To get started, if you don’t already have an online brokerage account (like ETrade, Ameritrade, Fidelity, or Vanguard) – open one.
If you are going to only hold the ULP (or other Vanguard funds/ETFs) in the account, and not trade other securities (such as individual stocks) the easiest and cheapest answer is to open a Vanguard account. Vanguard charges no commissions and no fees when you buy and sell their funds, and since those are the funds I recommend in your starting portfolio, it’s a pretty simple place to start.
If you plan to invest in the ULP alongside other investments, there is no need to switch your online broker. Just keep in mind that you will probably pay a small commission when you buy and sell the Vanguard products.
Step 2: Decide whether to invest as an ETF or mutual fund
In short, you should most likely invest as ETFs. If you’re ok with that, skip to Step 3. Or read below if you’re curious about the differences.
As of December 2018, for investments in the ULP of up to $30,000, you have to do it via ETFs because of Vanguard’s account minimums.
ETFs tend to be more tax efficient as you don’t have capital gains taxes for asset changes within the portfolio.
The ETFs I propose charge 0.04% on the 12% Stock portion, and 0.07% on the 88% Bond portion, for a blended average cost of 0.0664%.
(To get lower costs from mutual funds you would have to invest extremely large amount of money (for example, $50,000,000). At those levels Vanguard will charge you 0.035% on the 12% Stock portion, and 0.05% on the 88% Bond portion, for a blended average cost of 0.0482%.)
ETFs tend to be more tax efficient regardless of the account size, although there is a small “spread” that you pay when you buy and sell them. In other words, when you buy an ETF with a price of $125.46, you might pay $125.47 for it, plus potentially a trading commission if you bought it outside of Vanguard.
If you are going to be regularly funding the account, and you have at least $30,000 in initial capital, it is a little simpler to make automatic investments in mutual funds than manually via ETFs.
Step 3: Fund the account.
You will buy and rebalance in the following ratios:
88% of your money in VGIT: Vanguard Intermediate-Term Treasury ETF
12% of your money in VTI: Vanguard Total Stock Market ETF
With your initial investment, just take the amount and multiply by the appropriate percentages, and buy the funds.
If you are doing the mutual fund version, buy VFITX instead of VGIT, and VTSMX instead of VTI.
Step 4: Rebalance.
Rebalancing means maintaining the appropriate ratios between the two ETFs. This is extremely important in order for you to maintain the amazing risk-reward characteristics of the ULP.
There are two ways to do this:
Option 1: Mark your calendar for exactly one year from when you fund the account. On that day, sell and buy shares of each of the two ETFs to rebalance your ratio to 88/12. The main benefit of this is that it is simple. The downside is that you may be subject to capital gains taxes over time as the portfolio gains value that you wouldn’t be subject to under Option 2.
Option 2: rebalance as you buy more shares. If you are adding money to your ULP strategy over time, before you add money (quarterly, monthly, whatever), recalculate what the number of shares should be, and bring it into balance with the 88/12 ratio.
To learn more about keeping the balance as you sell shares, read the Chapter in my book called “how to draw money from the ULP”. In the chapter called “Advanced Strategies”, I discuss strategies for lowering your tax bill.
LEARN MORE IN MY BOOK:
'The Ultimate Liquidity Portfolio'
WHAT YOU'LL LEARN:
Say goodbye to the six-month rule. Use our questionnaire/calculator and figure out YOUR target emergency fund amount.
Investing for the longer term... Balancing ULP with your long-term investments
What savings accounts should be used for: yes they still have a place (but don't overdo it)
Gold, guns, cash, and crops... how do you define "emergency"?
Picking your ULP funds…how the right “sounding” index funds can dramatically undermine your performance
Hyperinflation, depressions, and more... How the ULP performs when the world looks really scary or really great
The philosophy of the ULP and human behavior: why we choose low correlation, real returns, drawdown resiliency, and liquidity
Stocks are riskier than bonds... Except when they're in a portfolio... the data and reasons why it's safer to include stocks.
Advanced ULP... portfolio tweaks for even better risk-adjusted returns
Taxes: some simple (and some complicated) strategies for reducing them
The past does not equal the future…. why returns on everything are getting worse...and what to do about it
How to take money out when the emergency need hits
ULP over your life.. How things change as you age and why
Federal guarantees: comparing ULP vs. the alternatives, is more return worth it for you?
WHO AM I?
In my decades of investing, I’ve learned from some of the greatest minds in the business – I studied economics with Paul Krugman at Stanford, did investment research at Goldman Sachs, received an MBA with high distinction from the Harvard Business School, and worked with Ray Dalio at Bridgewater.
The ULP is the best liquid strategy I’ve ever seen. It’s simple, easy to implement, and has over 46 years of data backing it up. The tax-efficient strategy has performed in markets of all stripes – from full-blown panics to massive economic booms. If you want yield, growth, and an alternative to the meager returns banks have been paying you, you can learn more by clicking below.
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