Is PRPFX cost (expense + tax) efficient? The answer is NO.

[Octavio Richetta]

Clive, any thoughts on building something simple around a 10% allocation to a 30 yr stripped T?

[guineapig]

(3) If you invest $100,000 each into an individual components portfolio and a PRPFX portfolio, and never add to it, over the course of 30 years, the individual components portfolio will end with a value that is approximately $190,000 higher than the value of the PRPFX portfolio (assuming a 8.5% annual rate of return for both portfolios).  This difference is attributable solely to the extra expenses of the PRPFX portfolio.

I got different numbers than you by using 100,000*power(1+8.5%-x%, 30), given x% being the total expense ratio. Then after 30 years DIY version is 963,830, while prpfx is 853,771. the difference is 110,058. However this assumes that you never have to rebalance and get taxed for capital gains.

Here is more, when you liquidize them one day, the gold part of DIY version will be taxed for 28%, while prpfx version only pay 15%. Assuming your gold etf is still 25% of the total portfolio, the extra tax burden for you is (963,830-100,000)/4*28%-(853,771-100,000)/4*15%=32201. The difference between two strategy is now down to $77,857.

Prpfx is still less productive, but not as much as the number you put out.

According to my calculation, they will break even when prpfx lower the expense ratio from 0.82% to about 0.50% and assuming the individual investor never need to rebalance and never pay capital gains before they start to liquidize the portfolio. So your conclusion still holds.

[chrikenn]

(3) If you invest $100,000 each into an individual components portfolio and a PRPFX portfolio, and never add to it, over the course of 30 years, the individual components portfolio will end with a value that is approximately $190,000 higher than the value of the PRPFX portfolio (assuming a 8.5% annual rate of return for both portfolios).  This difference is attributable solely to the extra expenses of the PRPFX portfolio.

I got different numbers than you by using 100,000*power(1+8.5%-x%, 30), given x% being the total expense ratio. Then after 30 years DIY version is 963,830, while prpfx is 853,771. the difference is 110,058. However this assumes that you never have to rebalance and get taxed for capital gains.

Here is more, when you liquidize them one day, the gold part of DIY version will be taxed for 28%, while prpfx version only pay 15%. Assuming your gold etf is still 25% of the total portfolio, the extra tax burden for you is (963,830-100,000)/4*28%-(853,771-100,000)/4*15%=32201. The difference between two strategy is now down to $77,857.

Prpfx is still less productive, but not as much as the number you put out.

According to my calculation, they will break even when prpfx lower the expense ratio from 0.82% to about 0.50% and assuming the individual investor never need to rebalance and never pay capital gains before they start to liquidize the portfolio. So your conclusion still holds.

Fair enough.  I certainly make no claim that my numbers are 100% accurate... they are ballpark figures using the assumptions stated in the first post, which may or may not be accurate for any given person on any given day.  The number I gave for the 30-year difference between PRPFX and 4x25 was just the numbers spit out by Simba's spreadsheet, so if you use a different calculation and arrive at a different number, that's fine.

You could get your gold cap gains down to 15% if you use GTU instead of IAU and deal with the additional tax form every year.

And yeah, if PRPFX lowered its expense ratio to about 0.5%, it would be much more attractive to me.  Certainly at that point, any difference in cost (tax + expense) between PRPFX and 4x25 would be negligible.

[TBV]

(3) If you invest $100,000 each into an individual components portfolio and a PRPFX portfolio, and never add to it, over the course of 30 years, the individual components portfolio will end with a value that is approximately $190,000 higher than the value of the PRPFX portfolio (assuming a 8.5% annual rate of return for both portfolios).  This difference is attributable solely to the extra expenses of the PRPFX portfolio.

I got different numbers than you by using 100,000*power(1+8.5%-x%, 30), given x% being the total expense ratio. Then after 30 years DIY version is 963,830, while prpfx is 853,771. the difference is 110,058. However this assumes that you never have to rebalance and get taxed for capital gains.

Here is more, when you liquidize them one day, the gold part of DIY version will be taxed for 28%, while prpfx version only pay 15%. Assuming your gold etf is still 25% of the total portfolio, the extra tax burden for you is (963,830-100,000)/4*28%-(853,771-100,000)/4*15%=32201. The difference between two strategy is now down to $77,857.

Prpfx is still less productive, but not as much as the number you put out.

According to my calculation, they will break even when prpfx lower the expense ratio from 0.82% to about 0.50% and assuming the individual investor never need to rebalance and never pay capital gains before they start to liquidize the portfolio. So your conclusion still holds.

Actually, gold gets taxed at either 28% or your regular marginal income tax rate, whichever is lower.

[guineapig]

(3) If you invest $100,000 each into an individual components portfolio and a PRPFX portfolio, and never add to it, over the course of 30 years, the individual components portfolio will end with a value that is approximately $190,000 higher than the value of the PRPFX portfolio (assuming a 8.5% annual rate of return for both portfolios).  This difference is attributable solely to the extra expenses of the PRPFX portfolio.

I got different numbers than you by using 100,000*power(1+8.5%-x%, 30), given x% being the total expense ratio. Then after 30 years DIY version is 963,830, while prpfx is 853,771. the difference is 110,058. However this assumes that you never have to rebalance and get taxed for capital gains.

Here is more, when you liquidize them one day, the gold part of DIY version will be taxed for 28%, while prpfx version only pay 15%. Assuming your gold etf is still 25% of the total portfolio, the extra tax burden for you is (963,830-100,000)/4*28%-(853,771-100,000)/4*15%=32201. The difference between two strategy is now down to $77,857.

Prpfx is still less productive, but not as much as the number you put out.

According to my calculation, they will break even when prpfx lower the expense ratio from 0.82% to about 0.50% and assuming the individual investor never need to rebalance and never pay capital gains before they start to liquidize the portfolio. So your conclusion still holds.

Actually, gold gets taxed at either 28% or your regular marginal income tax rate, whichever is lower.

yes, but how IRS treat the gold holding inside the prpfx? will prpfx say which part is from gold, and which is from stock?

[MediumTex]

yes, but how IRS treat the gold holding inside the prpfx? will prpfx say which part is from gold, and which is from stock?

When you sell PRPFX, any gains are capital gains.

I don't know how they do it, but that's how it works.

It's been a while since I read the prospectus, I don't recall if it is addressed there.

[jjames]

some nice calculations her but, don't you have to pay commissions if your dollar cost averaging? isn't buying one fund easier than buying 4? and what about tax reporting when your taking a distribution, if you've dollar cost averaged? isn't that going to be a mess?

[Ad Orientem]

(2) If you hold physical gold and actual bonds rather than gold ETFs and bond funds, holding the individual components becomes even MORE cost efficient because then your expense ratios for the bonds and the gold drop to essentially ZERO.

Chrikenn
A very interesting post and I don't really disagree with your general findings though I would make one small point with reference to physical gold.  When you buy physical you are going to pay a premium, typically 3-5% above spot.  ETF's charge anywhere from .25-.5% in fees and expenses.  I don't think it is quite accurate to say that there are no fees in physical gold vs ETFs when you consider the premium you pay.  All of which said I strongly advocate holding at least some of your gold in physical form as a hedge against an SHTF scenario.

My general sentiment on PRPFX is that it is the best second choice for conservative investors.  And for sheer convenience it is hard to beat.