Asset locations

General Discussion on the Permanent Portfolio Strategy

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Re: Asset locations

Post by mathjak107 » Thu Dec 26, 2019 1:17 pm

also the price of admission to a roth is the same as a taxable account . only one is taxed up front and then never taxed while the other is taxed up front too and forever taxed.

people don't realize the power of these retirement accounts , as well as how the lower capital gains rates in a taxable account get eroded with even the smallest distributions over time
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Re: Asset locations

Post by Kbg » Thu Dec 26, 2019 8:52 pm

mathjak107 wrote:
Thu Dec 26, 2019 1:17 pm
also the price of admission to a roth is the same as a taxable account . only one is taxed up front and then never taxed while the other is taxed up front too and forever taxed.

people don't realize the power of these retirement accounts , as well as how the lower capital gains rates in a taxable account get eroded with even the smallest distributions over time
If one has the money I have no idea why they wouldn't max out a backdoor Roth every year.
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Re: Asset locations

Post by sophie » Fri Dec 27, 2019 8:43 am

vnatale, could you maybe be a bit more succinct with your questions? I have no idea what you're asking and no interest in wading through all the rapid-fire posts.

If you're asking about optimal asset placement, that's been discussed many times here although the threads may not be easy to find. You might start with Harry Browne's advice in Fail Safe Investing:
A pension plan can reinvest 100% of its earnings without losing anything to
taxes. It’s important not to waste this benefit by using the plan for Permanent
Portfolio investments (such as gold) that generate little or no current income,
while paying tax each year on income-producing investments sitting outside the
plan.
To make the best use of a pension plan, fill it with investments for the
Permanent Portfolio in the following order:
1. Treasury bills or money market funds
2. Treasury bonds
3. Stock-market mutual funds
4. Gold
Bogleheads has something on this in their wiki page, too:

https://www.bogleheads.org/wiki/Tax-eff ... _placement

Also we had a discussion on this in another thread recently.
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Re: Asset locations

Post by gaston » Sat May 09, 2020 6:58 pm

To make the best use of a pension plan, fill it with investments for the
Permanent Portfolio in the following order:
1. Treasury bills or money market funds
2. Treasury bonds
3. Stock-market mutual funds
4. Gold
Does anyone know why Harry's advice was to shelter T-Bills in priority over Bonds? Interest on long term bonds tends to be higher than on short term debt, and they may produce capital gains on top of that. In his book Craig actually recommends putting bonds first, and cash second.

The only reason I can think of for having T-Bills first is that if bond prices drop (which is looking more and more likely these days), you would lose valuable room in you tax sheltered accounts...
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Re: Asset locations

Post by mathjak107 » Sun May 10, 2020 3:23 am

harry's advice was wrong for today ....

you don't waste space in tax sheltered accounts with instruments that pay little to no interest. back in the day interest rates were worth sheltering but it has not been that way for a long long time.

plus no one actually bothered to do the long term tax math .

it was believed equities would do better in a taxable account because of lower tax rates .

well that proved false , as little as a 2% dividend or distribution wipes out the tax savings over the long term .

that plus the fact it compounds tax free in a tax advantaged account makes that the place for holding equities ..

so lots of old wives tales were disproved once high speed numbers crunching was able to be done .

old school thinking tended never to look under the hood at lots of other parameters at other stages in time .....

so much today has been shown to be incorrect thinking once things are looked at further down the road .
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Re: Asset locations

Post by mathjak107 » Sun May 10, 2020 4:31 am

while the ranking and numbers has changed over time , this is an example of how even index funds can vary in tax consequences ....

this is an s&p 500 fund compared ..... it does not include the dividends either in the tax cost ratio . the tax cost ratio is the fund expenses and fund turnover . it also is caused by funds loaning assets or selling calls .

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Re: Asset locations

Post by pmward » Sun May 10, 2020 9:12 am

mathjak107 wrote:
Sun May 10, 2020 3:23 am
harry's advice was wrong for today ....

you don't waste space in tax sheltered accounts with instruments that pay little to no interest. back in the day interest rates were worth sheltering but it has not been that way for a long long time.

plus no one actually bothered to do the long term tax math .

it was believed equities would do better in a taxable account because of lower tax rates .

well that proved false , as little as a 2% dividend or distribution wipes out the tax savings over the long term .

that plus the fact it compounds tax free in a tax advantaged account makes that the place for holding equities ..

so lots of old wives tales were disproved once high speed numbers crunching was able to be done .

old school thinking tended never to look under the hood at lots of other parameters at other stages in time .....

so much today has been shown to be incorrect thinking once things are looked at further down the road .
Yeah I've come around to this thinking as well. Maybe if someday we get back to a point where bonds are yielding 5% again it might make sense to move my bonds back to tax sheltered. But these days I have been putting all of my cash and as much of my bonds as I can fit in my taxable account in order to keep as many stocks as possible in tax sheltered.

RE: your comment about mutual funds... ETF's completely eliminate this issue. The stocks I do hold in taxable are all ETF's. The only tax hit ETF's have is the dividend yield, and of course the capital gains tax when you sell.

Interesting chart here, SPX dividend yield difference vs 10 year treasury yield (anything above the blue line means stocks yielding more than treasuries, currently SPX yields 1.34% more than the 10 year):
sc-9.png
sc-9.png (81.23 KiB) Viewed 5406 times
Last edited by pmward on Sun May 10, 2020 9:15 am, edited 2 times in total.
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Re: Asset locations

Post by mathjak107 » Sun May 10, 2020 9:15 am

pmward wrote:
Sun May 10, 2020 9:12 am
mathjak107 wrote:
Sun May 10, 2020 3:23 am
harry's advice was wrong for today ....

you don't waste space in tax sheltered accounts with instruments that pay little to no interest. back in the day interest rates were worth sheltering but it has not been that way for a long long time.

plus no one actually bothered to do the long term tax math .

it was believed equities would do better in a taxable account because of lower tax rates .

well that proved false , as little as a 2% dividend or distribution wipes out the tax savings over the long term .

that plus the fact it compounds tax free in a tax advantaged account makes that the place for holding equities ..

so lots of old wives tales were disproved once high speed numbers crunching was able to be done .

old school thinking tended never to look under the hood at lots of other parameters at other stages in time .....

so much today has been shown to be incorrect thinking once things are looked at further down the road .
Yeah I've come around to this thinking as well. Maybe if someday we get back to a point where bonds are yielding 5% again it might make sense to move my bonds back to tax sheltered. But these days I have been putting all of my cash and as much of my bonds as I can fit in my taxable account in order to keep as many stocks as possible in tax sheltered.

RE: your comment about mutual funds... ETF's completely eliminate this issue. The stocks I do hold in taxable are all ETF's. The only tax hit ETF's have is the dividend yield, and of course the capital gains tax when you sell... even a 2% taxable dividend takes it toll long term in a taxable account and etf's do have quarterly dividends if index funds .
NOT TRUE ABOUT ETF'S .. as little as a 2% dividend wipes out any tax savings over the long term in a taxable account .... kitces did a whole study on this .. plus there is turnover in index's as stocks get bounced and sold off , that can create distributions....


https://www.kitces.com/blog/asset-locat ... e-horizon/
Last edited by mathjak107 on Sun May 10, 2020 9:17 am, edited 1 time in total.
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Re: Asset locations

Post by pmward » Sun May 10, 2020 9:17 am

mathjak107 wrote:
Sun May 10, 2020 9:15 am
NOT TRUE ABOUT ETF'S .. as little as a 2% dividend wipes out any tax savings over the long term in a taxable account .... kitces did a whole study on this .. plus there is turnover in index's as stocks get bounced and sold off , that can create distributions....
You did not disagree with me at all. I said the only thing that ETF give is the dividend yield, no forced cap gains distributions. But for those like me that do not have the tax deferred space to house all their equities, ETF's are more tax efficient than the mutual funds you listed in your chart. We are in agreement, I think you misread what I wrote.
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Re: Asset locations

Post by mathjak107 » Sun May 10, 2020 9:21 am

pmward wrote:
Sun May 10, 2020 9:17 am
mathjak107 wrote:
Sun May 10, 2020 9:15 am
NOT TRUE ABOUT ETF'S .. as little as a 2% dividend wipes out any tax savings over the long term in a taxable account .... kitces did a whole study on this .. plus there is turnover in index's as stocks get bounced and sold off , that can create distributions....
You did not disagree with me at all. I said the only thing that ETF give is the dividend yield, no forced cap gains distributions. But for those like me that do not have the tax deferred space to house all their equities, ETF's are more tax efficient than the mutual funds you listed in your chart. We are in agreement, I think you misread what I wrote.
exactly my problem , half our assets are in a taxable account because they don't fit in our retirement account ....

poor planning early on really hurt me though ...when i retired i needed insurance from 62-65 ...the dividend stream in the taxable account along with distributions ended up killing any hope i had for an aca subsidy ... some years that income stream hit 69k from the stuff outside the retirement money .

planning early is importand because so much hinges on taxable retirement income .. everything from aca subsidy to getting ss taxed to what you pay for medicare to even being able to utilize the zero percent capital gain brackets revolve around your ability to control taxable income
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Re: Asset locations

Post by mathjak107 » Sun May 10, 2020 9:28 am

one other caution about etf's .....

they can be a bad tax torpedo down the line .....

i mean , what i wanted to use as a portfolio in retirement was totally different then my pedal to the metal growth model i used for for decades .

so a lot had to be changed ... luckily all my funds were managed funds so i paid taxes all along .. but having 30-40 years of pent up gains and trying to make changes at retirement can kill you tax wise .

i was lucky and just finished my changes in 2007 when 2008 hit . but had i had 30 years of gains to deal with i would have had to split it over a few years . i would have walked right in to 2008.....

so taxes can be a double edge sword as well as mutual funds and etf's .... to much in taxes can be bad and not paying enough along the way can be bad ....


most of us dont understand retirement planning until we get there and hit all the things we didnt know about ..... i did great as an investor so i never
thought i needed professional advice .... boy was i wrong because to fix decades of structure was like telling the guy who built the brooklyn bridge , it's nice but can you move it 2" left .
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Re: Asset locations

Post by pmward » Sun May 10, 2020 9:37 am

mathjak107 wrote:
Sun May 10, 2020 9:28 am
one other caution about etf's .....

they can be a bad tax torpedo down the line .....

i mean , what i wanted to use as a portfolio in retirement was totally different then my pedal to the metal growth model i used for for decades .

so a lot had to be changed ... luckily all my funds were managed funds so i paid taxes all along .. but having 30-40 years of pent up gains and trying to make changes at retirement can kill you tax wise .

i was lucky and just finished my changes in 2007 when 2008 hit . but had i had 30 years of gains to deal with i would have had to split it over a few years . i would have walked right in to 2008.....

so taxes can be a double edge sword as well as mutual funds and etf's .... to much in taxes can be bad and not paying enough along the way can be bad ....


most of us dont understand retirement planning until we get there and hit all the things we didnt know about ..... i did great as an investor so i never
thought i needed professional advice .... boy was i wrong because to fix decades of structure was like telling the guy who built the brooklyn bridge , it's nice but can you move it 2" left .
Yeah, my accountant has me periodically do "tax gain harvesting" of long-term capital gains. Also, since I just moved most of my equities into a quant strategy they will go to cash every so often, so that will give me some opportunity to pay some taxes and help contain the tax time bomb.

What are your thoughts on gold in taxable vs tax sheltered?
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Re: Asset locations

Post by mathjak107 » Sun May 10, 2020 9:58 am

i try to keep most of it in the retirement account since i tend to trade it , but i do have quite a bit of it now .

right now i have 1 million in the permanent portfolio and more than 2x that in my fidelity insight income model , so things are pretty much split close to 50% in deferred accounts and 50% taxable accounts plus all the cash we live on .

i never count the pp cash for our living expenses ...it is an integral part of the pp like stocks , bonds , etc and we don't want to spend down the barbel in bonds unbalancing it ... so the portfolio is the portfolio with no double duty ... our other model holds an ultra conservative bond fund as one of the funds ...that too is isolated and not counted in our cash needs .
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Re: Asset locations

Post by mathjak107 » Mon May 11, 2020 5:48 am

pmward wrote:
Sun May 10, 2020 9:37 am
mathjak107 wrote:
Sun May 10, 2020 9:28 am
one other caution about etf's .....

they can be a bad tax torpedo down the line .....

i mean , what i wanted to use as a portfolio in retirement was totally different then my pedal to the metal growth model i used for for decades .

so a lot had to be changed ... luckily all my funds were managed funds so i paid taxes all along .. but having 30-40 years of pent up gains and trying to make changes at retirement can kill you tax wise .

i was lucky and just finished my changes in 2007 when 2008 hit . but had i had 30 years of gains to deal with i would have had to split it over a few years . i would have walked right in to 2008.....

so taxes can be a double edge sword as well as mutual funds and etf's .... to much in taxes can be bad and not paying enough along the way can be bad ....


most of us dont understand retirement planning until we get there and hit all the things we didnt know about ..... i did great as an investor so i never
thought i needed professional advice .... boy was i wrong because to fix decades of structure was like telling the guy who built the brooklyn bridge , it's nice but can you move it 2" left .
Yeah, my accountant has me periodically do "tax gain harvesting" of long-term capital gains. Also, since I just moved most of my equities into a quant strategy they will go to cash every so often, so that will give me some opportunity to pay some taxes and help contain the tax time bomb.

What are your thoughts on gold in taxable vs tax sheltered?
you mention tax gain harvesting ....that is something greatly over looked . tax loss harvesting is merely kicking the tax can down the road .... it may be highly over rated in what it does ..but tax gain harvesting is a gift from the tax gods ....

if you have room in the zero capital gains bracket especially , and you can harvest tax free gains , that is a whole lot better them merely delaying the taxes by selling an asset and buying a new asset and resetting the cost pointer by taking a loss in the first asset .
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Re: Asset locations

Post by mathjak107 » Mon May 11, 2020 5:51 am

mathjak107 wrote:
Mon May 11, 2020 5:48 am
pmward wrote:
Sun May 10, 2020 9:37 am
mathjak107 wrote:
Sun May 10, 2020 9:28 am
one other caution about etf's .....

they can be a bad tax torpedo down the line .....

i mean , what i wanted to use as a portfolio in retirement was totally different then my pedal to the metal growth model i used for for decades .

so a lot had to be changed ... luckily all my funds were managed funds so i paid taxes all along .. but having 30-40 years of pent up gains and trying to make changes at retirement can kill you tax wise .

i was lucky and just finished my changes in 2007 when 2008 hit . but had i had 30 years of gains to deal with i would have had to split it over a few years . i would have walked right in to 2008.....

so taxes can be a double edge sword as well as mutual funds and etf's .... to much in taxes can be bad and not paying enough along the way can be bad ....


most of us dont understand retirement planning until we get there and hit all the things we didnt know about ..... i did great as an investor so i never
thought i needed professional advice .... boy was i wrong because to fix decades of structure was like telling the guy who built the brooklyn bridge , it's nice but can you move it 2" left .
Yeah, my accountant has me periodically do "tax gain harvesting" of long-term capital gains. Also, since I just moved most of my equities into a quant strategy they will go to cash every so often, so that will give me some opportunity to pay some taxes and help contain the tax time bomb.

What are your thoughts on gold in taxable vs tax sheltered?
you mentioned tax gain harvesting ....that is something greatly over looked . you see tax loss harvesting mentioned all the time-meh---it is tax gain harvesting that is the real winner .

tax loss harvesting is merely kicking the tax can down the road .... it may be highly over rated in what it does ..but tax gain harvesting is a gift from the tax gods ....

if you have room in the zero capital gains bracket especially , and you can harvest tax free gains , that is a whole lot better them merely delaying the taxes by selling an asset and buying a new asset and resetting the cost pointer by taking a loss in the first asset .
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Re: Asset locations

Post by pmward » Mon May 11, 2020 11:03 am

mathjak107 wrote:
Mon May 11, 2020 5:48 am
pmward wrote:
Sun May 10, 2020 9:37 am
mathjak107 wrote:
Sun May 10, 2020 9:28 am
one other caution about etf's .....

they can be a bad tax torpedo down the line .....

i mean , what i wanted to use as a portfolio in retirement was totally different then my pedal to the metal growth model i used for for decades .

so a lot had to be changed ... luckily all my funds were managed funds so i paid taxes all along .. but having 30-40 years of pent up gains and trying to make changes at retirement can kill you tax wise .

i was lucky and just finished my changes in 2007 when 2008 hit . but had i had 30 years of gains to deal with i would have had to split it over a few years . i would have walked right in to 2008.....

so taxes can be a double edge sword as well as mutual funds and etf's .... to much in taxes can be bad and not paying enough along the way can be bad ....


most of us dont understand retirement planning until we get there and hit all the things we didnt know about ..... i did great as an investor so i never
thought i needed professional advice .... boy was i wrong because to fix decades of structure was like telling the guy who built the brooklyn bridge , it's nice but can you move it 2" left .
Yeah, my accountant has me periodically do "tax gain harvesting" of long-term capital gains. Also, since I just moved most of my equities into a quant strategy they will go to cash every so often, so that will give me some opportunity to pay some taxes and help contain the tax time bomb.

What are your thoughts on gold in taxable vs tax sheltered?
you mention tax gain harvesting ....that is something greatly over looked . tax loss harvesting is merely kicking the tax can down the road .... it may be highly over rated in what it does ..but tax gain harvesting is a gift from the tax gods ....

if you have room in the zero capital gains bracket especially , and you can harvest tax free gains , that is a whole lot better them merely delaying the taxes by selling an asset and buying a new asset and resetting the cost pointer by taking a loss in the first asset .
Yeah, the main reason why my accountant has his clients do tax gain harvesting is to keep the time bomb contained. Odds are that as society continues to trend more pro-social and anti-capital that the 15% long-term cap gains rate's days are likely numbered. So it's a matter of taking advantage of it while I can. If I didn't periodically realize some LTCG and they decided to kill it 10 years down the road, I would have too many gains to realize all at once and it would be missed opportunity. The tax bill has to be paid sometime anyway, might as well lock in the low 15% rate while I can.

Also, one benefit of the PP is using harvested losses in one asset to allow you to harvest gains in another asset. I harvested a crap load of stock losses this year, but I'm sitting on a ton of gold and LTT gains that I will likely reset with some of my stock losses.
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Re: Asset locations

Post by Xan » Mon May 11, 2020 11:15 am

Isn't the cap gains rate something like 23%, since 2012? That's why Lucas sold Star Wars that year, before the change took effect. Saved him a bundle on his $4bil in capital gains!
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Re: Asset locations

Post by pmward » Mon May 11, 2020 11:32 am

Xan wrote:
Mon May 11, 2020 11:15 am
Isn't the cap gains rate something like 23%, since 2012? That's why Lucas sold Star Wars that year, before the change took effect. Saved him a bundle on his $4bil in capital gains!
20% for those with an income above $441,500. 15% for the rest of us mere mortals.
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Re: Asset locations

Post by mathjak107 » Mon May 11, 2020 11:43 am

pmward wrote:
Mon May 11, 2020 11:32 am
Xan wrote:
Mon May 11, 2020 11:15 am
Isn't the cap gains rate something like 23%, since 2012? That's why Lucas sold Star Wars that year, before the change took effect. Saved him a bundle on his $4bil in capital gains!
20% for those with an income above $441,500. 15% for the rest of us mere mortals.
There is also a 3.80 surcharge at the higher levels ..I hit it.

I think it was in january 2013 when rates changed because it was the year we sold our commercial lease rights and got hammered
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Re: Asset locations

Post by mathjak107 » Mon May 11, 2020 11:47 am

Net Investment Income Tax (Medicare Tax)
The Net Investment Income Tax (NIIT) or Medicare Tax applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.

In general, investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to the taxpayer
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Re: Asset locations

Post by pmward » Mon May 11, 2020 11:52 am

mathjak107 wrote:
Mon May 11, 2020 11:47 am
Net Investment Income Tax (Medicare Tax)
The Net Investment Income Tax (NIIT) or Medicare Tax applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.

In general, investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to the taxpayer
And there's another reason to harvest tax gains while I'm still young to help avoid or at least minimize getting to a point like you did where I could be forced to get hit with a large ~23.8% LTCG rate like you did.
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Re: Asset locations

Post by mathjak107 » Mon May 11, 2020 11:53 am

Yep ...

Not only am I happy with the performance of my managed funds through the decades but tax wise they were easy to deal with ....no decades of pent up gains to deal with.

Medicare premiums can shoot up drastically with taxable income to the tune of thousands a year so changes can be painful in a portfolio of etfs you had for a long time
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