mathjak's 25x4 method (bond, IRAs, brokers, hedge fund)

[amdda01]

Hi mathjak,

Read about your 25x4 method and had a few questions:

1) How does one get started? For example, I have $100,000 to invest. Do I simply drop $25,000 into gold/treasures/cash/index fund in one shot, or gradually/time the investments?

2) How do you add to the investments? For example, I have $4,000/month after bills. Do I simply add $1,000/sector each month?

3) How exactly do we rebalance? Do we sell some sectors and buy into others?

4) Any other advice/tips you can recommend?

Sorry if the questions are too basic - Just trying to fill in the blanks.

[mathjak107]

Its very straightforward,each catagory gets 25%.. no timing , everything goes in at once as at any given time something will always be high or low. your buying the complete package of protection.

i tend to like
GLD for my gold holdings but actually owning some gold eagles,krugerands or maple leafs is even better. i also like SGOL and phys for gold as they are even more bullet-proof then owning thru gld.
interesting reading on this:http://www.minesite.com/fileadmin/co...ril%202010.pdf

TLT is good for the bond portion or actually buy 30 year treasuries

VTI is good as a total market fund but any widespread fund is okay. what you dont want is an actively managed fund. you dont want a fund manager making decsions to go heavy into different stocks or to go to cash at exactly the wrong time.

you want a fund that stays 100% invested and that covers all the sectors .

cash is cash but treasury bills make things even more bullet proof. you could opt for a short term treasury bond fund for higher yield but you do take on more interest rate risk.

rebalance once a year or when there is a 20% difference between asset classes.

just buy more of the losers and sell some of what went up bringing everything back to 25% again.

i dont deserve the credit for this portfolio, its the brainchild of harry brown and terry coxen almost 40 years ago,..


heres how we did so far: as of 8/1

25% Stocks – Vanguard Total Stock Market (Ticker: VTI): -5.35%

25% Bonds – iShares Treasury Long Term 20+ year Bond Fund (Ticker: TLT): +14.37%

25% Cash – iShares Very Short Term Treasury Bond Fund (Ticker: SHV) [Equivalent to a Treasury Money Market Fund]: +0.04%

25% Gold – SPDR Gold Trust (Ticker: GLD): +13.0%

Total Return YTD: +5.4% (Total Returns including all interest and dividends according to Morningstar)



for comparison heres your typical 60/40 portfolio

60% Vanguard Total Stock Market (Ticker: VTI): -5.35%

40% Vanguard Total Bond Market (Ticker: BND): +5.10%

Total Return YTD: -1.5% (Total Returns including all interest and dividends according to Morningstar

[Robyn55]

Do your returns take taxes into account? Robyn

[mathjak107]

no, everyones taxes are different , mine are in my retirement money so i havent a clue what taxes will be.

[Robyn55]

GLD is a grantor trust - and may have tax implications even when held in a retirement account. (The taxes aren't simple outside a retirement account either.) Too complicated to discuss here. I'd advise anyone who is considering this investment to take a look at the tax implications. Robyn

[mathjak107]

gold just by being gold is problematic tax wise as when you sell its subject to regular income taxes not capital gains rates...

really any of these gold etf's are best held in retirement accounts..

on the other hand let them keep making us money and we will gladely deal with the tax implications

[mathjak107]

Originally Posted by Robyn55

GLD is a grantor trust - and may have tax implications even when held in a retirement account. (The taxes aren't simple outside a retirement account either.) Too complicated to discuss here. I'd advise anyone who is considering this investment to take a look at the tax implications. Robyn

i went thru all my stuff from GLD and saw nothing that would be an issue in an ira so im wondering what those issues would be......

i have owned it for years and saw nothing.

i own some outside the ira and other then it being reported on a k1 i saw nothing complicated there either.


"The United States Internal Revenue Service (IRS) treats gold as a collectible for long-term capital gains tax purposes. As such, gains recognized by individuals from the sale of SPDR Gold Shares are subject to a capital gains rate of 28% if held for more than one year. This rule extends to all gold held by the Trust. Although there are some restrictions applicable to retirement plans such as IRAs and 401ks investing in collectibles, SPDR Gold Shares received a private letter ruling permitting investment by such retirement plans."


"The IRS has created yet another double standard. As a result, a gold ETF in an IRA will not be subject to the 28% long-term tax rate on collectibles. So there’s no reason (at least at this time) to worry about avoiding the collectibles tax rate when holding gold or silver ETF shares in an IRA."

[Robyn55]

There are issues like possible UBTI - possible distributions in kind - possibility of gold in trust being treated as gold (GLD got private IRS ruling saying it wouldn't be - but private rulings only apply to parties to whom they're given). These possibilities are remote - but they raise serious issues which should IMO be discussed with a personal accountant or tax advisor.

As far as returns on gold are concerned - seem to recall that your investment dates back to about 1987. Gold has an annualized rate of return of about 4.5% since then. Robyn

[mathjak107]

robyn, if the gold was rebalanced every year as it should be, your return to date, had you even bought it at the peak of 1,000 bucks would be 9.2 % average annual return. . i dont know what the gold portion actually worked out to with the rebalncing since 1987 as i only have what gold did each year and what the portfolio did as a whole. .. doing the same thing with the s&p 500 gave you an average annual return of 9.8...the magic happens because of the rebalancing.

all those years of buying gold as the looser paid off in the end.

whats interesting is going back to 1972 when harry brown and terry coxen came up with the permanent portfolio concept the returns among the various asset classes like water seemed to just level out over almost 40 years so close...

total market index fund =9.3%
gold =8.4%
short term treasuries as a proxy for cash 7.5%
long term treasuries 8.4%

results were closer then one would think.... long term treasuries actually were the biggest surprise .

[Robyn55]

Average annual return isn't the same as annualized return - which is what you're looking for computing investment returns (e.g., Fidelity has a new performance evaluator - and it gives you annualized rates of return). Because you have to take compounding into account.

For example- there's the rule of 72 - which you use to compute doubling time. Money which returns 9 per cent a year will double in 8 years. But your average return will be 13 percent (100/8).

Average returns are meaningless when you're computing portfolio returns for this and other reasons. E.g., if you start with $100 - lose 40% in year one - and earn 80% in year two - your average return is 20%. But you'll only have $108 at the end of 2 years - not $140. Your annualized rate of return is 3.9%.

Any simple financial calculator will compute a simple annualized return for you. Appropriate when you're not paying taxes - or drawing money out of an account. It's more complicated when you're drawing amounts out of an account for taxes - living expenses - etc. Then you have to compute your IRR (internal rate of return). A lot more data entry. FWIW - outside a retirement plan - I think it's important to compute after tax yields (taxes can have a very big effect on net yields - the money you take home - which is all that matters IMO).

In any event - your numbers on gold are totally meaningless/wrong. And I don't agree with the notion of putting 25% of one's portfolio in gold on a long term basis (trading is another matter - although one has to be careful with the potential pitfalls in many of the new trading vehicles). I believe in the old rule of thumb - 5-10% of a portfolio in gold max - and you hope it always does badly (which it has done for the most part over the last several decades or more).

These days - the single largest shareholder in GLD is George Soros (among other hedge fund managers):

Soros Signals Gold Bubble as Goldman Predicts Record (Update2) - BusinessWeek

These guys are relatively short term traders. And when they leave the party (when their computers say "sell"- or another trade looks better) - you're going to hear one big whooshing sound. Regardless of the fundamentals (and note that gold isn't being used as an inflation hedge on a fundamental basis these days - it's being used more or less as a currency in a deflationary global zero interest rate environment). Robyn