% of gold asset in ETF or CEF for rebalancing purposes

Discussion of the Gold portion of the Permanent Portfolio

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pugchief
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by pugchief » Fri Jun 14, 2019 4:41 pm

Is AAAU trading commission-free anywhere?
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by sophie » Sat Jun 15, 2019 8:52 am

LittleDinghy wrote:
Fri Jun 14, 2019 9:31 am
So, it sounds like for the PP, the recommendation is to keep about 36% in physical gold in a taxable account, and a corresponding 64% in one or more ETFs in tax advantaged accounts. And from reading other posts in the gold forum, given that my wife and I are getting close to retiring (8-1/2 & 3-1/2 yrs away, respectively), the best type of tax advantaged account for us to use for the ETFs are our Roth accounts. Am I reading the advice correctly?

Of course the percentages above need to be modified a bit since we've decided to use more of a GB than a PP.
It doesn't have to be that precise, but it sounds like a good plan.

Because gold doesn't generate dividends, it's not a great use of Roth space. I do like it for tax-deferred accounts. Anything coming out of those gets taxed as ordinary income, so for most it's not worse than paying collectibles tax. This isn't the case for stocks, which get terrible tax treatment in those accounts. Ideally I want my Roth to make insane gains in the long term and my tax-deferred account to shrivel up and die. So I pack my Roth, HSA, & taxable accounts with stocks, and prioritize gold, cash, and bonds (about in that order) for tax-deferred.
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by LittleDinghy » Mon Jun 17, 2019 11:31 pm

My apologies for my probably poor way of writing the following. This is all so new to me that everything is not clear enough yet for me to be able to write about it well.

Our in-service 401k, SSP (Employer supplementary savings plan), 403b, 401a, and 457b do not contain treasury funds, or even good equivalents; the best choices for these accounts are the equities. We have most of our 25-30 year T-bonds and our cash (1-3 year T-notes and T-bills) in rollover IRAs that I've created by rolling over a 401k from a previous employer as well as by rolling over what I didn't need for equities in the current 401k (which latter allows partial in-service rollovers). We had some money in 2 Roths (his and hers). There is no way to get more money into her Roth, but in 2018 I started adding money to my Roth by rolling over both after tax deposits, as well as pre-tax deposits (up to my marginal tax rate ceiling), into my Roth, and I plan to continue such Roth conversions each year until I retire at the end of 2022. One of the Roth accounts is partially in equities (to make up the rest of the equity position for the whole Portfolio). The rest of that Roth and all of the second Roth are presently in long term Treasuries to make up the remainder of the whole Portfolio's long term treasuries position. So, all of that makes up the equity position, the 25-30 year treasury position, and most of the cash position. I made the conversion to all of the above in the last 2-3 weeks. What is left and not yet invested is the brokerage account. I was intending to cash out enough of the brokerage account to buy the full gold position in physical gold. The remainder left in the brokerage account would be in T-bills, rounding out the full cash position. I should also mention that I'm doing a nearly pure GB, rather than the PP, so the equity position is 40%, with the bonds 20%, cash 20% and gold 20%.

Now, with the advice I'm seeing here, it seems I should instead have, 20-40% in physical gold and 60-80% in funds (sounds like AAAU is preferred over Schwab's and Fidelity's commission-free gold fund options, despite the relatively small overall holdings in AAAU implying less liquidity than the others if selling of shares for rebalancing were required). So it seems to me that I need to decide whether to prioritize the portion of our Roth accounts after equities for gold (AAAU or other funds), long term treasury bonds, or cash (1-3 year treasury notes). Remember from the above that it seems we have no choice but to place our equities in our active 401k, SSP, 403b, 401a, and 457b.

Your thoughts on what to put in our Roths, given the limitation for where we can put our equities, would be much appreciated!

Also, one other concern. Despite mentioning in several spots that it might be a good idea to hold some of one's gold in funds for ease of rebalancing, the book, "The Permanent Portfolio" really seems to emphasize that gold should primarily be held in physical. Yet, thinking about three consecutive gold rebalancings leads one to primarily hold gold in funds. What is the reasoning that one can use to resolve this dichotomy one way or the other?
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by pmward » Tue Jun 18, 2019 9:36 am

LittleDinghy wrote:
Mon Jun 17, 2019 11:31 pm
My apologies for my probably poor way of writing the following. This is all so new to me that everything is not clear enough yet for me to be able to write about it well.

Our in-service 401k, SSP (Employer supplementary savings plan), 403b, 401a, and 457b do not contain treasury funds, or even good equivalents; the best choices for these accounts are the equities. We have most of our 25-30 year T-bonds and our cash (1-3 year T-notes and T-bills) in rollover IRAs that I've created by rolling over a 401k from a previous employer as well as by rolling over what I didn't need for equities in the current 401k (which latter allows partial in-service rollovers). We had some money in 2 Roths (his and hers). There is no way to get more money into her Roth, but in 2018 I started adding money to my Roth by rolling over both after tax deposits, as well as pre-tax deposits (up to my marginal tax rate ceiling), into my Roth, and I plan to continue such Roth conversions each year until I retire at the end of 2022. One of the Roth accounts is partially in equities (to make up the rest of the equity position for the whole Portfolio). The rest of that Roth and all of the second Roth are presently in long term Treasuries to make up the remainder of the whole Portfolio's long term treasuries position. So, all of that makes up the equity position, the 25-30 year treasury position, and most of the cash position. I made the conversion to all of the above in the last 2-3 weeks. What is left and not yet invested is the brokerage account. I was intending to cash out enough of the brokerage account to buy the full gold position in physical gold. The remainder left in the brokerage account would be in T-bills, rounding out the full cash position. I should also mention that I'm doing a nearly pure GB, rather than the PP, so the equity position is 40%, with the bonds 20%, cash 20% and gold 20%.

Now, with the advice I'm seeing here, it seems I should instead have, 20-40% in physical gold and 60-80% in funds (sounds like AAAU is preferred over Schwab's and Fidelity's commission-free gold fund options, despite the relatively small overall holdings in AAAU implying less liquidity than the others if selling of shares for rebalancing were required). So it seems to me that I need to decide whether to prioritize the portion of our Roth accounts after equities for gold (AAAU or other funds), long term treasury bonds, or cash (1-3 year treasury notes). Remember from the above that it seems we have no choice but to place our equities in our active 401k, SSP, 403b, 401a, and 457b.

Your thoughts on what to put in our Roths, given the limitation for where we can put our equities, would be much appreciated!

Also, one other concern. Despite mentioning in several spots that it might be a good idea to hold some of one's gold in funds for ease of rebalancing, the book, "The Permanent Portfolio" really seems to emphasize that gold should primarily be held in physical. Yet, thinking about three consecutive gold rebalancings leads one to primarily hold gold in funds. What is the reasoning that one can use to resolve this dichotomy one way or the other?
One thing to remember is that these things do not need to be perfect. There is some flexibility in the system. This is supposed to be a simple system, not a complicated one. We humans have this natural tendency to want to just complicate the hell out of everything. There's not much benefit in over complicating the PP. None of us have a perfect portfolio. We all have constraints that cause us to have to deviate from utopia in one way or another. It's ok, it's the fundamental principles that matter more than the tiny micro details. Don't overcomplicate things to the point that they are unmanageable, doing so is going to be a whole lot of work that is not likely to improve your return much. Good enough is really good enough.
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by LittleDinghy » Tue Jun 18, 2019 11:11 pm

pmward wrote:
Tue Jun 18, 2019 9:36 am
One thing to remember is that these things do not need to be perfect. There is some flexibility in the system. This is supposed to be a simple system, not a complicated one. We humans have this natural tendency to want to just complicate the hell out of everything. There's not much benefit in over complicating the PP. None of us have a perfect portfolio. We all have constraints that cause us to have to deviate from utopia in one way or another. It's ok, it's the fundamental principles that matter more than the tiny micro details. Don't overcomplicate things to the point that they are unmanageable, doing so is going to be a whole lot of work that is not likely to improve your return much. Good enough is really good enough.
Thank you for your kind remarks. But I still feel the need for guidance on my questions, which I'll try to state more clearly here:
1) Where should I put the gold funds and 25-30 yr T-bonds? Should I place the gold funds in Roths and 25-30 yr T-Bonds in rollover IRAs? Or should I place the gold funds in the rollover IRAs and the 25-30 yr T-bonds in the Roths? Recall that my equities are all in employer sponsored tax deferred accounts (401ks and the like) because there are no treasury funds or substitutes.
2) If I'm putting 60-80% of my gold in funds for rebalancing purposes (in the event of 3 consecutive gold rebalancings), does AAAU really make sense? Right now it has low total assets, $104.7M, compared to IAU, $11.8B (commission free at Fidelity), and even compared to GLDM, $693.3M (the commission free gold fund at Schwab). I'm wondering if lower total assets will make selling more difficult when rebalancing is required.
3) Despite mentioning in several spots that it might be a good idea to hold some of one's gold in funds for ease of rebalancing, the book, "The Permanent Portfolio" really seems to emphasize that gold should primarily be held in physical. Yet, thinking about three consecutive gold rebalancings leads one to primarily hold gold in funds. What is the reasoning that one can use to resolve this apparent contradiction one way or the other?

Thank you all!
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Re: % of gold asset in ETF or CEF for rebalancing purposes

Post by pmward » Wed Jun 19, 2019 9:40 am

LittleDinghy wrote:
Tue Jun 18, 2019 11:11 pm
pmward wrote:
Tue Jun 18, 2019 9:36 am
One thing to remember is that these things do not need to be perfect. There is some flexibility in the system. This is supposed to be a simple system, not a complicated one. We humans have this natural tendency to want to just complicate the hell out of everything. There's not much benefit in over complicating the PP. None of us have a perfect portfolio. We all have constraints that cause us to have to deviate from utopia in one way or another. It's ok, it's the fundamental principles that matter more than the tiny micro details. Don't overcomplicate things to the point that they are unmanageable, doing so is going to be a whole lot of work that is not likely to improve your return much. Good enough is really good enough.
Thank you for your kind remarks. But I still feel the need for guidance on my questions, which I'll try to state more clearly here:
1) Where should I put the gold funds and 25-30 yr T-bonds? Should I place the gold funds in Roths and 25-30 yr T-Bonds in rollover IRAs? Or should I place the gold funds in the rollover IRAs and the 25-30 yr T-bonds in the Roths? Recall that my equities are all in employer sponsored tax deferred accounts (401ks and the like) because there are no treasury funds or substitutes.
2) If I'm putting 60-80% of my gold in funds for rebalancing purposes (in the event of 3 consecutive gold rebalancings), does AAAU really make sense? Right now it has low total assets, $104.7M, compared to IAU, $11.8B (commission free at Fidelity), and even compared to GLDM, $693.3M (the commission free gold fund at Schwab). I'm wondering if lower total assets will make selling more difficult when rebalancing is required.
3) Despite mentioning in several spots that it might be a good idea to hold some of one's gold in funds for ease of rebalancing, the book, "The Permanent Portfolio" really seems to emphasize that gold should primarily be held in physical. Yet, thinking about three consecutive gold rebalancings leads one to primarily hold gold in funds. What is the reasoning that one can use to resolve this apparent contradiction one way or the other?

Thank you all!
1) Until you are able to roll your 401k over after you retire, I would personally put the bonds in tax deferred and gold in Roth. This simply because you will want the bonds in tax deferred both before and after retirement. But it probably doesn't matter to be honest. Just do whatever you gotta do to get your allocation as close to your desired percentages as possible.

2) You're over thinking this. I wish they hadn't mentioned the mix and rebalancing thing. If you want to be super anal you can go that route. Or you can go all physical or all ETF. I mean these things really don't matter all that much. You're not going to be selling often so I wouldn't worry about the spread in AAAU. AAAU is still a very new ETF, by the time you actually need to do a rebalance it will have more assets under management / liquidity. It's an ETF, like GLDM, that is meant for buy and hold. The ER matters much more than liquidity for a long term hold.

3) The book did mention that things should be primarily held physical, and physical is a great way to hold gold. But the point we were getting at is that AAAU is "as good as gold" because it is an ETF that can be exchanged in kind for gold that is allocated and backed by the government of western Australia. This ETF did not exist at the time of the book. If it had, it is possible that their recommendations may have been stated differently, especially considering that a .18% ER is SO much cheaper than physical for anything other than a lifetime hold. Their main concern in the book with ETF's was safety. But I think AAAU checks all the boxes for safety. I think it's just as safe as a Perth Mint unallocated account at the end of the day. It's your choice. Don't overthink these things. Just do whatever is easiest and safe enough for you to sleep at night. Diversity in holdings isn't bad either, some physical, some AAAU, some in an unallocated account somewhere, etc can work, but it adds complexity. Don't complicate these things to the point that you will not comply with the rules. Simplicity is usually best, and this is a trait that Harry personally spoke a lot about that has kind of gotten lost in the book and on these forums. Harry routinely chose simplicity over optimization.
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