Working the PP in multiple retirement accounts - please help!

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amp
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Working the PP in multiple retirement accounts - please help!

Post by amp »

Hi Everybody - long time HB fan here, first time poster trying to figure out how to implement the PP with a variety of retirement accounts.  Not sure where to start, so I'll just lay out what we (the wife and myself) have to work with:

Traditional IRAs (Vanguard, we can switch if necessary)
1. $67k
2. $97k

Roth IRAs (Vanguard)
1. $49k (currently contributing $5k/year)
2. $49k (currently contributing $5k/year)

Thrift Savings Plan (Fed's 401k - currently contributing ~$20k/year)
1. $84k

We also have a regular money market account with about $235k in it.  So, that adds up to ~ $582k.  We plan on buying a house soon (next 12 to 24 months), which is why we have so much (%-wise) in the money market account.  Hope that's enough to go on, I'm eager to hear how you guys would approach this.

Thanks!
TBV
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Re: Working the PP in multiple retirement accounts - please help!

Post by TBV »

Don't know how much you're going to use for the PP vs. the house, so I'll offer only a general response.

--The TSP can only cover two parts of the PP well: S&P 500 stocks (The C Fund) and cash (the G Fund).  G Fund is really a great vehicle for cash because it's ultra-safe and offers a much better return than Treasury notes or money market funds.

--Your Roth IRA's are the best place to put long term US Treasury bonds because you don't want the interest payouts to be taxed. TLT is a great ETF for tracking those, or you can buy actual LT Bonds from within the Roths.

--Your regular IRA's are a good place to put stocks because any tax on the dividends or capital gains would be deferred. VTI is a fine choice for that.

--The regular IRA's would also be OK for gold, but if you're going to be investing cash, use that for gold because there are no taxable dividends to worry about and it'll be a long while (presumably) before you sell and have to pay the up to 28% tax. IAU is a great ETF for gold.  If using cash, you might also consider getting coins, or buying holdings in BullionVault.com or GoldMoney.com.

--As your TSP grows, you might shift more of your stock allocation out of any taxable VTI holdings and into the C Fund because the TSP expense ratios can't be beat.

--As your Roth accounts grow, consider putting at least some IAU and VTI in there so you can carry out periodic re-balancing without getting hit with taxable events.
Last edited by TBV on Sun Mar 06, 2011 6:06 pm, edited 1 time in total.
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KevinW
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Re: Working the PP in multiple retirement accounts - please help!

Post by KevinW »

I generally agree with the advice above, but quibble on one point.

IMO the assets to prioritize in tax-sheltered space, whether it's traditional or Roth, are:
1. cash
2. bonds
3. stocks
4. gold

If you have any flexibility after realizing those priorities and working around 401k options, one should prioritize getting high-return assets into Roth accounts instead of traditional IRAs/401ks.  Having the portfolio gains concentrated in Roth space is preferable since it's permanently exempt from taxes (supposedly).  History and common sense suggest that the assets, listed from highest expected returns to lowest, are:

1. stocks
2. bonds
3. cash
4. gold

So I would actually reverse one of TBV's suggestions and put bonds in traditional IRAs and stocks in the Roths.

Assuming the entire money market is earmarked for the house, I'd use the following allocation:

TSP: 24% G fund (cash)
IRA 1: 1% cash ETF, 18% gold ETF
IRA 2: 7% gold ETF, 21% TLT
Roth 1: 4% TLT, 10% VTI
Roth 2: 14% VTI
amp
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Re: Working the PP in multiple retirement accounts - please help!

Post by amp »

Thank you both, TBV and KevinW!  A couple of follow-up questions:

1. Is the Vanguard Long-Term Treasury Fund Investor Shares (VUSTX) a good substitute for TLT?  Charts are very similar, but appear to be diverging over the long term and I don't know why.  Is there a different Vanguard fund I could use?  Ummm, never mind... just saw another thread where KevinW answers this question.

2. What about college savings?  We have a 529 (DC529) and a Coverdell ESA with approximately equal amounts in them.  Right now they are mostly invested in S&P500, can/should I set up a mini PP with these?  Anything I need to watch out for other than the limited options in the DC529?

Thanks again for your help, this is a very informative board.
Last edited by amp on Mon Mar 07, 2011 5:54 pm, edited 1 time in total.
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Lone Wolf
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Re: Working the PP in multiple retirement accounts - please help!

Post by Lone Wolf »

Hi amp, we talk a bit about 529's and the PP in this thread.  As things stood at the time it was written, I don't think any of us had really come up with a great way to make the PP fit in any 529 plan "perfectly".

However!  The fact that you have a significant amount built up in a Coverdell gives you more flexibility.  As MT suggested in the linked thread, you could just use PRPFX in the Coverdell and be in good shape.  If you had a broad array of options for your DC 529 you might be able to construct a mini-PP by welding the Coverdell and the 529 together but from what I can tell, DC's plan doesn't have a huge number of options (not that very many 529 plans do, unfortunately.)
amp
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Re: Working the PP in multiple retirement accounts - please help!

Post by amp »

Thanks for the info.  Yes, the DC529 has very few choices and the fees are high on most of them, so I'll just have to make the best of it.
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