For "bucket" strategy...WTH do I use for my second "bucket"?

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Homeby5
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Joined: Thu Aug 13, 2020 7:22 am

For "bucket" strategy...WTH do I use for my second "bucket"?

Post by Homeby5 »

hey guys,
My wife and I am retired at 57 years old. I like the "bucket" strategy where I keep the first "bucket" 4 years of needed living money in cash. The second "bucket" is supposed to be medium risk investments where I make some interest but it still hedges against a market downturn. The third "bucket" is basically a SP500 index fund.
My question is I can't figure out where to put my second "bucket" money? Should I use a target date fund that reflects that I am already retired (like a 2020 fund)? Some type of bond fund?
FYI...I use Vanguard, TransAmerica and Fidelity.
Thanks guys!
Call_Me_Op
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Location: Milky Way

Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by Call_Me_Op »

Homeby5 wrote: Tue Apr 20, 2021 7:16 am hey guys,
My wife and I am retired at 57 years old. I like the "bucket" strategy where I keep the first "bucket" 4 years of needed living money in cash. The second "bucket" is supposed to be medium risk investments where I make some interest but it still hedges against a market downturn. The third "bucket" is basically a SP500 index fund.
My question is I can't figure out where to put my second "bucket" money? Should I use a target date fund that reflects that I am already retired (like a 2020 fund)? Some type of bond fund?
FYI...I use Vanguard, TransAmerica and Fidelity.
Thanks guys!
Do you plan to rebalance the buckets regularly, or do you plan to spend through buckets 1 and 2 before replenishing them? Whether a bucket strategy makes any sense at all (in my opinion) depends upon how it is managed. And in the case where it is regularly rebalanced, it is not a classic bucket portfolio, but instead is really no different from a standard Bogleheads portfolio.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
dbr
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by dbr »

"medium risk investments where I make some interest but it still hedges against a market downturn" sounds to me like an intermediate term bond fund such as total bond market. You wouldn't want stocks there because that is bucket 3. There are lots of blogs about bucket schemes. What do they say?

Are you sure you know why you even want a so-called buckets scheme? The post above asks some good questions.
Topic Author
Homeby5
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Joined: Thu Aug 13, 2020 7:22 am

Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by Homeby5 »

Call_Me_Op wrote: Tue Apr 20, 2021 7:22 am
Homeby5 wrote: Tue Apr 20, 2021 7:16 am hey guys,
My wife and I am retired at 57 years old. I like the "bucket" strategy where I keep the first "bucket" 4 years of needed living money in cash. The second "bucket" is supposed to be medium risk investments where I make some interest but it still hedges against a market downturn. The third "bucket" is basically a SP500 index fund.
My question is I can't figure out where to put my second "bucket" money? Should I use a target date fund that reflects that I am already retired (like a 2020 fund)? Some type of bond fund?
FYI...I use Vanguard, TransAmerica and Fidelity.
Thanks guys!
Do you plan to rebalance the buckets regularly, or do you plan to spend through buckets 1 and 2 before replenishing them? Whether a bucket strategy makes any sense at all (in my opinion) depends upon how it is managed. And in the case where it is regularly rebalanced, it is not a classic bucket portfolio, but instead is really no different from a standard Bogleheads portfolio.
Yeah...I keep it rebalanced once a year. Right now I have 6 years in cash and I want to shift 3 years somewhere in that will hedge against a hard downturn but may still grow a little.
Sorry if I am mislabeling this a "bucket" strategy? I thought that term simply meant what I was doing....
Thanks
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Wiggums
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by Wiggums »

Homeby5 wrote: Tue Apr 20, 2021 7:16 am hey guys,
My wife and I am retired at 57 years old. I like the "bucket" strategy where I keep the first "bucket" 4 years of needed living money in cash. The second "bucket" is supposed to be medium risk investments where I make some interest but it still hedges against a market downturn. The third "bucket" is basically a SP500 index fund.
My question is I can't figure out where to put my second "bucket" money? Should I use a target date fund that reflects that I am already retired (like a 2020 fund)? Some type of bond fund?
FYI...I use Vanguard, TransAmerica and Fidelity.
Thanks guys!
I wonder if you really need three buckets with 4 years in cash.

We are 59 and retired. We have cash and the rest is in a 65/35 fund. DW and I considered a middle bucket 🪣 with 30% stock to beat inflation. our cash flow is good and my DW really wants simplicity so we are focusing on Roth Conversions and reducing the number of accounts.

We use Vanguard and Fidelity.
dbr
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by dbr »

As far as I can see the essence of a buckets strategy is that you end up with a variable asset allocation and need a rule to time how the asset allocation varies. The scheme can get quite complicated if it attempts to ratchet down through three levels of risk.

If want you want is to insulate yourself to some degree from the high volatility* of stocks, then you can do that by holding an allocation to things that are not that volatile, aka bonds. This, of course, is just a typical allocation to stocks and bonds with the proportion chosen to get the risk and return the investor thinks suits his needs. For a typical retiree thinking of spending somewhere around 4% of the initial assets each year, increased by inflation, somewhere around 50/50-60/40 is likely a good choice. When stocks are down, one sells bonds for withdrawals and to rebalance, and vice-versa. I personally don't see the point of calling out cash as a different asset from other low volatility holdings. It is just at the lower end of low risk, low return compared to the range of bonds, etc.

*volatility is the variation in return measured by the standard deviation of annual returns. Cash in a savings account returns interest in a range of maybe 0%-2% for a volatility of very roughly 1%. CDs probably range in return between 1% and 5% for a volatility of perhaps roughly 2%. An intermediate bond fund has a standard deviation of annual returns of perhaps 6% and stocks come in around 20%. The other word for volatility is risk.

** It is also appropriate to shift over all the measures to real dollars after inflation but it is hard to find published data for individual investments that is in real dollars. Loss of return to inflation is a severe hazard for long bonds and fixed annuities and pensions and less so for cash as savings interest rates tend to track with inflation though not always so exactly. Inflation hazard can be eliminated by holding TIPS or I bonds but TIPS still have duration risk.
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goingup
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by goingup »

Christine Benz (Morningstar) has written about bucket strategies. The gist is 2 years in cash, 8 in bonds, and the rest in stocks.

Here's a discussion on that: viewtopic.php?t=214843
She also did a podcast with Rick Ferri where her strategy was discussed: https://rickferri.com/podcast/episode-0 ... ick-ferri/
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WoodSpinner
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by WoodSpinner »

Homeby5 wrote: Tue Apr 20, 2021 7:16 am hey guys,
My wife and I am retired at 57 years old. I like the "bucket" strategy where I keep the first "bucket" 4 years of needed living money in cash. The second "bucket" is supposed to be medium risk investments where I make some interest but it still hedges against a market downturn. The third "bucket" is basically a SP500 index fund.
My question is I can't figure out where to put my second "bucket" money? Should I use a target date fund that reflects that I am already retired (like a 2020 fund)? Some type of bond fund?
FYI...I use Vanguard, TransAmerica and Fidelity.
Thanks guys!
When I first retired I set my AA and deployed a bucket strategy as follows:

Bucket-1
Checking/Savings(Current Year Expenses)
VGSH (3 years of Expenses)

Bucket-2
VGIT (7 years Expenses)

Bucket-3
VTI (per AA)
VXUS (per AA)
VGIT (per AA)

After 3 years I realized I never really touched Bucket-1 and was pulling from either Bucket-2 or Bucket-3 as part of my yearly Rebalancing and Expense funding.

Decided that what I really liked about the Bucket Strategy was it gave me a floor of Safe Fixed Income holdings to cover my expenses which would not be used for rebalancing. So I decided to shift to a simpler strategy:

Expense Floor (a modified LMP approach
Checking/Savings(Current Year Expenses)
VGIT (10 years of Expenses)

Growth Portion
VTI (per AA)
VXUS (per AA)
VGIT (per AA, these funds can be used for rebalancing if their is a downturn in equities)

My current AA is:
VTI (45%)
VXUS (15%)
VGIT (40%)

Overall, I like the simplicity of the new approach but it took a few years of using Buckets for me to better understand the mechanics of managing the portfolio and estimating expenses.

Best of Luck

WoodSpinner
pascalwager
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by pascalwager »

WoodSpinner wrote: Tue Apr 20, 2021 9:07 am
Homeby5 wrote: Tue Apr 20, 2021 7:16 am hey guys,
My wife and I am retired at 57 years old. I like the "bucket" strategy where I keep the first "bucket" 4 years of needed living money in cash. The second "bucket" is supposed to be medium risk investments where I make some interest but it still hedges against a market downturn. The third "bucket" is basically a SP500 index fund.
My question is I can't figure out where to put my second "bucket" money? Should I use a target date fund that reflects that I am already retired (like a 2020 fund)? Some type of bond fund?
FYI...I use Vanguard, TransAmerica and Fidelity.
Thanks guys!
When I first retired I set my AA and deployed a bucket strategy as follows:

Bucket-1
Checking/Savings(Current Year Expenses)
VGSH (3 years of Expenses)

Bucket-2
VGIT (7 years Expenses)

Bucket-3
VTI (per AA)
VXUS (per AA)
VGIT (per AA)

After 3 years I realized I never really touched Bucket-1 and was pulling from either Bucket-2 or Bucket-3 as part of my yearly Rebalancing and Expense funding.

Decided that what I really liked about the Bucket Strategy was it gave me a floor of Safe Fixed Income holdings to cover my expenses which would not be used for rebalancing. So I decided to shift to a simpler strategy:

Expense Floor (a modified LMP approach
Checking/Savings(Current Year Expenses)
VGIT (10 years of Expenses)

Growth Portion
VTI (per AA)
VXUS (per AA)
VGIT (per AA, these funds can be used for rebalancing if their is a downturn in equities)

My current AA is:
VTI (45%)
VXUS (15%)
VGIT (40%)

Overall, I like the simplicity of the new approach but it took a few years of using Buckets for me to better understand the mechanics of managing the portfolio and estimating expenses.

Best of Luck

WoodSpinner
Considering your original plan, my understanding is that Buckets 1 & 2 are supposed to be totally used up (empty) over the first ten years of retirement, and then, for the rest of your life, you rely totally on Bucket 3 with the stock and bond funds. At that point Bucket 3 feeds directly into your bank checking account.

So, why were you pulling from Bucket 2 during the first three years? Wasn't Bucket 2 reserved for the next seven years?

Also, how could you rebalance between the three buckets if Buckets 1 and 2 are supposed to be exhausted after three and seven years respectively?
JakeyLee
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by JakeyLee »

My father ran a bucket system for over 30 years of retirement. His second bucket was/is Wellesley fund. It seemed to serve him well. Oddly enough (to me) however, he rebalances every 18 months. He wasn’t comfortable being as heavy in bonds. I believe Wellesley is 60-65% bonds. So its a sweet spot for him.
namajones
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by namajones »

Cash, bonds, and equities. Those are your three buckets. You can consolidate the latter two of those in one fund that does your rebalancing for you. Keep it simple.
dbr
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by dbr »

If your portfolio is continually rebalanced to a set overall asset allocation, then you don't have buckets. What you have is an asset allocation. That is true even if you have mentally divided up the assets into what you are calling buckets. It wouldn't even make sense to say you withdrew "from" this or that asset if at the same time you are shifting money around to rebalance or if you are simply selling an asset that is above target to drive to balance.

If you do have three buckets of cash, medium risk, and then high risk and you withdraw first from cash until it is gone, and then from medium risk until it is gone, and then from high risk the actual result is to change your asset allocation from cash/bonds/stocks to bonds/stocks to stocks as time goes by (for example -- it doesn't preclude the "stocks" being a blend of stocks and bonds, etc.)

A more complicated scheme uses the same buckets but also has some sort of rules for when to move money among the buckets as one spends "from" the first bucket and then draws on buckets 2 or 3 to replenish bucket 1. That results in a varying asset allocation that cycles around an average.

Proving that any particular one of these schemes is advantageous compared to another, including a simple rebalanced constant asset allocation, is not easy as an ex ante proposition. A process that tends to offset one supposed risk tends to exacerbate another risk, and you don't know in advance which risks will materialize. Alternatively, the scheme may not constitute a large enough shift in asset allocation to have a meaningful effect. An inherent problem in messing around with asset allocation for retirement withdrawal is that reduced risk also results in reduced return, and those two offset in effect.

There is nothing wrong with reading up on the studies that anyone may have done and deciding if this sort of strategy is something one wants to try. In the end it may do little harm.
superbobbyg
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Joined: Sat Sep 28, 2019 1:20 pm

Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by superbobbyg »

I am putting 4-1/2 - 5 years in bucket 1 (checking/savings/VGSH) 8 years in bucket 2- intermediate bond mutual funds; bucket 3 is equities (VTI, VEA,VWO IJR,QQQ). At age 66, so will take SS at 70.
KlangFool
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by KlangFool »

OP,

1) I have 3 years of expense in CASH as my EF

2) My 60/40 portfolio (excluding EF) is at 27 years. I have a minimum limit of 5 years of expense in bond/fixed income as my second bucket.

KlangFool
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pascalwager
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Joined: Mon Oct 31, 2011 8:36 pm

Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by pascalwager »

Homeby5 wrote: Tue Apr 20, 2021 7:16 am hey guys,
My wife and I am retired at 57 years old. I like the "bucket" strategy where I keep the first "bucket" 4 years of needed living money in cash. The second "bucket" is supposed to be medium risk investments where I make some interest but it still hedges against a market downturn. The third "bucket" is basically a SP500 index fund.
My question is I can't figure out where to put my second "bucket" money? Should I use a target date fund that reflects that I am already retired (like a 2020 fund)? Some type of bond fund?
FYI...I use Vanguard, TransAmerica and Fidelity.
Thanks guys!
Let's say your second bucket is six years long (after spending the four years of cash). You could use two bond funds to adjust weighted duration every year.

At the very beginning of retirement the duration would be 4 + 6/2 = 7 years.

After the fourth year of retirement the duration would be 6/2 = 3 years.

After the 7th year of retirement the duration would be 3/2 = 1 1/2 years.
dru808
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by dru808 »

How about 2 buckets? Whatever amount of years you desire in cash and the rest in equities.
..../..../.../...&...
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WoodSpinner
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by WoodSpinner »

pascalwager wrote: Tue Apr 20, 2021 1:54 pm
WoodSpinner wrote: Tue Apr 20, 2021 9:07 am
Homeby5 wrote: Tue Apr 20, 2021 7:16 am hey guys,
My wife and I am retired at 57 years old. I like the "bucket" strategy where I keep the first "bucket" 4 years of needed living money in cash. The second "bucket" is supposed to be medium risk investments where I make some interest but it still hedges against a market downturn. The third "bucket" is basically a SP500 index fund.
My question is I can't figure out where to put my second "bucket" money? Should I use a target date fund that reflects that I am already retired (like a 2020 fund)? Some type of bond fund?
FYI...I use Vanguard, TransAmerica and Fidelity.
Thanks guys!
When I first retired I set my AA and deployed a bucket strategy as follows:

Bucket-1
Checking/Savings(Current Year Expenses)
VGSH (3 years of Expenses)

Bucket-2
VGIT (7 years Expenses)

Bucket-3
VTI (per AA)
VXUS (per AA)
VGIT (per AA)

After 3 years I realized I never really touched Bucket-1 and was pulling from either Bucket-2 or Bucket-3 as part of my yearly Rebalancing and Expense funding.

Decided that what I really liked about the Bucket Strategy was it gave me a floor of Safe Fixed Income holdings to cover my expenses which would not be used for rebalancing. So I decided to shift to a simpler strategy:

Expense Floor (a modified LMP approach
Checking/Savings(Current Year Expenses)
VGIT (10 years of Expenses)

Growth Portion
VTI (per AA)
VXUS (per AA)
VGIT (per AA, these funds can be used for rebalancing if their is a downturn in equities)

My current AA is:
VTI (45%)
VXUS (15%)
VGIT (40%)

Overall, I like the simplicity of the new approach but it took a few years of using Buckets for me to better understand the mechanics of managing the portfolio and estimating expenses.

Best of Luck

WoodSpinner
Considering your original plan, my understanding is that Buckets 1 & 2 are supposed to be totally used up (empty) over the first ten years of retirement, and then, for the rest of your life, you rely totally on Bucket 3 with the stock and bond funds. At that point Bucket 3 feeds directly into your bank checking account.

So, why were you pulling from Bucket 2 during the first three years? Wasn't Bucket 2 reserved for the next seven years?

Also, how could you rebalance between the three buckets if Buckets 1 and 2 are supposed to be exhausted after three and seven years respectively?
There are many variations on the bucket system, I had no plans to spend down the buckets permanently. Rather I always wanted to have at least 10 years of expenses in Fixed Income and used the buckets to help calibrate that plus do some duration matching. I had always planned on refilling the buckets to make sure I maintained a rolling 10 years of expenses.

In my case, Pulled from whichever bucket was over valued based on my target AA as part of rebalancing. Either Bucket 2 or 3 was always above my target so I spent from there.

Perhaps this is just the personal part of Personal Finance but it is how I am managing things.

WoodSpinner
randomguy
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by randomguy »

WoodSpinner wrote: Wed Apr 21, 2021 12:09 pm

There are many variations on the bucket system, I had no plans to spend down the buckets permanently. Rather I always wanted to have at least 10 years of expenses in Fixed Income and used the buckets to help calibrate that plus do some duration matching. I had always planned on refilling the buckets to make sure I maintained a rolling 10 years of expenses.

In my case, Pulled from whichever bucket was over valued based on my target AA as part of rebalancing. Either Bucket 2 or 3 was always above my target so I spent from there.

Perhaps this is just the personal part of Personal Finance but it is how I am managing things.

WoodSpinner
In good times it is easy to say you just sell from bucket C and trickle the money up. The question is always what you do in the bad times. Lets make a simple example
a) 4 years in cash
b) 6 years in bonds
c) 15 years in stocks.

It is the year 2000 and bucket C is about to drop like a rock and will not hit break even for about 10 years. When and how are you rebalancing through the years? If you keep 10 years in fixed income, you are going to be selling stocks as they drop from 2000-2 and 2007-9 and will have very little left for the 2010+ bull market. If you let your fixed income portion drop, you can end up with a stock heavy portfolio that might interfere with your ability to sleep at night. And then repeat this same exercise for 1929, 1966, and 1973.

You end up having to make some tough choices with your refill strategy. You will notice how pretty much all discussions of buckets never talk about what to do during the really bad times...
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Fierce Escape
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by Fierce Escape »

If you have passive income, especially if its enough to cover basic living expenses and entertainment, you'd need less cash reserves. If you have surplus passive income, can be more aggressive, and even less cash reserves. No passive income besides cash reserves, then as others noted, some cash and simple 60/40 or 65/35 from there.... Good luck and congratulations on retirement at 57.
Ready for retirement travel in a Vandoit LIV awd Ford Transit van (July '21)
PaulF
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Location: Wisconsin

Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by PaulF »

You (and many others!) refer to a bucket "strategy."

To me, figuring out what the "strategy" is is not answering the questions you ask; it is not setting up initial allocations. Rather, I think the "strategy" part is figuring out the spendown rules you will follow. And also deciding if you will do any rebalancing or not. Woodspinner's post provides a good explanation of this, IMHO.
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WoodSpinner
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by WoodSpinner »

randomguy wrote: Wed Apr 21, 2021 4:03 pm
WoodSpinner wrote: Wed Apr 21, 2021 12:09 pm

There are many variations on the bucket system, I had no plans to spend down the buckets permanently. Rather I always wanted to have at least 10 years of expenses in Fixed Income and used the buckets to help calibrate that plus do some duration matching. I had always planned on refilling the buckets to make sure I maintained a rolling 10 years of expenses.

In my case, Pulled from whichever bucket was over valued based on my target AA as part of rebalancing. Either Bucket 2 or 3 was always above my target so I spent from there.

Perhaps this is just the personal part of Personal Finance but it is how I am managing things.

WoodSpinner
In good times it is easy to say you just sell from bucket C and trickle the money up. The question is always what you do in the bad times. Lets make a simple example
a) 4 years in cash
b) 6 years in bonds
c) 15 years in stocks.

It is the year 2000 and bucket C is about to drop like a rock and will not hit break even for about 10 years. When and how are you rebalancing through the years? If you keep 10 years in fixed income, you are going to be selling stocks as they drop from 2000-2 and 2007-9 and will have very little left for the 2010+ bull market. If you let your fixed income portion drop, you can end up with a stock heavy portfolio that might interfere with your ability to sleep at night. And then repeat this same exercise for 1929, 1966, and 1973.

You end up having to make some tough choices with your refill strategy. You will notice how pretty much all discussions of buckets never talk about what to do during the really bad times...
Randomguy,

First, I agree that a well thought out strategy should be clear and tested against a variety of market shifts. I missed this simulation during my Retirement prep planning in 2017. While my original approach was pretty good and there were some improvements that became apparent as we navigated the markets over these last 4 years.

This insight lead to the shift in our approach implemented in 2021. I think it will work well given our financial situation.



WoodSpinner
GoneCamping
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by GoneCamping »

dbr wrote: Tue Apr 20, 2021 2:33 pm If your portfolio is continually rebalanced to a set overall asset allocation, then you don't have buckets. What you have is an asset allocation. That is true even if you have mentally divided up the assets into what you are calling buckets. It wouldn't even make sense to say you withdrew "from" this or that asset if at the same time you are shifting money around to rebalance or if you are simply selling an asset that is above target to drive to balance.

If you do have three buckets of cash, medium risk, and then high risk and you withdraw first from cash until it is gone, and then from medium risk until it is gone, and then from high risk the actual result is to change your asset allocation from cash/bonds/stocks to bonds/stocks to stocks as time goes by (for example -- it doesn't preclude the "stocks" being a blend of stocks and bonds, etc.)

...
This.

I've read a fair amount on bucket strategies because I was initially quite curious and they sounded like a brilliant idea. However, they usually entirely miss or leave out the critical piece of info on withdrawal strategy. You summed it up nicely and it's the same to me then, it becomes just a different way of looking at AA, generally with more cash than other more "traditional" AA models. I've not really seen it described as a starting point, meaning one spends through the buckets vs. always having the prescribed number of year's funds in each but again, withdrawal strategies are often absent in the materials I've read.

For a bucket strategy to make any sense at all, I think it must have some sort of prescribed withdrawal strategy; the whole idea is to insulate against market downturns but that isn't at all what's being one if the buckets are continually filled up - as dbr states it's just an AA at that point. And, if viewed as a starting point, i.e. you spend through the buckets that makes little to no sense given the conventional wisdom of more conservative AA in retirement because in fact, what would be done by default is continually drawing down the FI buckets until one was left with perhaps as high as 100% equities as held in bucket 3. :confused
randomguy
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Re: For "bucket" strategy...WTH do I use for my second "bucket"?

Post by randomguy »

GoneCamping wrote: Thu Apr 22, 2021 10:05 am

For a bucket strategy to make any sense at all, I think it must have some sort of prescribed withdrawal strategy; the whole idea is to insulate against market downturns but that isn't at all what's being one if the buckets are continually filled up - as dbr states it's just an AA at that point. And, if viewed as a starting point, i.e. you spend through the buckets that makes little to no sense given the conventional wisdom of more conservative AA in retirement because in fact, what would be done by default is continually drawing down the FI buckets until one was left with perhaps as high as 100% equities as held in bucket 3. :confused
https://www.morningstar.com/articles/71 ... et-it-done talks about a few approaches and their are tons of variations. The big difference between buckets and fixed AA is that money flows only one way. You never sell bonds to buy distressed stocks. That has some pros and cons. The other thing is you tend to have to use discretion about when to refill the various buckets. If you spend down your fixed money during crashes, you might not be buying stocks but you also aren't selling them. But you end up with those tough choices.

People have back tested various bucket schemes and in general their performance isn't drastically different than just holding the same AA. You might sleep better with one or the other. There is something reassuring about not selling bonds to buy stocks during downturns. Personally I have been toying with the 4 years in cash/CDs and the rest invested 60/40 portfolio with the idea refilling the buckets when the portfolio is up and if the buckets get depleted, living with a 60/40 portfolio. But I haven't run the math on it. I expect it to perform just about the same as a 50/50 for a person with about 30x in savings.
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