day. If your 401K represents the bulk of your investments and gold is a problem, then you may want to consider adding some currency diversification as a substitute hedge against inflation. Three funds come to mind as good currency diversifiers for a Boglehead type portfolio... VT, VEU, and BNDX. Similar funds are available from other fund families.

[flyguy]

All,

Thank you all for the replies and great advice. It's alot to digest so I'll get right on it! Really relieved to hear that this is a common problem. I took a bath in 2008 and I'm just nervous about losing my butt again. I want the most conservative portfolio available (aside from the PP) so I'll get right to researching what that will be. My program is with Schwab and they have a "select list" of no load, no transaction fee funds. There are hundreds so this will take awhile! Thanks again...

[Ad Orientem]

Addendum to my previous comment; I'm really not comfortable with PRPFX which has too much of an inflation bias. If you are looking for a very conservative low cost fund you might take a look at VWINX if it's available through your 401K. But you would need some kind of inflation hedge on the side. Ultimately though I don't think you will go horribly wrong with a basic Boglehead portfolio...

60% in a low cost - high grade intermediate term bond index fund
30% in an S&P 500 index fund
10% in an international stock market index fund

There will inevitably be a bit more near term volatility than what you get with the PP, but just grit your teeth and force yourself to tune out the financial news. And of course you can (and should) add at least a little gold outside of your 401K.

[flyguy]

I've been reading for a few years about a "bond bubble". Do you feel that this is the case with bonds? If it is, what is truly safe? I believe stocks are due for a major correction, and our currency is at risk of collapse due to abuse by our govt and the Fed. In my tiny brain that leaves only gold as a reasonably safe place to store wealth. However gold's volatility and manipulation worry me also. I was a hard assets guy after 2008, but it's gotten me nowhere and I've missed out on so much upswing. Just want to make sure I make the right choices from here on out.

[Stunt]

flyguy - I'm similar to you, took a bath on stocks but was mostly invested in a 70/30 passive portfolio. I started buying hard assets in 2009-2010 after finding out how fragile the financial system was/is. PP was a good way to prevent me from buying too much gold/silver and prevents me from trying to time the market. The hardest part is watching the individual components drop and wanting to put all your capital into the rising asset. Although my guesses for the next component to rise have been wrong, so it works in that respect. Just look at the end result of all the components together and you should be satisfied with the performance.

[MachineGhost]

The best thing about the PP is it protects you from yourself.

[flyguy]

Wow, thanks for putting that in perspective.

[flyguy]

For Sophie and anyone else who enjoys this stuff...

As requested, here is a complete list of all the funds available to me in my program. So far all of the stock & bond index funds I've looked at have that nasty transaction fee. I already have a large holding of physical gold bullion so I'm thinking a 3 fund portfolio of stock, bond and int stock index funds. Let me know your thoughts! Thanks guys.


Ok... How do I post 80 pages in PDF format?

[MachineGhost]

Ok... How do I post 80 pages in PDF format?

You don't need to post the whole list.  The only low-cost mutual funds are Vanguard so simply limit your selections from those choices.

[flyguy]

All of the Vanguard funds in my program have a $50 transaction fee. There are approx 400 no load, no fee funds available but I'm just not knowledgeable enough to choose the right ones. For instance, there are taxable and non taxable bond funds. I really don't know the difference. PP appealed to me because I didn't have to learn about all of this. I feel like I'm right back to square 1 now.

[Ad Orientem]

All of the Vanguard funds in my program have a $50 transaction fee. There are approx 400 no load, no fee funds available but I'm just not knowledgeable enough to choose the right ones. For instance, there are taxable and non taxable bond funds. I really don't know the difference. PP appealed to me because I didn't have to learn about all of this. I feel like I'm right back to square 1 now.

Do they have any index funds at all?

[flyguy]

Here are all the US Govt bond index funds available. Will post the stock index funds tomorrow.

BCVAX
BlackRock CoRI 2015 Fund Investor A

BCWAX
BlackRock CoRI 2017 Fund Investor A

BCXAX
BlackRock CoRI 2019 Fund Investor A

BCYAX
BlackRock CoRI 2021 Fund Investor A

BCZAX
BlackRock CoRI 2023 Fund Investor A

BONDX
Deutsche US Bond Index A

MIXIX
MainStay Indexed Bond I

SWBDX
Schwab Short-Term Bond Market

SWLBX
Schwab Total Bond Market

[Ad Orientem]

Here are all the US Govt bond index funds available. Will post the stock index funds tomorrow.

BCVAX
BlackRock CoRI 2015 Fund Investor A

BCWAX
BlackRock CoRI 2017 Fund Investor A

BCXAX
BlackRock CoRI 2019 Fund Investor A

BCYAX
BlackRock CoRI 2021 Fund Investor A

BCZAX
BlackRock CoRI 2023 Fund Investor A

BONDX
Deutsche US Bond Index A

MIXIX
MainStay Indexed Bond I

SWBDX
Schwab Short-Term Bond Market

SWLBX
Schwab Total Bond Market

This is an excellent example of the drawbacks of the 401K system. None of those funds are suitable for a PP. Your best bet is SWLBX. It's your basic total US Bond Mkt index fund. Is it ideal? No. It allows a bit too much leeway in terms of what it can hold. But it's not bad. It can serve for the bond portion of a basic Boglehead type portfolio. The other funds are to varying degrees poor alternatives. We can discuss the stock side of the portfolio tomorrow.

Merry Christmas!

[flyguy]

Merry Christmas to you as well!  So.... there are a few stock market index funds to choose from.  Looks like a good choice would be SWTSX, since it's also a Schwab fund.  Here's my question.  So I'm comparing the charts of SWTSX with SWLBX.  If owning bonds is supposed to be a hedge against stock losses, why do the 2 charts look so similar?  They both took a bath in 2008.  So what is the purpose of a simple boglehead portfolio which owns only stocks and bonds, if both will take a bath during a correction?  Sorry for the simple minded question, but I'm still learning.  Thanks...

[Pointedstick]

Merry Christmas to you as well!  So.... there are a few stock market index funds to choose from.  Looks like a good choice would be SWTSX, since it's also a Schwab fund.  Here's my question.  So I'm comparing the charts of SWTSX with SWLBX.  If owning bonds is supposed to be a hedge against stock losses, why do the 2 charts look so similar?  They both took a bath in 2008.  So what is the purpose of a simple boglehead portfolio which owns only stocks and bonds, if both will take a bath during a correction?  Sorry for the simple minded question, but I'm still learning.  Thanks...

Whoops, looks like you just thought outside the Boglehead box. The standard response to this is that if you just wait, they'll both go up again, and you'll be fine in the long run. But then again, if you do that, and you're willing to steel yourself through big drops, then what's the point of holding bonds at all? Because if you wait long enough, 100% stocks should theoretically be fine too...

The answer is that you are entirely correct: bonds often move in sync with stocks during bad times. That's when only gold will save the portfolio. If you want a relatively smooth portfolio, stocks and bonds aren't enough alone. And that's why you're here.

Of course this doesn't help your gold-less 401k. Just do the best you can there. Honestly if you haven't put it all in a high-ER Serbian junk bond fund you're probably doing better than most 401k owners.

[Ad Orientem]

Merry Christmas to you as well!  So.... there are a few stock market index funds to choose from.  Looks like a good choice would be SWTSX, since it's also a Schwab fund.  Here's my question.  So I'm comparing the charts of SWTSX with SWLBX.  If owning bonds is supposed to be a hedge against stock losses, why do the 2 charts look so similar?  They both took a bath in 2008.  So what is the purpose of a simple boglehead portfolio which owns only stocks and bonds, if both will take a bath during a correction?  Sorry for the simple minded question, but I'm still learning.  Thanks...

2008-09 was a highly unusual event against which only cash and LTTs really held up. Though I hasten to note that both stocks and bonds began a spirited rebound in the 2nd half of 2009. Unfortunately I did not see a suitable all US Government bond fund in the list of funds you posted. SWLBX is the best available option out of the funds you listed.

SWTSX is an acceptable stock market index fund, though if you are going to run a boglehead type portfolio I would probably lean towards an S&P 500 fund if one is available. My reason is that the S&P 500 is likely to have a bit more overseas exposure, which in the absence of gold is desirable. If you have any foreign or global stock index funds available that would probably also be helpful.

It is important to remember that unless you are going with an all cash portfolio, you are not going to be able to eliminate short or intermediate term volatility. That means you will have the occasional down year. Even the PP has it's moments. But I still affirm that a boglehead type portfolio is probably your best 2nd choice when the PP is just not a viable option. Such appears to be the case here.

As Craig is often fond of saying, don't let the perfect become the enemy of the good.

[Ad Orientem]

Merry Christmas to you as well!  So.... there are a few stock market index funds to choose from.  Looks like a good choice would be SWTSX, since it's also a Schwab fund.  Here's my question.  So I'm comparing the charts of SWTSX with SWLBX.  If owning bonds is supposed to be a hedge against stock losses, why do the 2 charts look so similar?  They both took a bath in 2008.  So what is the purpose of a simple boglehead portfolio which owns only stocks and bonds, if both will take a bath during a correction?  Sorry for the simple minded question, but I'm still learning.  Thanks...

Whoops, looks like you just thought outside the Boglehead box. The standard response to this is that if you just wait, they'll both go up again, and you'll be fine in the long run. But then again, if you do that, and you're willing to steel yourself through big drops, then what's the point of holding bonds at all? Because if you wait long enough, 100% stocks should theoretically be fine too...

The answer is that you are entirely correct: bonds often move in sync with stocks during bad times. That's when only gold will save the portfolio. If you want a relatively smooth portfolio, stocks and bonds aren't enough alone. And that's why you're here.

Of course this doesn't help your gold-less 401k. Just do the best you can there. Honestly if you haven't put it all in a high-ER Serbian junk bond fund you're probably doing better than most 401k owners.

Leave my Serbian and Puerto Rican Bonds alone. 

[Mark Leavy]

2008-09 was a highly unusual event against which only cash and LTTs really held up.

Some unusual, never to be repeated event happens every 5 to 10 years.
Just sayin...