Gyroscopic Investing

Higher coupon payments, hedge against Ted Cruz becoming president and defaulting on treasuries.

Pointedstick wrote: Higher coupon payments, hedge against Ted Cruz becoming president and defaulting on treasuries.

I'm sure your corporate bonds will be perfectly safe if the US Treasury defaults! 

PS, seriously, how did you decide to substitute BLV?

I never understood the point of corporate bond funds.  I remember looking into their performance vs Treasuries when I was researching the PP, and found that they correlated very well with the stock market, just had less extreme swings and (correspondingly) lower returns.  I didn't simulate it but it looked like you can get the same effect by combining stocks with cash.  I don't see them as a substitute for Treasuries, unless you are betting that Treasury rates won't go down much further and you're reaching for yield.

BLV and TLT move very similarly. BLV also has a lot of treasuries in it anyway. In the end I wanted a bit more institutional diversification beyond just U.S. government securities for my long-term bonds, and the higher yield doesn't hurt, either. I'm happy with it in my modified GB portfolio, and I still use pure treasuries in my PP.

sophie wrote: I never understood the point of corporate bond funds.  I remember looking into their performance vs Treasuries when I was researching the PP, and found that they correlated very well with the stock market, just had less extreme swings and (correspondingly) lower returns.  I didn't simulate it but it looked like you can get the same effect by combining stocks with cash.  I don't see them as a substitute for Treasuries, unless you are betting that Treasury rates won't go down much further and you're reaching for yield.

I'm sure he's thinking back to the Great Depression where triple AAA's benefited from the collapse in government confidence (it was a systemic collapse worldwide).  Last time I did research into this, I couldn't find any "clean" bonds funds that were worthwhile, but maybe BLV has changed the game.  I wasn't impressed with Wellesley or Wellington -- way too much risky "pollution" from stocks.

BLV: So 41.76% into Treasuries and 45.57% into corporates.  However, lower credit quality is substantial in one notch above junk status at 27.38% and two notices above junk at 23.1%%.  There's also 22.95% exposure to non-USA countries, including rinky dink republics like Mexico or South Africa.

Verdict: Not a good partial replacement for any of the PP's T-Bonds.  There's only two AAA-rated corporations left, so its a bad problem to have.

And then there was one.  Exxon just lost its Triple A status it had for 86 consecutive years.  Next up is a dividend cut?  That would kill a lot of widows and orphans.

EDIT: My bad.  There's now two left... Microsoft and Johnson & Johnson.

[quote=Wall Street Journal]In downgrading Exxon by one notch to double-A-plus, S&P cited the company's rising debt level and said dividend payments and share repurchases "substantially exceeded" internally generated cash flow.[/quote]

P.S.  Exxon raised the dividend on the news.  Sheer lunacy.

sophie wrote: ↑Thu Apr 14, 2016 9:30 pm Also, in case your PP is spread across multiple types of accounts:  I treat additions to retirement accounts differently than taxable additions.  For retirement accounts, I split new money into the three volatile (non-cash) assets equally.  Taxable additions either go into cash or physical gold.  When I hit my limit of taxable cash, I'll switch and start putting cash into retirement accounts (particularly tax-deferred), and gold and stocks in taxable.

Reviving an old thread here because I really like Sophie's advice quoted above but have a few questions on how to apply it in my circumstances.

I just started a new job where I'll be maxing out my 401k each year. The offerings are actually not all that bad—I can get everything except Gold, where there is virtually no option. For reference (Golden Butterfly):

• VFIAX -- Large Cap Blend
• VSIAX -- Small Cap Value
• VLGSX -- Long-Term Treasuries
• VSGDX or Cash with a 0.55% APY -- Cash -- can't decide on which is better. Thoughts?

I also have an IRA, Roth IRA, and Taxable account, all with Schwab so I've got flexibility outside of the 401k, which I'm thinking could help. Currently, I have all of my gold in the taxable account.

Right now, I'll be adding funds primarily to my 401k and I'm not sure how to spread the money when trying to achieve the balance Sophie mentioned above. I'd really like to keep it at 20% for each asset class and be done with it but the 401k doesn't have Gold.

So, here's my preliminary thought: (though it is a bit complicated and I'd love to hear what others do in similar scenarios)

- Have paychecks split automatically between non-gold assets (25% each for LCB, SCV, LTB, Cash).
- Sell enough of each of the above assets in my IRA (Schwab) to buy Gold in the IRA such that each asset had the same added amount.

For example, say I have a $1000 paycheck. $250 would go into each of the non-gold assets in the IRA. I would then sell $50 of each of those assets in the IRA and purchase $200 of Gold. So, I'd be left with each asset having increased by $200.

The math certainly works (unless I'm missing something) but it is complicated. Any other suggestions? I'm not at all wedded to having those specific assets in the 401k either and am open to suggestions about some other mix that would make more sense.

One final alternative that I thought of is to have the same setup as above in which the auto-deposit goes into my 401k split evenly between non-gold assets ($250 each using the example above) and then purchase $250 of gold in my taxable account. I'd have to see if this fits in my budget first but it's definitely the easier of the two approaches I could think of.

Nice trip down memory lane! It's good to see these old threads revived. And reminds me how much I miss PointedStick.

Anyway distefam...there are lots of threads on your specific problem, which many of us have wrestled with. I think the answer depends on what proportion of your savings is in that gold-free 401K. You'll be OK if it's less than 60% (stocks + bonds). Buy physical gold or equivalent in taxable, and use some gold ETFs in one of those other tax-advantaged accounts.

This is what a few of us were doing until 2013, when we needed to rebalance into gold. That was impossible for many of us, so I (among others) gave up trying to run a PP with such an account. I went with a standard Boglehead portfolio instead. It will get rolled into the PP eventually.

Thank you for the reply, Sophie. I'm fortunate in that the majority of my money is outside of the 401k, which shouldn't make rebalancing, even in circumstances where I need to get into all but the most significant gold hold holdings, difficult. And, most of those are in tax-deferred accounts so selling frequently in them won't be a problem.

I think what I'll do for the time being is have the 401k split between the non-gold assets, and then I'll purchase once per month gold in my taxable account for the same amount. In months where I cannot afford to do that I'll make some trades to the effect I mentioned in my last post in my tax-deferred non-401k account so that Gold was purchased in equal percentage as the other asset classes.

Now, I just have to email the 401k administrator and see how dividends are reinvested and how rebalancing in general is handled. The plan (Guideline 401k) only allows me to set percentages for each asset class and I suspect that each addition will try to balance them as much as possible but we'll see.