1NV3ST0R wrote:
Regarding the unrealized capital gains that are in the ETFs, would those then potentially be passed on as a taxable event then to the "unlucky" ones that are holding the ETF at that time?
ETFs are managed through the market for taxes. Meaning that shares that would generate gains are swapped out to new buyers so the fund shouldn't have as much of an impact. The market helps to remove the tax effects.
It was also stated in this thread post that by owning an ETF vs. direct bonds that you might not have to incur capital gains/losses until you actually decide to sell that portion of the ETF. Direct bonds on the other hand would be purchased as a 30 year bond and sold every 10 years when it becomes a 20 year bond for a new 30 year bond and create a taxable event. Not sure of which of these would be a less taxable situation or if there isn't one answer for this.
It all depends. In a way, the direct ownership of bonds gives you more control over capital gains. They will happen when you are ready and not when the fund declares a dividend/capital gain at the end of the year (if any).
Also direct ownership of the bonds eliminates manager risk which is worth something as well. You can be sure your bonds will be owned as safely as possible for full protection.
Also brought up, during rebalancing of selling a 20 year bond and purchasing a 30 year bond, this would not count as a wash sale we are thinking?
Wash sale is only a problem if trying to do tax loss harvesting. In that case, I would simply sell the losers and wait 31 days then buy back in to be safe. But this is more rare than people may think. Also, bonds should go into tax-deferred first to shield the income from taxes. So wash sale rules might not even apply.
Another point, for someone who is in the accumulation-stage of his life (I'm 24), I would be having a lot of money flowing in each month from my paycheck to then be going into my Permanent Portfolio. How would you balance adding to the BOND portion of the portfolio during this time. I could initially purchase a 30 year bond and keep cash in a separate account and once it gets large enough, purchase another 30 year bond and rinse and repeat.
Yes that is what I'd do.
This however would cause me to have multiple 30 year bonds over time. Not sure if this is really a bad thing though.
Actually you'd start to have a ladder of bonds as those you bought earlier go to 29, 28, 27 years, etc. This is all fine. The secondary market doesn't care when you sell them. The yields are set by the market constantly and sold just as easily regardless of years they have left.
1.) Purchase 30 year bond
2.) If price of bond reaches above the 35% PP mark, sell the bond (would you sell the entire bond and not part of it?)
3.) If price of bond falls below 15% PP mark (either due to capital loss or you are in the accumulation stage of life and your other portfolio parts are all growing as well), purchase another 30 year bond to offset the portfolio difference percentage
4.) if neither 2.) or 3.) happens in 10 years when the 30 year bond turns into a 20 year bond; sell the bond and purchase a new 30 year bond again.
Yes pretty much that is it. If you are owning the bonds directly you can't do partial sales though. You'd have to sell the whole bond. But once you save enough this is not an issue. It's more of a rounding error when rebalancing. Recognize this isn't a science and approximately 25% is good enough to get the job done even if it is slightly above or below depending on your bond sale.
Obviously these steps get more complicated if you have multiple 30 year bonds at all different types of maturity dates. Not sure if this is how others in this forum run their bond portion however and would appreciate some advice.
It's not a big deal. I have bonds of multiple maturities and I just sell of bits and pieces when needed to get the appropriate bond level. You can also pick and choose the sales to manage capital gains taxes as well.