Gyroscopic Investing

Hey all,

I'm 25 years old and have decided the permanent portfolio is for me. I am having trouble deciding how to set my portfolio up, however. I am a student so I do not have a steady income, but I do own commercial real estate property which as of right now is ~ break even, but that will hopefully change by the end of summer this year and will throw some income my way.

As of right now, I have 15k of IRA space. I bought PRPFX a while ago and have significant gains so I don't see a reason to sell it. I just adjusted it to see what I'd need in my asset classes in addition according to what I read on this forum/big HBPP thread (PRPFX = .3 gold, .3 stocks, .25 cash, and .15 treasuries). My portfolio is at Fidelity.

So portfolio as I see it can be (total of 170k):

73k in PRPFX
20.5k in FSTMX
20.5k of GTU
24.5k of T-Bills

15k in IRA of 30yr treasuries bought directly on Fideilty

Another 17k in 30yr treasury bonds or TLT in taxable???

So my questions are:

1. I need another 17k in 30 yr treasuries for my taxable account. Is purchasing these directly and holding them going to be tax efficient/okay? Would TLT fair any better?

2. Would I be better off just throwing away the 4x25 PP and just doing the 90% PRPFX and 10% EDV (held primarily in IRA) to save on taxes?

I'd like to set this and forget it, so if I could set it up now so that I don't have to change too much other than moving assets around a bit when I do get a job that would be great.

Thanks!

subcon wrote: 1. I need another 17k in 30 yr treasuries for my taxable account. Is purchasing these directly and holding them going to be tax efficient/okay? Would TLT fair any better?

IMO both approaches are fine and would be about equally tax efficient.

subcon wrote: 2. Would I be better off just throwing away the 4x25 PP and just doing the 90% PRPFX and 10% EDV (held primarily in IRA) to save on taxes?

I'd like to set this and forget it, so if I could set it up now so that I don't have to change too much other than moving assets around a bit when I do get a job that would be great.

This is debatable but I prefer the 4x25 over PRPFX due to PRPFX's high expense ratio.

You listed individual T-bills and bonds, but they will require more hands-on attention than funds would.

Also you may want to consider getting at least a part time job so you can show W-2 wage income and increase your IRA space.

Hi Kevin,

Thanks for the response.

I invested the money today and decided to go with TLT for simplicity since it won't make much a difference regarding taxes and returns. I forgot to ask, but this fund is exempt from State-Income taxes like individual bonds are right?

Now to simplify the T-bills portion, should I just go ahead and toss the cash into SHV? Or with rates as low as they are avoid this fund since its expense ratio is huge compared to its recent returns? Any good alternatives (I'd like to keep all my investments in Fidelity)?

subcon wrote: I forgot to ask, but this fund is exempt from State-Income taxes like individual bonds are right?

My understanding is yes, but I've never had TLT in a taxable account, and I am not a tax accountant, so you should verify that.

subcon wrote: Now to simplify the T-bills portion, should I just go ahead and toss the cash into SHV? Or with rates as low as they are avoid this fund since its expense ratio is huge compared to its recent returns? Any good alternatives (I'd like to keep all my investments in Fidelity)?

Again this is kind of a personal preference so you should do whatever makes most sense to you.  You should listen to the recent podcast which is all about cash.  I agree with craigr's suggestion to start out with a simple treasury MMF, and once that gets big enough to be a full emergency fund, put the remainder in 1-3 year treasuries.  If I were at Fidelity I'd probably use FDLXX for the emergency cash and FSBAX for the rest.  You could use SHV or SHY in place of FSBAX too.

For the cash piece, don't forget about I-bonds.

- Zero expense ratio

- Complete tax deferral until redemption

- Based upon historical data, they have earned about what five year treasurys pay, except you have no interest rate or principal risk.

It's a pretty good deal.

We've got to start being quiet about I-bonds... pretty soon they'll be so popular they'll be offering negative fixed rates with people hoping for a solid inflation portion.

"Nothing to see here, folks!"