Gyroscopic Investing

Hello everyone,

I can only partly implement a permanent portfolio investment plan in my company's 401(k). What's currently available that is similar to the cash portion and equity portion of the PP is a fund that holds a mix of short term treasuries and other short term corporate debt (AA and above rated) and an index fund that tracks the S&P 500.

There is neither an option to invest in the long term Treasury (LTT) bond portion of the PP nor the gold portion of the portfolio. The longest duration I can get from plan is a 'high quality' income fund with a duration of about 4.5 years and the content of that fund is from AAA rated Treasuries down to BB rated corporate debt.

The 401(k) plan administrator does not allow access to a brokerage window and I am not getting up my hopes that a long term Treasury bond fund will be added anytime soon to the plan (even though I approached them regarding adding such a fund / currently waiting on their response). 

What is the best option to handle this situation if you have say 12,000 in the 401(k)?
A)
401(k):                (total: $12,000) $3,000 Cash + $9,000 Stocks
Taxable account: (total: $24,000) $6,000 Cash + $9,000 long term Treasuries + $9,000 Gold

The problem I see with approach A is that it is impossible to re-balance properly if you have 1 and a 1/3 assets in the 401(k) and 2 and 2/3 assets in a taxable account. Just looking back at 2008 the profitable trade was to sell appreciated assets like LTT to buy depressed assets like stocks.
I would also have to limit my 401(k) contributions (currently maxing out) as I probably would need to allocate more money to the taxable account (due to having more assets in that account) and thereby increasing my taxable income.

B) (numbers are rounded)
401(k):                (total: $12,000): $1,297 Cash + $1,946 Stocks + $8,757 high quality income fund
Taxable account:  (total: $24,000)    $648 Cash + $1,946 Gold (to cover the PP side of the 401(k))
                                                    + $5,352 Cash + $5,352 Gold + $5,352 Stocks + $5,352 LTT (traditional PP with remaining funds). 

The $8,757 in high quality income fund is trying to mimic a long term Treasury fund with a 4.5 times allocation to this portion in order to get a 20 year duration similar to the Treasuries (as mentioned above the duration of this fund is about 4.5 years but with higher credit risk, so 4.5 x $1,946 = $8,757).

Overall, B) is a bit 'Treasury' heavy and lighter on the cash, stocks and gold allocation but would make re-balancing more applicable.

C) similar to B) (numbers are rounded)
401(k):                (total: $12,000): $1,297 Cash + $1,946 Stocks + $8,757 high quality income fund
Taxable account:  (total: $24,000)    $648 Cash + $1,946 Gold (to cover the PP side of the 401(k))
                                                    + $7,055 Cash + $7,055 Gold + $7055 Stocks + $243 LTT. 

C) gives an overall $9,000 allocation to every asset (cash, stocks, bonds, gold) but again the re-balancing issue (Treasuries - Stocks) comes up here again but this time (compared to A) I am 'Treasury' heavy in the 401(k)).


Sorry for the long write-up.

Any thoughts?

NewToThis, are you using a Roth IRA on the side?

Another option: build one complete portfolio in your 401k and another in your taxable space.

Taxable can be a by-the-book 4x25 PP with no compromises.

For now, 401k can be a conservative Boglehead-style portfolio, something like 30% stock index and 70% total bond index.

Most people change employers every few years, and every time you do that you have the option of rolling over your 401k into a brokerage IRA that can implement a plain PP. If that happens to you, you'll only be stuck with the 401k for a handful of years, and then the rollover IRA can be a plain PP too.

With a lot of these crummy 401k plans, the best you can do is try to minimize fees and minimize portfolio management.  As a first cut, I would look at the funds available and see what is available with a low expense ratio (hopefully less than 0.2%) and what is available as passive funds (not actively managed).  Hopefully, that gives you at least a stock index fund and a total bond index fund to choose from.  If that's all you have to work with, then just pick some ratio of stocks to bonds that you are comfortable with, maybe 50/50 or whatever you like.  Then, just be happy with that, make regular contributions, hopefully get a company match, and rebalance every year or two, and actually you should be fine if your time horizon is long enough (e.g., > 20 years).  The PP is a great portfolio, but especially for retirement when you need to count on not losing a bunch of money.  Before retirement, you will be fine with just a stock/bond mix as long as you don't panic and sell when the market is down.  Just ride out the downturns and keep contributing during those times.  If you're like most people, you will get busy with other things and hopefully you won't even look at your 401k balance during the downturns.

Ask the administrator about a PCRA or brokerage window as well. That's what I use for my 401k with Schwab. You basically can invest as if it were an IRA. Here's a letter I got from one of the representatives. The fee mentioned in the body of the letter has since been waived.

Dear XXXXXXX

Thank you for your message.

Your XXXXXX Retirement Savings Plan does offer the ability to invest in securities that are outside of your mutual fund choices. A Personal Choice Retirement Account (PCRA) lets you, or your investment manager, build a portfolio from a wide variety of investment options1, including:
• More than 4,700 mutual funds from over 400 of the nation's most respected mutual fund companies. In fact, Schwab's Mutual Funds One Source® lets you buy over 2,700 funds with no loads and no transaction fees.
• Stocks and ETFs listed on all the major U.S. exchanges, including over-the-counter issues.
• Bonds and other fixed income investments, including CDs, Ginnie Maes and bond mutual funds. 
Apply for a PCRA

Click here to apply for a PCRA online and for more account information (Manage Account> PCRA).

To apply for a PCRA by mail, please contact a PCRA Representative directly.

Please note there is a $100 fee charged per year to have a PCRA. Once you open your PCRA, Schwab has a dedicated PCRA service line for help in allocating your assets between broad investment categories. This customized analysis is based on your time horizon and tolerance for risk.

Trade in your PCRA

Click here to start trading in your PCRA (Manage Account> Investments> Transfer).Money transferred into the PCRA will be placed in a money market fund until you begin trading.

Please feel free to contact us by phone or through the Message Center online if you have any additional questions. To speak with a member of our participant services team directly please call 1-800-724-7526, Monday through Friday from 7:00 AM ET until 11:00 PM ET. We are ready to help you. Note: Staying on hold will automatically direct you to a representative for assistance.

Sincerely,

Veronica