Gyroscopic Investing

Hello everyone,

I've been lurking on these for forums for the past few days, and am really interested in incorporating the permanent portfolio into my Fidelity 403(b), but I'm not sure what to do with gold.  I'm amazed at the expertise and knowldge of the people on the site.  I'm still new to this, but have read extensively the past few days, and ordered HB's book (it's on its way)!

My situation is that I'm 33, and my main retirement is throught an employee pension plan that is mandatory (state employee).  I have no control over this portion.  In addition I am contributing to a 403(b) with fidelity.

I was planning to change the 403(b) to a permanent portfolio.  After reading the posts on this forum and the website. 
I saw previous topic about the PP using Fidelity options - 25% FSTMX (stocks), 25% FLBIX (bonds), 25% FSBIX (cash). 

My question regards the gold portion.  I was initally planning on buying gold coins and storing them at my house, which I know would be the best option.  However, I already am contributing to 2 retirement plans, which by my calculations should be more than enough.  So I don't want to contribute even more, and also, it seems like taking the time to buy and store gold gets away from what I really want to do with my retirement, is to "set it and forget it" (with occasional rebalancing)

I don't really see a good option in my available funds.  I see FINPX (Fidelity Inflation-Protected Bonds) which invests mainly in TIPS.  I've read the gold FAQ and other multiple websites that are mostly against using TIPS as infaltion protection, but I'm wondering if it is the best choice available.  I don't have the option of any of the gold ETFs (IAU, GLD, GTU, etc.) in my available funds.

Available fund are here: https://www.mysavingsatwork.com/taxexem ... ts/ZAF.pdf

Sorry for the long post, but in the end my question is, should I just go ahead with 25% FINPX since its the best available option, or maybe do 30/30/20/20 instead, or just not the permanent portfolio and stick with a more standard stock/bond/MM portfolio.

I can provide additional information that you need.  Thanks everyone!

These problems are very common for people starting out in PP.  Most retirement funds don't have a gold option...ditto for long term bonds, so this is something I think almost everyone who uses PP has to deal with. 

Slam08 wrote: should I just go ahead with 25% FINPX since its the best available option

No!!!  Inflation protected bonds are not an adequate substitution for gold for many reasons.  

Usually I'd say do the best you can with you have to work with, but I think in this case you'd be better off contributing less to your retirement plan and just using the extra money to buy gold coins.

Slam08 wrote: 25% FLBIX (bonds

Careful with this.  The average maturity of these bonds seems to be around 10 years.  "It normally maintains a dollar-weighted average maturity of 10 years or more."  You really want to stick to long term bonds (as close to 30 as you can get).  You'll see why when you read the book.  

My advice to you is to use your Fidelity funds for the cash and stock portions only.   I would probably hold long terms bonds and gold in another account, even if it was taxable (although I'm curious to hear what others think about this idea).  You could also open a Roth IRA and try to start holding as many long term treasuries there as you can, but this is obviously income dependment (if you make too much you can't use a Roth).  Might be nice though...if you have it, you could still get $5000 in for last year and then $5000 for this year, if you do it before April.  

Lastly--see what your government pension holds.  Maybe you have some exposure to some of these assets there (although I have no idea what a pension fund for a state employee may hold).  

Whatever you do, make sure you are comfortable with whatever instrument you choose to hold the various assets.  You have to have confidence in your portfolio so that you don't second guess it.  Helps you relax.  That's why I'd sacrafice some tax efficiency for safety (and function) when it comes to gold (which many of us have to hold in taxable accounts) and long term bonds (which are also not often available in retirement accounts).

Good luck!!

As you will see when you read the book, the PP works due to the specific choice of four assets and how they relate to macro-economic conditions.  Staying true to the prescribed assets is essential.  IMO expenses, tax efficiency, and convenience need to be lower priorities.

As you found, the Fidelity Spartan funds are great for cash and stocks.  IMO their long term bond fund is not ideal but is an acceptable compromise.  Fidelity has no appropriate gold fund.

If I were in your shoes I'd start maxing out a brokerage IRA every year.  If that means contributing less to the 403b so be it.  The IRA can hold assets that Fidelity accounts can't, namely gold and true long term bonds.  If you can't get to 4x25 that way, I'd hold the "overflow" assets in a taxable brokerage account, or gold coins as Adam1226 suggested.  Yes you will pay some taxes but that is less of a threat than watering down one of the PP assets.

If you're totally opposed to taxable options, then I would build the biggest PP you can, and invest the remaining balance using a different conservative strategy, such as Asset Manager 30%, a 30/70 lazy index fund portfolio, or intermediate treasuries.  I would see that as a temporary measure until you leave your employer and rollover into an IRA invested as a true PP.

Hi Slam, welcome!

Let's definitely forget TIPS here.  They simply don't form a proper substitute for gold and cannot stabilize the remainder of the portfolio.  TIPS can protect themselves from inflation but they can't protect the rest of the portfolio.

Another option you mentioned was not doing the Permanent Portfolio.  That one is easy but makes me very sad, so let's skip it for now.

Does your 403b offer a "brokerage window" or "self-directed account"?  It's perhaps a long shot but a lot of 401k plans do offer these without people being aware of them.  If you have this, you are in great shape.

Contribute as much as you can to IRAs every year, since this will give you complete flexibility going forward.

For long-term bonds, Adam is right that FLBIX isn't as good as TLT.  If you are really stuck here, though, I wonder if this might work okay.  l82start assembled some information that shows an average duration of 12.8 for FLBIX vs 14.96 for TLT.  Hmm.  The TLT is clearly much better but for your situation, the FLBIX might be worth considering further.  My gut is that it's weaker but might still work okay.  I'm curious whether anyone else is using it.

Without the ability to buy one of the gold ETFs, physical gold is your remaining option (and Harry Browne's recommendation.)  In order for you to do the Permanent Portfolio, I don't think that there is much alternative but to purchase physical gold and secure it in a safety deposit box or the nearest desert island, depending on your preferences.  I'd say that your best option is to simply try to save enough money outside of your retirement accounts to purchase the coins that you need.

But look for that self-directed account if you've got one!  That alone would save your bacon here and suddenly make things very easy.

Thanks everyone!

Adam1226:

I really need to do some more research, and read the book.

I'll stay away from the FINPX! 

Thanks for the warning about the FLBIX, I'll take a closer look at it after I read the book.  I don't really understand why the age matters so much (yet).

I'm not eligible for a Roth IRA, otherwise I would be all over that!

The state pension doesn't really seem to matter.  I get a guaranteed 6% back off of my contribution & employer match.  No matter how well or poorly they invest my funds.  There are pro's and cons to this. Big Pro-I get to invest the equivalent of 15% of my salary (8% me, 7% employer) with no limit, so this is a hefty sum, well above the $16,500 max in other accounts.  Con - I think I could get more than 6% with the PP 

KevinW:

I'm really thinking that it may end up being best for my sanity to get a brokerage IRA.  I really have to read about my options more thoroughly.  I just started paying attention to my financial situation 6 months ago.  I've paid off my credit card debt and other high interest debt, and am now focusing on retirement and net worth.  I wish I would've done this 10 years ago!

LoneWolf:

I've become enamored with the PP after doing research, and I would be sad to be unable to do it.

What do you mean by "self-directed account"? My fidelity 403(b) is "self-managed".  I get to pick my choice out of the available funds, but also bear the responsibility of losses.




After thinking about it some more, I think my best bet may be to abandon the fidelity 403(b) and use a different retirement vehicle to get a better PP and live "happily ever after" haha.  This is a noob question, but if I did abandon the 403(b) - what would you recommend as a "self-directed account"?  I'm going to look up more options when I have the time later tonight...

A "self-directed account" or "brokerage window" is a feature of many 401k plans.  I do not know if such a thing exists in 403b plans, but if it does, great!  All of your problems are solved.

Basically, a "brokerage window" offers you the chance to pick virtually any stock or ETF that you like while still keeping the tax deferral benefits of a 401k.  If you want to buy an ETF like VTI or TLT or GLD or IAU or SHY, you can do so.  The flexibility that a brokerage window provides makes it super-easy to keep your portfolio nicely balanced.  My wife and I both have this option in our 401k plans but it didn't exist at my wife's previous employer (nor at mine.)  And at my current employer, almost nobody knows it exists or bothers to use it (even when I mention it.)

Failing that, maxing out your IRA contributions will swell your tax deferred space nicely over time.

Your remaining money would be put to use in normal taxable accounts.  This could be a plain-jane brokerage account with Vanguard or Fidelity or it could be a pile of gold coins that you secure in a dark barrow or ancient haunted castle.

Glad to hear that you have Harry Browne's "Fail-Safe Investing" on the way.  It's wise investing distilled down to its core.  Also, we'll be happy to help out with any questions you have.

The only fund that comes close is FSAGX, Fidelity Select Gold Fund.  Since your choices are limited, I would use that as the other 25% of your PP.  It seems to have a mix of mostly gold along with some small amount of silver and possibly mining stocks.

It's not perfect, but it should give you the inflation protection of gold in your PP.

Good luck!

Fidelity offers trading Gold only in IRA accounts.  It's described at -

http://personal.fidelity.com/products/t ... Gold.shtml

BobS wrote: Fidelity offers trading Gold only in IRA accounts.  It's described at -

http://personal.fidelity.com/products/t ... Gold.shtml

That is good to know! Looks like the commission isn't that bad, either. 2.9% at the worst, according to the PDF at your linked page. When combined with with the storage fee, it sounds like an ok option if one's space for gold is only within an IRA.