Sure but don't you think it would be a good idea to BUY stocks at the bottom like the fixed AA does? You aren't going to be selling stocks in bear markets. You will be selling bonds.nedsaid wrote: ↑Thu Jan 26, 2023 5:20 pm
The reason for a bucket strategy is more psychological than mathematical. It is a way of allowing the stocks in your portfolio to recover from market corrections and bear markets. Doesn't seem like a good strategy to sell stocks near the bottom of a bear market to raise cash to live on. There is also a strategy of withdrawing from stocks in good years for the stock market and from bonds during bad years.
There are any number of withdrawal strategies. They all have their drawbacks. I have looked at most all of them.
Lets look at the super simple case. 25x of expenses
a) 25x 50/50
b) 5 years in cash, 20x invested 62.5%/37.5%. We spend cash when the portfolio is below starting value
So 2000 rolls around. Where are we after 5 years
a) 1million (all nominal to keep it easy)->937k. Portfolio bottom out at ~800k
b) 800k->897k. You will also have about 6k of cash left. It bottom out at ~645k and you had about 100k in cash.
So despite not having to "sell" stocks, you basically had a lower net worth throughout this time period. The rising equity path of the buckets sort of screwed you as when 2002 hit you had a higher exposure to stocks and paid the price. Now the higher equity allocation does help out later on.
Fast forward to 2023 and the the 50/50 person has 1.027m and the bucket person has 1.087m. The slightly higher stock allocation paid off in slightly more money. Of course you had a bumpier ride in 2007-2009. If you would have refilled your cash bucket at any points, the difference would have dropped.