Implementing Gold in the Permanent Portfolio with Low Transaction Costs

[slowtraveler]

Hello,

I've been looking into the Permanent Portfolio and am wondering how do you implement the Gold piece without massive transaction costs?

Thank you.

[Kriegsspiel]

goldmart.com has had pretty low spreads. I would buy a few coins at a time to cut down on shipping/insurance though. coloradogold.com also can have deals for low spread and shipping/insurance. You can store it in a bank safe deposit box for pretty cheap, mine is about $20/year. Some people use bullion and an ETF for ease of transacting.

ETFs are barely more expensive to hold than a stock index. Physical gold does have higher transaction costs, but that's just how it is. Real estate also has high transaction costs, but can be a good investment.

[Dragline]

If you are going paper, use GLD or IAU.

[CS]

I have a mix of paper and coins. SD bullion is not bad for physical gold. Yes, you have to pay commission, but that is a one time cost. It is not an annual percentage that eats into your asset. For me, my portfolio will be growing for at least ten years, if not forever, so it is an asset that is going to stay put for a long time (no transactions costs).

SD bullion sent me an ounce of silver as a thank you gift for xmas. That was nice surprise. Felt like a high roller.

One thing to watch out for when buying physical gold is that some states will charge you sales tax, even on gold currency. (Yes, that's right, you are paying sales tax on... money.) I bought my coins last year when as a California resident - no sales tax. If I tried to do that this year as a Minnesota resident, they would charge me sales tax on the value of the gold, not the declared value (one ounce Eagles have a face value of $50).

I have mixed feelings about safety deposit boxes. There has been an unsettlingly number of seizures of people's possessions. If you get a safe deposit box, make sure you visit it at least once a year.

[CS]

Speaking of which, does anyone know what the heck happened to the crawling road website? Their tutorial on buying long term bonds on Fidelity was the bomb.

* Edit* Never mind. There is an announcement up... essentially "Blog is closed, go buy the book". Not bad advice though - it is a great book.

[vexed87]

The strategy you take depends on how much cash you are starting with and how much you contribute. Here in the UK the spread on physical can be about 5-7%, you'll only really have the option to buy in bulk if you build up large reserves of cash. My broker charges £10 per fund purchase too so I tend to acccumlate up 6 months of savings in a basic savings account before buying shares, bonds and gold. It's cheaper than drip feeding each asset class. Anyway, the book says you should build up the cash allocation to 35% before rebalancing the other assets, only stepping in when something drops below 15%.

The spread is high and it's the cost of implementing the PP. If you do keep your Phys out of the bank there's no ongoing cost to own it. The Britannia bullion in the UK is exempt of capital gains too which is a nice perk. That said you won't be selling often unless the gold allocation is making relatively large gains anyway. Most gains in gold can simply be offset by buying the other assets.

[jacob]

If I tried to do that this year as a Minnesota resident, they would charge me sales tax on the value of the gold, not the declared value (one ounce Eagles have a face value of $50).

It would be more fair to charge the tax in gold on the value of the paper (not the declared value, a dollar-note costs about 10 cents to produce). At least there should be a choice

[jennypenny]

My paper is in SGOL. IAU would be my second choice but I much prefer SGOL.

I would never keep gold in a safe deposit box. If I had no other option, I might store it with a bank through a private banking service depending on their facilities and how accessible the concierge was. Maybe.

[tylerrr]

I use IAU.

[slowtraveler]

Thank you for all the replies. It seems like etfs are more legitimate for this than I thought.

I've looked into SGOL, GLD, and IAU.

I'm leaning towards IAU since it says that each share is 1/100th an oz and has the lowest ER (.25%). The price makes the most sense when looked at as 1/100th oz*12.69/share=1269/oz I'm paying.

@ JennyPenny
On SGOL I couldn't find the prospectus but found https://www.etfsecurities.com/instituti ... -sgol-arca and based on that, they have 860,603oz of gold/8,850,000 shares outstanding = .09724oz gold/share. 126.88/share /.09724(oz/share)=1304/oz gold. This also carries a higher ER (.4%) and has been around less than IAU, why do you prefer it to IAU?

GLD: 12422607.41(USD/Basket)/9535.314 (oz gold/basket)= 1,302.80 USD/oz with a .4% ER http://www.spdrgoldshares.com/usa/finan ... formation/

Based on what I've seen, GLD tracks gold the most directly but none has a spread over .1%. This is less than the spread I'd get from selling bullion anyways.

[vexed87]

@Felipe, of course you are free to do what you wish, but I recommend you keep at least a small proportion of your gold allocation in bullion so you are guaranteed to be able to sell off at least a portion of your gold allocation should ETFs be in turmoil/temporarily closed for trading due to being short on physical to sell, etc etc. If your ETF is backed by physical and the fund fails, it may take some time to release the gold to you, or the equivalent value in cash... will you receive the value at the time you wanted to sell, or the time that the transaction completes? Delays of a few days/weeks could be critical, all the while your PP is failing because you can't rebalance when you need to the most. Roland's book makes a point of not keeping your eggs all in one basket, and they cover the counterparty/fund management risks better than I can, so refer back to that for a refresher.

ETFs are particularly good when starting out because 1oz gold made up of smaller denominations are not nearly cost effective as 1oz bullion coins. For reasons that are obvious, it's harder to rebalance the gold allocation without these smaller denominations. For this reason, I wouldn't mind using solely ETFs to start with, but personally this is not what I have done. While collapse of the ETF is unlikely, it's not beyond the realm of possibility that the ETF would not have the physical to sell in a bull market (I've read too much zero hedge! ), I don't like the counterparty/managment risk of not being able to sell when I really really need to. For this reason, early on in the ERE accumulation phase I'm technically over-weighted in gold, however by chance I did very well with it too since last August, gold up at least 30% since I bought mine, and brexit helped too.

[Jack Jones]

If you are going paper, use GLD or IAU.

What don't you like about SGOL?

[bryan]

For physical precious metals, I think there are a few reputable websites that don't have any fees if you pay in Bitcoin. The shipping looks standard and the spread versus the spot price varies... just look at the cheapest option for the category and see if it fits your criteria. Not sure where you could do big purchases for really low spread (mostly it seems demand is always higher than supply). Avoid sites like eBay.

[Tyler9000]

Regarding GLD, IAU, and SGOL:

Many people prefer GLD and IAU for the liquidity. The trading volume for both is an order or magnitude greater than SGOL, which makes for better spreads. But if you only trade infrequently it doesn't make too much of a difference.

The appeal for SGOL is largely in its structure, as its gold is held in vaults in Zurich and is seen by some people as being more trustworthy than GLD or IAU. Since gold ETFs are highly dependent on trust that they actually have the gold they claim, that distinction is very valuable.

My personal choice came down to IAU and SGOL. The lower ER for IAU broke the tie, but both are good choices.

[jennypenny]

I'm hesitant to share my reasoning because *someone* will tell me I'm wrong. ... I like SGOL because as T9000 said it's smaller, has a solid rep, and is traded less frequently. I don't want a fund that's too liquid or traded too frequently. Maybe part of it is that many of my trader friends like IAU and so I shy away from it because I don't want to own a fund that gets used for day trading. It's too much volatility for me in an investment that's supposed to be ballast in my portfolio.

[Dragline]

If you are going paper, use GLD or IAU.

What don't you like about SGOL?

Just the low trading volume really. And I think the fees are higher than IAU, but have not checked recently. It's still a good option long-term.

[jacob]

Just to derail the discussion a bit ...

For those who carry physical goal, have you figured out how to transact it yet. That is, have you developed some skill/experience in using it as a currency or are you just hoping that it will eventually work out somehow and that it's better to have a need-not than to need a have-not?

Personally I wonder what I would ever do with my handful (literally) of precious metals ... I'm definitely don't think I'm at the pragmatic stage.

[JamesR]

Practice biting on your gold so that you know real gold when you bite it!

[Dragline]

Practice biting on your gold so that you know real gold when you bite it!

[bryan]

@jacob, no practice here regarding gold/silver. Though Bitcoin has worked well enough. http://coinmap.org/ is a decent start, but BTC is also nice for p2p transactions since it's fairly frictionless to accept (download an app).

For silver/gold I was thinking I would make some silverware (tea kettle) or luxury items. Granted, I haven't thought of drawing down from my precious metal allocation. Though I guess a rising equity glidepath dictates I get rid of the gold/silver first...

I just sold a silversmithing book I found (at the thrift store for $2) for a $42 profit.. so that's how realistic I see myself doing it on my own in the next few years.

There are places that have "We Buy Gold" all over the place. Though, it's probably better to sell it to a coin shop or jewellery store for cash. But now you are making me wonder if there is something like "localbitcoins.com", but for gold (perhaps these are the aforementioned shops..). One problem with gold/silver is difficulty in verifying it's authenticity easily, quickly. With Bitcoin it's almost a non-issue where validity is instantly confirmed by both parties; however, the assurance of transaction settlement is only increasingly probable over time (almost surely I own this 1 BTC). This only ever becomes an issue if you must be completely certain about a transaction settling FAST (relative... exponential drop off every block/10m, so after 3, 30m, you are 98% sure*). Certain mechanisms on top of bitcoin help assuage this issue.

[*] https://bitcoin.org/bitcoin.pdf. Or see https://bitcoil.co.il/Doublespend.pdf for a translation to amount of BTC per confirmation which is safe depending on other party's hash rate. Elsewhere, you can also read about the increased risk if there are competing blockchain forks.