💸 Is Rebalancing the Permanent Portfolio Costing You More Than You Think? 🤔

[frugal]

Hi everyone,
hope you're doing well.

I’ve been revisiting some aspects of my Permanent Portfolio (25% stocks, 25% long-term bonds, 25% gold, 25% cash), and there’s one issue I keep coming back to — one that I think is seriously underestimated: the tax impact of rebalancing .

Rebalancing keeps everything aligned — selling the outperformers, buying the laggards.

But here's the catch: taxes.

Every time I sell a portion of an asset that has appreciated — even if it’s just to maintain the 25% allocation — I’m immediately taxed on those capital gains, even though I have no intention of “cashing out.”
And that tax can easily eat up nearly a third of the gain .

What’s worse: if the asset later drops in value (as often happens with gold, long bonds, or even stocks), I’ve already paid tax on a profit that no longer exists.
In other words, I’m handing over part of the portfolio’s growth to the government — even when that growth vanishes.

Alternative approaches (some a bit stupid and wrong):

-Rebalancing only with new contributions

-Allowing wider deviation bands before triggering a rebalance

-Using cash as a buffer for small adjustments

-Rebalancing less frequently (e.g. annually, or opportunistically)

I’d really like to hear how others using the Permanent Portfolio are handling this.

Do you adjust your rebalancing strategy to reduce the tax hit?

Looking forward to hearing your thoughts.

Take care, and happy investing!

[Hal]

I’d really like to hear how others using the Permanent Portfolio are handling this.

Do you adjust your rebalancing strategy to reduce the tax hit?

Looking forward to hearing your thoughts.

1. Funds are in a Superannuation Account (Retirement Savings Plan)
2. Use a Vanguard Ready Made ETF (VDCO). Rebalancing within ETF not taxable.
3. Contributions go into lagging asset. Withdrawals from leading asset.

Fun fact: https://www.afr.com/policy/economy/labo ... 429-p5lv21

[dualstow]

I wonder why retirement accounts are called superannuation accounts in Australia.
Superannuation just means “over one year.”

[frugal]

I’d really like to hear how others using the Permanent Portfolio are handling this.

Do you adjust your rebalancing strategy to reduce the tax hit?

Looking forward to hearing your thoughts.

1. Funds are in a Superannuation Account (Retirement Savings Plan)
2. Use a Vanguard Ready Made ETF (VDCO). Rebalancing within ETF not taxable.
3. Contributions go into lagging asset. Withdrawals from leading asset.

Fun fact: https://www.afr.com/policy/economy/labo ... 429-p5lv21

I am in Europe

[I Shrugged]

I’ve mentioned this before. I bought all my positions near the bottom in the 08-09 crash. As such, the stocks and gold have huge unrealized gains. Selling anything would be quite expensive. So I don’t. Now the stocks are 40-some percent. That’s fine.

I could rationalize it as having a PP with a side VP of stocks.

[boglerdude]

Luck or did you time it

[Grinch]

I've been investing €1,000 a month in the PP since January 1, 2023. So far, none of the four components has reached the 15/35 range. Gold was close to it once in April, but never reached it.

If the range is reached, I could sell gold tax-free, as the holding period of more than one year was met. However, with such a small portfolio of €32,500, I would rather adjust my savings plans to rebalance over several months. Two of the ETFs pay out some dividends every three months, which is enough for a long time to take advantage of the annual tax-free allowance. I avoid transaction fees like the devil avoids holy water.

[steve]

I have always re-balanced very close to the 35/15 band, however going forward I'm not sure, when I sold my house after 38 years I had a big capital gain, I did reduce it slightly with a tax loss harvest buy selling TLT and buying VGLT but it increased my income to where I had to pay much more for medicare which I was not happy about. Now if re-balance the profit in gold again would increase my medicare again, so not only paying tax on the gain, I have to pay additional medicare premium so this time around I may not re-balance until I have something that can used to off set the gain.

[frugal]

PROBLEM

Rebalancing is not a minor detail—it’s a fundamental component of the strategy.

[I Shrugged]

Luck or did you time it

I had sold some commercial property, and was going to be hit with significant capital gains taxes. As stocks and commercial bonds fell throughout the latter part of the year, I kept selling, booking losses, and replacing with similar components. I wiped out my gains while staying invested. Ultimately I was finished at about the low point. Vanguard actually got upset with me. I had to explain what I was doing.

At the time I had decided to switch to a real PP, and that’s what emerged from the transactions.

[yankees60]

Luck or did you time it

I had sold some commercial property, and was going to be hit with significant capital gains taxes. As stocks and commercial bonds fell throughout the latter part of the year, I kept selling, booking losses, and replacing with similar components. I wiped out my gains while staying invested. Ultimately I was finished at about the low point. Vanguard actually got upset with me. I had to explain what I was doing.

At the time I had decided to switch to a real PP, and that’s what emerged from the transactions.

You wisely took advantage of a fortuitous opportunity. Glad for you that you were able to do so.

[smurff]

To prevent having to pay taxes, I keep most of my PP in a retirement account, except for gold coins, which will never be sold. I have a bit of gold ETF in the retirement account, which I use for rebalancing. That's how I manage the problem.