Looking to Move to Permanent Portfolio.

[Seneca]

I've long planned to move to a permanent portfolio, but all of our investments are currently in 401(k) accounts, and it didn't seem possible.

Yesterday I noticed my plan now has Vanguard Brokerage Services as an option, which basically means I can buy funds not in our plan.

How VBS works is set by your plan administrator, I know mine only allows Vanguard Funds. Stupidly I forgot to ask them if it allows Vanguard ETFs and mutual funds, or mutual funds only. Will call them back Monday.

The fairly straightforward funds are-

Total Market Index for the stock component- https://personal.vanguard.com/us/funds/ ... IntExt=INT

VLGSX 30 yr fed bond fund- https://personal.vanguard.com/us/funds/ ... IntExt=INT

Money Market or VSBSX 1-3yr government bonds for cash- https://personal.vanguard.com/us/funds/ ... IntExt=INT
(Any opinions bonds or money market? )

Gold is a bit more tricky. the closest mutual fund Vanguard has is VGPMX, a metals/stones/mining fund that doesn't correlate with gold particularly well, but is certainly in the sector- https://personal.vanguard.com/us/funds/ ... IntExt=INT

If VGPMX is the closest I get, is that a killer for PP? (until I leave this job and can roll it)

Also, how about adding some commodities with a fund like VMAIX? If so, where does it come out of the allocation?

https://personal.vanguard.com/us/funds/ ... IntExt=INT

[jennypenny]

Our 401K VBO allows ETFs and individual stocks. The fine print says that you can't buy commodities or commodity funds (including metals) and you can't buy stocks that might be subject to UBTI. The tax hit for UBTIs only comes after $1000 though, so small investments in MLPs generally stay under the radar. YMMV

Vanguard's retirement income and stable value funds are pretty equivalent to a MM in terms of meeting the cash requirements of the PP, and offer a better return.

Stay away from VGPMX. From personal experience over the last couple of years, I can say that it doesn't track with gold at all. I think I've gotten more "we're working hard to turn this fund around' letters about that fund than any other I've ever owned. I don't think Vanguard knows what to do with it. You'd be better off accumulating the gold portion outside of your 401K as best you can. You could also see if you're allowed to roll some of your 401K into an IRA that allows you to own gold.

[Seneca]

Our 401K VBO allows ETFs and individual stocks. The fine print says that you can't buy commodities or commodity funds (including metals) and you can't buy stocks that might be subject to UBTI. The tax hit for UBTIs only comes after $1000 though, so small investments in MLPs generally stay under the radar. YMMV

Vanguard's retirement income and stable value funds are pretty equivalent to a MM in terms of meeting the cash requirements of the PP, and offer a better return.

Stay away from VGPMX. From personal experience over the last couple of years, I can say that it doesn't track with gold at all. I think I've gotten more "we're working hard to turn this fund around' letters about that fund than any other I've ever owned. I don't think Vanguard knows what to do with it. You'd be better off accumulating the gold portion outside of your 401K as best you can. You could also see if you're allowed to roll some of your 401K into an IRA that allows you to own gold.

Thanks, JP!

Those other ideas for cash are particularly intriguing. As someone who currently is 100% invested in a Boglehead type index stock portfolio with small cap overweight, going to 50% of my investments in government debt is the most worrying part of the strategy to me. Much moreso than the gold, especially now that it's finally coming off highs.

Always interesting to me to read other's opinions, such as the gold allocation being what they don't like about the PP...

[jennypenny]

I looked up our retirment income fund option. It doesn't have a ticker, but it's called "Retirement Savings Trust V" and listed under Short-Term Reserves in my fund choices. You probably have something similar. The fees are higher, but the net is still better than the MM fund available to us.

edited to add...
Depending on what your 401K offers, a combination of Wellesley, Wellington, and a Retirement Savings Trust in your regular 401K fund would give you a fairly good interpretation of the PP minus the gold portion and without the VBO fees. You would have to keep gold in an IRA (or the backyard ).

[Tyler9000]

Based on my research I'd personally recommend VTSMX, VUSTX, and VUSXX/VFISX as stocks/bonds/cash Vanguard mutual funds.

For bonds and cash, most PP material you will read recommends 100% treasury funds for the lowest levels of default risk. No Vanguard treasury funds are 100% treasuries to my knowledge, but VUSTX tends to have a higher percentage than VLGSX (which carries more agency debt in addition to treasuries).

Gold is the hardest to get in Vanguard funds, and miners/sector funds don't count from a PP perspective. You're probably best suited either rolling over your 401k into an IRA with more options (when you can), or buying some gold outside of your retirement accounts. Perhaps you can find some Vanguard funds that hold gold as part of the portfolio and adjust the weightings accordingly, although you'd really need to keep an eye on them to make sure they don't alter the percentages without you knowing.

[KevinW]

The PP is a well-oiled machine so I recommend KISS and implement each asset in as conventional a manner as possible. I.e. use a true T-bill fund for cash, not a bond income fund; and true physical metal gold (either in a fund or held directly), not a gold miner stock fund like VGPMX.

Based on my research I'd personally recommend VTSMX, VUSTX, and VUSXX/VFISX as stocks/bonds/cash Vanguard mutual funds.

+1 to these specific recommendations.

[Gilberto de Piento]

I am also using a boglehead strategy (everything but emergency fund is in Vanguard Target Retirement 2055 Fund (VFFVX)). Why are you switching from from indexing to PP? Are you past accumulating and just want to preserve what you have?

[workathome]

I have a heretical Permanent Portfolio.

There's no way I'm going 30-year treasuries. I couldn't sleep at night. I'm all short-term tax-exempt at the moment, outside the IRA.

Also, because the US market is currently the most expensive in the world (!), I decided to not start a new US total-market position (though I'd hold on if already established 5 years ago), but I'm in 10 low-cost cheap foreign-market ETFs.

[Seneca]

The PP is a well-oiled machine so I recommend KISS and implement each asset in as conventional a manner as possible. I.e. use a true T-bill fund for cash, not a bond income fund; and true physical metal gold (either in a fund or held directly), not a gold miner stock fund like VGPMX.

Absolutely no argument. I also really appreciate that gold has functions outside of just the regular investment allocations as envisioned by HB. "Someday" we will get there.

A bit of background. All of our invested assets are tied up in 401(k), and are significantly funded. I suppose we could divert all extra cash this year to buy the quantity of gold it would take to have a reasonable allocation, however, we plan instead to use those funds to pay off (well, down this year) the house.

Neither one of us plans to change jobs so rollover is also out of the equation unless I am missing something I can do within Vanguard?

Do you guys think the restrictions I would have to make here should cause me to hold off until we are willing to start buying enough gold outside Vanguard, hopefully 2 years in the future (house paid off), or try to work out some sort of, admittedly compromised, PP-ish allocation for now?

Thanks KevinW and Tyler9000. I have read all your PP posts I could find here and several on gyroscopicinvesting, was hoping you'd tune in!

[jennypenny]

Neither one of us plans to change jobs so rollover is also out of the equation unless I am missing something I can do within Vanguard?

It's called an "In-Service Withdrawal" and some plans through Vanguard allow it. Check your plan summary.

more info ... https://www.google.com/search?q=in+serv ... eheads.org

[Seneca]

I am also using a boglehead strategy (everything but emergency fund is in Vanguard Target Retirement 2055 Fund (VFFVX)). Why are you switching from from indexing to PP? Are you past accumulating and just want to preserve what you have?

Let's put some numbers to this-

Great tool for backtesting the PP here- http://www.peaktotrough.com/hbpp.cgi

Thread discussing PP compared to S&P500 and other target funds here- http://gyroscopicinvesting.com/forum/pe ... vs-sp-500/

Backtesting is backtesting, there is no reason to think it's necessarily a good predictor of the future. Personally I think the risk in index funds is quite understated for the next 50 years, but that's just my model of the world, it could certainly be wrong!

Our (current) FI plan is to run a PP as our core investment pool we eat and keep the lights on with, while we go do other things.

[Seneca]

Neither one of us plans to change jobs so rollover is also out of the equation unless I am missing something I can do within Vanguard?

It's called an "In-Service Withdrawal" and some plans through Vanguard allow it. Check your plan summary.

more info ... https://www.google.com/search?q=in+serv ... eheads.org

This reminds me, no trad/Roth IRAs for us either.

Thanks, JP! Will go look in to this in detail later.

[KevinW]

Do you guys think the restrictions I would have to make here should cause me to hold off until we are willing to start buying enough gold outside Vanguard, hopefully 2 years in the future (house paid off), or try to work out some sort of, admittedly compromised, PP-ish allocation for now?

The four PP assets are designed specifically to work in concert with each other so IMO any kind of half-baked PP is "broken" and likely less safe than other kinds of coherent portfolios.

If I were in your shoes I would call each 401(k) a Variable Portfolio (VP) and allocate them to a conservative Boglehead-style portfolio (<= 50%) stocks. Probably Target Retirement Income since you're at Vanguard; I'm also fond of 50% Total World Stock and 50% Total Bond, although that will be more volatile than a PP or Retirement Income. Then, I would prioritize setting up IRAs or Roth IRAs, even if it means decreasing 401(k) contributions, and implementing pure PPs in those. That way you can start getting experience running and watching a PP.

Also you might ask whether the policy prohibiting non-Vanguard ETFs can be changed. Sometimes stuff like that is a simple toggle switch that plan administrators are happy to flip.

Thanks KevinW and Tyler9000. I have read all your PP posts I could find here and several on gyroscopicinvesting, was hoping you'd tune in!

Glad you appreciate it!

[dragoncar]

I am also using a boglehead strategy (everything but emergency fund is in Vanguard Target Retirement 2055 Fund (VFFVX)). Why are you switching from from indexing to PP? Are you past accumulating and just want to preserve what you have?

Let's put some numbers to this-

Great tool for backtesting the PP here- http://www.peaktotrough.com/hbpp.cgi

Thread discussing PP compared to S&P500 and other target funds here- http://gyroscopicinvesting.com/forum/pe ... vs-sp-500/

Backtesting is backtesting, there is no reason to think it's necessarily a good predictor of the future. Personally I think the risk in index funds is quite understated for the next 50 years, but that's just my model of the world, it could certainly be wrong!

Our (current) FI plan is to run a PP as our core investment pool we eat and keep the lights on with, while we go do other things.

Plus, AFAIK the PP qualifies as an "indexing" strategy (no active management, low fees). It just diversifies the particular indexes used.

[Seneca]

Plus, AFAIK the PP qualifies as an "indexing" strategy (no active management, low fees). It just diversifies the particular indexes used.

I think mostly by accident, and fund managers releasing any product they think people will buy.

As mentioned above, direct ownership of bonds and gold (as opposed to owning it in funds) is advocated by Harry Browne. Ideally only 25% of the portfolio should be in an actual index fund. Maybe an expert will explain better than I can.

What I'm trying to do here is most definitely a bastardized version. I'm just trying to figure out how ugly the bastard is.

[Tyler9000]

Plus, AFAIK the PP qualifies as an "indexing" strategy (no active management, low fees). It just diversifies the particular indexes used.

I think mostly by accident, and fund managers releasing any product they think people will buy.

As mentioned above, direct ownership of bonds and gold (as opposed to owning it in funds) is advocated by Harry Browne. Ideally only 25% of the portfolio should be in an actual index fund. Maybe an expert will explain better than I can.

What I'm trying to do here is most definitely a bastardized version. I'm just trying to figure out how ugly the bastard is.

It's true that the "pure" PP holds the assets as directly as possible to mitigate counter-party risk. However, even positioning yourself a few steps back from that ideal is still a great investment strategy. I personally use four ETFs for the simplicity and convenience (selected to minimize expenses and diversify fund companies), although I'd like to buy some physical gold this year as well.

FWIW, the Permanent Portfolio is a great example of indexing. The cool thing about buying your own physical gold or building a simple bond ladder is that you have the ability to essentially create your own DIY index funds instead of paying someone else to do the exact same thing.