Gyroscopic Investing

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Investing at your age is worth far more than trying to play catch up with larger contributions when you're older.  Don't hesitate.

The PP strategy is not about what happens to any one of the assets.  Over your investing life, one or more of the assets is bound to suffer losses, maybe even substantial ones.  But that's not important, because the entire portfolio will act to minimize losses while providing respectable gains.

Do you think that tax rates are going down? Do you think that you'll be paying less 10, 20 or 30 years from now? If not, then a Roth IRA is a no-brainer.  Not only are you paying taxes now when rates are low, but you'll pay zero tax on the 40+ years of interest, dividends and capital gains that will accrue.  Will the government pull the plug and tax that stuff anyway when you make disbursements? Who knows? But that would bring a political death sentence for any politician who proposed such a move.

Physical gold is more expensive than other methods of gold investment.  It  may seem odd to closely monitor one's investment expense ratios and then plunk down 4-5% over spot gold, not to mention paying extra for personal insurance, storage, shipping, redemption costs, etc.  Then again, the physical gold play is not about lower costs.  It's about lowering perceived risk associated with "paper" gold funds or intermediaries handling your allocated gold holdings.  There's no "correct" answer to your question.  Do what makes sense to you, which may involve owning gold in more than one way.

Have we dealt with this "mentally"?  Not sure what you mean, but let's just say that the PP offers more peace of mind than many alternative strategies. And it increases your chance of sticking with the program long enough to benefit from the long-term gains that have historically been associated with the approach.

Definitely open up a Roth with some of your funds.  That's an easy decision.

I would not treat each retirement account as a separate PP.  No reason to do that.

I think that when you are just starting out a gold ETF is okay, so long as you know what you are buying (tax treatment, etc.).  However, I would strongly encourage you to buy at least one gold coin.  Most people have never and will never own any physical gold.  I think it's important to begin bulding an understanding of gold, what it represents, how it works, etc.  You will understand what I mean when you have owned your coin for a while.

As for the mental aspects of the PP, i have written many posts on this topic.  It just takes time to get acclimated to it, but once you get there it can be quite liberating.

Make sure the PP is for you, but if it is I think you will be quite pleased with your decision to adopt the strategy.

LGrand85 wrote: It seems like a lot of practical issues come up with implementing the 4x25 PP, even though the theory sounds incredible. Overall, how have you guys mentally dealt with these issues?

You have to be comfortable with the "mights."  The gold ETF you pick might rip you off, your home safe might get robbed, the government might confiscate your IRA.  Identify the risks, do your best to mitigate them with the resources and investment vehicles available, and if you make a mistake and somethings goes wrong, own it, learn from it, and rebalance what's left and move on.  

"A man, who had a great reputation as a tree climber, made it a rule, whenever he sent anybody up a tall tree to cut twigs, to keep silence as long as the latter appeared to be in danger, but when he was coming down and had got about to the level of the eaves of a house, he would call out: "Do not slip!  Be careful how you come down!"

Somebody asked: "Why do you say that, for he has now descended so far that he can jump?"  And he answered: "It is for this reason.  When he was giddy with being on a dangerous branch, I did not speak, for he was sufficiently frightened himself.  But when he had reached a safer position, he was far more likely to slip."

Though this was a common low-class man, his teaching was in accordance with that of the sages."

(MT posted this in the "Other Discussion" forum).

If you're thinking about all of these issues (the possiblity of fraudulent gold ETF's, the possiblity of IRA confiscation, etc) you're exercising the caution of the guy who is up high in the tree.  You're probably not going fall, and you're going to be much better off than the guy lower down who's not paying attention.

LGrand85 wrote:
1) I am worried about putting my money into retirement/tax-free accounts. It feels like my money is "locked up" and what if the US government decides to kindly extend the retirement age back and back or makes new taxes on these accounts or seizes the money somehow? I just feel like my libertarian bent makes me weary of trusting the government with my money... anyone experience such thoughts?

I'm 40 now, and my only thought on this is that I would have loved to have been able to put money in a tax-deferred account at age 25. I'd be that much better off today.

dualstow wrote:

LGrand85 wrote:
1) I am worried about putting my money into retirement/tax-free accounts. It feels like my money is "locked up" and what if the US government decides to kindly extend the retirement age back and back or makes new taxes on these accounts or seizes the money somehow? I just feel like my libertarian bent makes me weary of trusting the government with my money... anyone experience such thoughts?

I'm 40 now, and my only thought on this is that I would have loved to have been able to put money in a tax-deferred account at age 25. I'd be that much better off today.

Many 40 year olds will tell you that much of the money that they may have saved at age 25 was long ago lost to bad investments, performance chasing, too much risk, etc.

If you are able to learn this lesson at age 25, I think you will be much happier at age 40 than if you took the path many 25 year olds take of learning hard and expensive investment lessons one bad investment at a time.

I don't think people become more conservative in their investing as they get older because of their shorter time horizon.  I think they simply start doing at age 40 or 50 what they wished they had been doing at age 18.

MediumTex wrote:

dualstow wrote:

LGrand85 wrote:
1) I am worried about putting my money into retirement/tax-free accounts. It feels like my money is "locked up" and what if the US government decides to kindly extend the retirement age back and back or makes new taxes on these accounts or seizes the money somehow? I just feel like my libertarian bent makes me weary of trusting the government with my money... anyone experience such thoughts?

I'm 40 now, and my only thought on this is that I would have loved to have been able to put money in a tax-deferred account at age 25. I'd be that much better off today.

Many 40 year olds will tell you that much of the money that they may have saved at age 25 was long ago lost to bad investments, performance chasing, too much risk, etc.

If you are able to learn this lesson at age 25, I think you will be much happier at age 40 than if you took the path many 25 year olds take of learning hard and expensive investment lessons one bad investment at a time.

I don't think people become more conservative in their investing as they get older because of their shorter time horizon.  I think they simply start doing at age 40 or 50 what they wished they had been doing at age 18.

+1

LGrand85 wrote: Am I overthinking this?

Yes.

When you actually get started, most of your questions will become self-answering.

I have traditional IRAs, Roth IRAs, 401(k) accounts and taxable accounts.  It's no problem.  You just cobble it together based upon your own particular situation.

Don't seek perfection.  Just get as close as you can to the broad strategy.

Welcome LGrand!  Congratulations on your early start with investing.  Your older self will thank you for it.

LGrand85 wrote: 1) I am worried about putting my money into retirement/tax-free accounts. It feels like my money is "locked up" and what if the US government decides to kindly extend the retirement age back and back or makes new taxes on these accounts or seizes the money somehow? I just feel like my libertarian bent makes me weary of trusting the government with my money... anyone experience such thoughts?

A little, but I mostly consider this to be an "extreme" scenario.  It's definitely a reason to keep the vast majority of one's gold holdings outside of tax-deferred accounts.  (It's yet another argument for physical gold.)

Ultimately, you have to balance this against the opportunity cost of not taking advantage of such accounts.  This would be a considerable cost in itself.  Just make sure that you would not be completely vulnerable to the government "going feral" to the extent where it practiced outright confiscation like this.

LGrand85 wrote: 2) I was thinking about doing $10k into my Roth IRA and then using that for long term bonds, but I am worried that if LT bonds crash this account will be hard to build back up over time. I read some people grappling with this issue as well, is it bad idea to just make each retirement account its own PP?

I admit that I still occasionally worry about this sort of thing from time to time.  I would not make each account its own PP, though.  It's of course okay to hold more than one type of security in an account if that is convenient for you.

LGrand85 wrote: 3) Which site is best so sign up for Roth IRA to use for a PP? So many brokers out there, not sure yet but seems that Gold is the hardest part to implement? Fidelity, Schwab, etc. all seem like good choices, but having trouble pulling trigger without realizing what I'm trading off

Vanguard gets great reviews and has a wonderful collection of funds.  I use Fidelity and have been pleased as well.  Fidelity also provides free trades on individually-purchased US Treasury securities (T-bill, Treasury Notes, Treasury Bonds, etc.)  I believe that your account may have to meet some size minimum but I do not recall what it is.  You have a lot of good options.

LGrand85 wrote: 4) Has anyone purchased LT bonds using treasury direct?

I have not.  The reason that I did not do this is that the process of selling these bonds on the secondary market via Treasury Direct looked expensive and complex.  I recall it being something like $40 to sell.  I can do the same thing for free on Fidelity so I didn't see much reason to do this.

I do use Treasury Direct to purchase I-series savings bonds, though.  It's great for that.  It should also be good for individual Treasury Bills or Notes that you wish to hold to maturity.  (I do those in Fidelity just for convenience\consolidation.)

LGrand85 wrote: 5) Does buying physical gold even make sense given how big the bid-ask spread is and security/storage costs? Do ETFs make sense given all the talk about unallocated gold and conspiracy theories about the structure of these ETFs? I am scared to hold gold in my house and don't trust banks to hold it for me, conundrum!

I think we all continue to struggle with this.  Using a variety of methods might make sense.  One chunk in a safe deposit box.  One chunk in an ETF.  One chunk in another safe deposit box.  One chunk in a huge labyrinth guarded by an enraged minotaur.  You get the idea.

As for costs, it's worth spending a little time calling your local coin shops and asking about their prices on bullion coins.  Krugerrands have the lowest premium above spot, usually, so that is a good basic coin to ask about.  I've gotten quotes as good as 3% above spot for an extremely reputable local coin dealer.

It can take a little time to get comfortable with this process, just like anything else.  Ask away in the forums if you have questions about how these things work.  My heart was pounding the first time I was getting ready to buy but it all really clicked for me once I got to the shop.
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LGrand85 wrote: It seems like a lot of practical issues come up with implementing the 4x25 PP, even though the theory sounds incredible. Overall, how have you guys mentally dealt with these issues?

Most of these practical issues occur around gold in my experience.  Are there some others that you're struggling with?

As an example, my parents wanted to implement a Permanent Portfolio but also wanted things to be as simple as possible.  We chose four funds that fit the 4x25 profile, placed the ones with the most interest and dividends in the tax-deferred accounts, and it was all settled.

MediumTex wrote:

LGrand85 wrote: Am I overthinking this?

Yes.

When you actually get started, most of your questions will become self-answering.

That's absolutely true.  Rebalancing is a relatively rare occurrence, and it's not the end of the world if you're not exactly 25% x 4. 

Congratulations.

You will find that it looks a lot different from the inside looking out than the outside looking in.

Now just let it do its thing.  You will be tempted to tinker from time to time.  Just try to resist this urge as much as possible. 

Congratulations on the courage to jump in. None of us underestimate how difficult it is to get started, because it inevitably involves putting 25% or more of money that is precious to you into an asset that you, the press, your mom, and people whose opinion you value very highly, want nothing to do with at its price. It took me almost a year to feel completely comfortable, going through a cycle of adding to each asset during their valuation fluctuations. Good luck, and continue using this forum--- it is priceless.

LGrand85 wrote: I appreciate all the thoughts/advice guys.

I am still having trouble wrapping my head around how to use my Roth IRA (not interested in doing a regular IRA) and balancing things over time. Let's say my Roth IRA I fill up with $10k in LT bonds in a Fidelity account. If I need to re-balance, how does it work? if the bonds went up then I sell them off, but I can't take that money out of the account. If the bonds went down and I need to add more money, I sell off a leg that went up and then add back into the account? I feel like there will always be a mismatch between maxing out the Roth IRA each year and making sure I still to the right allocations.

Am I overthinking this?

Perhaps it will be useful if I explain what I've done to implement the PP since I'm at least in your age category, and probably have a like financial picture.

Step one: Open the ROTH IRA and fund it as you can.  It's too good to pass up hence the yearly contribution limitations.  Also, with a Roth you can always withdraw the principle invested without penalty, so it acts a savings account as well as a retirement account.  Forget I said that as soon as you are able.
I use my ROTH in the following manner:  holdings in total stock market such as VTI, long bonds like TLT, a dab of cash, and a sprinkle of gold for rebalancing.  Since my IRA is modest my setup is thus: VTI 25%, TLT 25%, 15% MM (10% at a local Credit Union), 15% in GTU and the rest in 1 oz. gold Eagle coins.

Optional Reading on my experience with gold bullion:

Do yourself a favor and go buy a real, tangible gold coin.  If you can’t afford 1 ounce I would even recommend buying the ½ or ¼ oz. Yes, there’s a fee, but over the course of 30+ years that amounts to nothing vs. holding all your precious metal in GLD, IAU or even GTU.  Even though it’s hard on a modest budget I’ve come to the conclusion that having a gold coin in the hand is worth at very least 2 in the ETF.  Furthermore, buying gold now and holding it either in a safe deposit box (est. expense +/- $15.00 annually) or in one’s home mitigates the premium paid at a local coin dealer and guarantees, should S.H.T.F, you’ve got the oldest, most universal store of value on the planet.

Resume here:

In my taxable account I find that PRPFX perfectly fits the bill for ease of use, but because of potential brokerage cost and annual fees I’m transitioning to holdings in VTI 25% and TLT 25%, with small amounts in SHY 5% and GLD 10% for rebalancing.  Then I can put 20% of my cash in the bank and use short term treasuries as the rest.  If you’ve been keeping track to this point then you’d also notice that half of my gold is in an ETF/CEF, while the other half is safe with me.

The rest is just discipline.  Put aside some amount each month and divvy it between your paper holdings, and your tangible holdings as well.

A treasure she is, beautiful as her sister, but distantly resides across the blue Red Sea.  Her sister, just as fair with gold in her grey eyes and the sun in her hair, she is near and therefore worth all the more.

-anonymous pirate on buried treasure vs. holding physical bullion

I'd say, as long as you're comfortable with the quantity of you're liquid cash funds and whatever physical gold you want (it's up to you whether you whether you consider your Roth contributions "liquid," "quasi-liquid" (this is what I like to think of it as), or "DON'T TOUCH,") you should max out your retirement accounts in what you feel is an appropriate mix between Roth & Traditional.

This is not including any "future large purchase" savings you also want to keep liquid.

Consider an HSA as well if your employer offers it and you are young and healthy.  Contributions to these are also not subject to payroll taxes.

If you do most of this within plans outside your employer plan, you should have no problem rebalancing.  You're making it too difficult if you are simply putting whatever your LTT required amount is into a Roth and then forcing yourself to contribute to rebalance into it.

For myself, given the roth distribution rules, I think of reasons NOT to put my money into tax-deferred accounts, not reasons TO put money in there.

The ordering rules are for people with limited capacity in tax-deferred accounts.

I think for most people a 6-12 month emergency fund (maybe somewhat made up of Ibonds) and some physical gold are all they need in taxable accounts, while the rest goes into HSA and Roth IRA options, followed by 401(k) if you have maxed those out... plus whatever education savings you want to put in a 529, etc.  Obviously for our older members getting a lot of wealth into a tax-deferred space isn't quite that easy.  In my scenario, Roth IRA contributions (NOT earnings) can act as a quasi-liquid form of wealth.  Not only do you get to take them out without penalty, but they come out completely tax-free as principal distributions.  It's tough to find such a flexible instrument.  Plus that Roth principal is invisible to the FAFSA Gods, and can't be taken by an ambulance chaser victim of a rear-end  car accident or by the courts in bankruptcy.

Next time your insurance guy tries to up your umbrella coverage, tell him "No thanks... I've got a roth."

One more thing... your skepticism of Roth's and the government isn't unfounded, but they are simply too flexible to ignore, and all things being equal, you have to deal with situations as they are now.  If you put LTT's in a taxable account, 15%-35% per year will most likely be taken out of your earnings in taxes each year.

- If the IRS starts taxing roth IRA distributions, it'll probably be at least at a preferred rate, and you've still deferred all the incom, and I imagine that in a world where a roth is getting taxed, tax rates are already exhorbitantly high on investment income.

- If the IRS removes the ability to remove principal, you just remove it before the law takes affect.

The IRS has really given people a pretty solid "out" because they'll probably never be able to stop your ability to withdraw SO fast that you can't get all your principal out before the law takes affect.  If you're worried about confiscation of wealth, then we've got problems no matter what.

Between your cash/gold reserves, your Roth IRA contributions, and any home equity you'd want to use (for constructive purposes), you really have a ton of flexibility if you put down a fat down-payment on your home, get your emergency fund established and some coins bought and then cram the rest into tax-deferred accounts.

Remember... monkeying with seniors' income is pretty deadly politically... By then, even relatively "middle class" people have hundreds of thousands in wealth, and vote in droves.

I can't think of too many logical chains of events that would lead to a Roth being worse than having had my wealth being nicked every year by taxes, which at that point are probably astronomical.  The roth will be a "source of revenue of last resort" by the IRS, while your taxable accounts will be a "source of revenue of FIRST resort."

I recommend Vanguard for your stock index fund and use Fidelity for Treasury Bonds. Fidelity doesn't charge a commission for Treasury transactions in the secondary market right now, while surprisingly Vanguard's Bond Desk charges a lot and has large minimums. As of this past December, TreasuryDirect no longer allows sales of Bonds anymore — you have to transfer them to a broker now. But, definitely use TreasuryDirect for I Bonds. I agree with what everyone has already said about Gold.

moda0306 wrote: Next time your insurance guy tries to up your umbrella coverage, tell him "No thanks... I've got a roth."

Be careful with that thinking.

Yes, you can take contributions out of a Roth at any time for any reason.

But you cannot put them back.

SmallPotatoes wrote:  ... I’ve come to the conclusion that having a gold coin in the hand is worth at very least 2 in the ETF. 

That's a great quote, SmallPotatoes.  From what various precious metals traders have testified and written in the past year or so, a gold coin in the hand is worth about 100 in the ETF, but that's topic for another day.