Another look at buckets

[mathjak107]

while ray lucia never really told has what to really invest in with such low rates or how to handle refilling buckets morningstar did an excellent job of taking another look at it complete with concrete models and back testing.

i really like the ETF VERSION as is and i think next year i will make the shift. no untraded reits or high expense products in the models either.

i think 2 years withdrawals vs rays 7 in cash is a realistic do at these low to no interest rate levels.

anyone ,a lot of information and detail in this 1 hour long video and i suggest the video over reading .. it may be the best learning source for those with limited knowledge i have seen in a long time.

Ready Your Portfolio for Retirement

 

[Ed_The_Gypsy]

Thanks very much, mathjak,

She is very good and has turned the bucket strategy into something we could actually use. This is a nice summary of her work.

I watched the video and captured the the transcript into Word. I had to print-screen the slides as I could not find the link she said was there, so no loss.

She had a series of interesting articles last year on stress-testing the bucket strategy. Most of them now require Morningstar membership, but I got them into Word before they went out of my reach. Here are some of her articles:
A Bucket Portfolio Stress Test
A Conservative Retirement Portfolio in 3 Buckets
Investment Advice We Put the Bucket System Through a Longer Stress Test | Investment Advice

 

[mathjak107]

nice work breaking it out.

yep ,key words are an action plan we can use.

ray lucias books left to much in limbo, didn't deal with such low rates and had a big part in untraded reits, as well as a huge 7 year drag in cash instruments..

this uses popular vanguard funds and widely available etf's.

in fact after utilizing fidelity insight models for more than 25 years i am considering using the etf model as it makes a lot of sense to me.

what better plan than one that incorporates wellesely income , ha ha ha

i like simple and as much as i love retirement portfolio theory and learning about the works of pfau and kitces i really do not like devoting a lot of time to portfolio thinking.

meaning left to my own devices i am always 2nd guessing myself, thinking about my next move or thinking i am smarter than the markets.

that is why i simply followed my newsletter. i have to give no thought to anything , it gives me discipline and i never have those lets bail and run thoughts.

so i like a simple structure with easy to follow rules. as i get older i have less tolerence for wide swings too.

i have done some crazy things in my life like borrow 500k to buy in on a real estate venture but the closer i get to retirement i want to tame things down.

i want the lowest volatility that will produce the income i want.


new methods like a rising glide path interest me as well as maybe mixing in an immediate annuity as a base pensionized income at some point.

 

[LOL!]

Thanks for posting the link to the video and transcript. This is a good 1 hour presentation that covers most of the bases. Ms Benz even states that one doesn't have to run this as a bucket strategy, but as simply a portfolio of 4% cash, 36% fixed income, and 60% equities. She even includes high-yield bonds in the risky 60% equities (3rd bucket) and not in the fixed income 2nd bucket.

She also admits that one can tweak anything any way they want to.

 

[mathjak107]

i was very surprised by the completeness of it as well as accuracy .

she even mentioned how eliminating the cash bucket actually improves things.

you rarely see that mentioned.

 

[foxfirev5]

i was very surprised by the completeness of it as well as accuracy .

she even mentioned how eliminating the cash bucket actually improves things.

you rarely see that mentioned.

In a worst case scenario I plan to eliminate my cash bucket in 4-5 years. Then the real test comes regarding staying the course and all that good stuff.

 

[mathjak107]

in my own case i see no reason to eliminate the cash bucket. it is no longer about growing richer..now my focus is not growing poorer and meeting our income goals at the lowest volatility level.

 

[foxfirev5]

Yes, but in a worst case scenario you may forced to eliminate your cash bucket. A long shot but still possible.

 

[Ed_The_Gypsy]

Christine notes repeatedly that a cash bucket has opportunity costs--it does not earn much of anything and keeps you from buying something that does.

Even though SS is my annuity and fixed income, a small cash bucket as she discusses has attractions.

 

[LOL!]

I >think< she suggested reinvesting dividends and distributions back into the same buckets from whence they came and then to rebalancing back into the bucket percentages at least annually. She didn't force that, but sure advocated it. I think she did this because it made her subsequent stress testing easier to program.

However, I think lots of folks would just take the dividends and distributions in cash. They would still rebalance as needed, but those annual/quarterly dividends provide plenty of "cash" to spend. Indeed the dividends can provide 50% to 100% or more of one's annual expenses which it would seem to me would obviate the need for a separate cash bucket.

But no worries, Ms Benz wasn't so strict that one couldn't have 3, 2, or even 1 bucket.

 

[mathjak107]

back testing 100% equities with no bond bucket or cash bucket has stood up just as well spending down equities in the down years directly..

the extra cushion developed from not having the drag in the up years more than compensates in the down years .

so anything buckets do really is a mand game more then a increasing success rate thing..

of course the real danger of no bond or cash buckets is down markets can hurt you a lot in the first 5 years with out having a good up market cycle so that is what you really need to protect against.

since my plan will have me delaying ss i think i would have any dividends and distributions go into my cash bucket until ss cuts in , then i would try to reinvest instead.

i i kind of had the rug pulled out from under my plan because of a lease rights sale we had this year by a senior partner in a venture .

the income coming in from it was as steady as a pension so my plan was to use the 25k income and a small pension of 21k as a base income.

but an investor group made an offer of 18 million bucks for the remaining 20 years on the lease rights and our partner bernard spitzer one of the countries largest real estate mogals made the decision to sell.

it was a very high profile sale and i got most of the details of it only when news broke on the web as deals like this are very comlpex.

so that will end the bulk of that income for us and the after tax amount left of our share would never be able to generate anywhere near that much without taking a big risk and lots of volatility so i am still thinking of replacing some of that income with an immediate annuity at some point .

that will beef up bucket 1 at least and allow us to free up more cash for use in bucket 3.

 

[target2019]

She had a series of interesting articles last year on stress-testing the bucket strategy. Most of them now require Morningstar membership, but I got them into Word before they went out of my reach. Here are some of her articles:
A Bucket Portfolio Stress Test
A Conservative Retirement Portfolio in 3 Buckets
Investment Advice We Put the Bucket System Through a Longer Stress Test | Investment Advice

If you go to the author page for Christine Benz, all of the links are saved there.

 

[retire2020]

One of the best presentations I saw in a long time. I've been building retirement strategy for past six months which looks like hers(did not know it is called a bucket strategy) and needed assurance and clarification on some points. Her presentation answered all my questions and assurance I needed.

Thanks mathjak107 for sharing this presentation.

 

[pb4uski]

Thanks for posting the link to the video and transcript. This is a good 1 hour presentation that covers most of the bases. Ms Benz even states that one doesn't have to run this as a bucket strategy, but as simply a portfolio of 4% cash, 36% fixed income, and 60% equities. She even includes high-yield bonds in the risky 60% equities (3rd bucket) and not in the fixed income 2nd bucket.

She also admits that one can tweak anything any way they want to.

I was thinking about some sort of bucket strategy in ER but finally settled on 6% cash, 34% fixed income and 60% equities. My WR is about 3% so the end result is about two years in cash after rebalancing.

I dedicate a portion of my fixed income allocation to high-yield bonds as I view them as more bond than equities (though I understand that they mya act like equities during stressful periods).

While I could declare victory and save an hour of viewing the video, it sounds interesting enough that I'll probably view it.

 

[gardenfun]

Thanks so much for posting the link to the video, mathjak. I am definitely one with "limited knowledge" and I learned a lot from her presentation. Her style is great for those of us who are somewhat intimidated by personal finance. She is very matter-of-fact and flexible in how she presents the concepts.

thanks to this wonderful forum I am getting closer to ditching my Wells Fargo advisor and going out on my own!

 

[Packman]

This was a great video. I sent it to a friend of mine that is struggling with preparing her portfolio of retirement and understanding the bucket strategy that I tried to explain to her. Thanks for posting it.

 

[mathjak107]

glad it helped. every so often i stumble upon something that is not only unbiased but very informative for those trying to learn.

i wish there was more like this video out there instead of all the stuff we get bombarded with with an agenda.

 

[pb4uski]

I finally took the time to view the video. After all, there is snow all over from the storm last night and I don't feel like going out in that.

Excellent video - highly recommended.

Then I wondered how my target AA aligns with her buckets. My cash AA (2 years of spending) aligns well with her bucket 1. My domestic investment-grade bonds AA aligns with her bucket 2. Everything else (domestic, international and emerging market equities, domestic high yield, international and emerging market bonds) aligns with her bucket 3. So based on my targets, I would end up with 2 years of spending in bucket 1, a tad over 7 years of spending in bucket 2 and the rest in bucket 3.

So I concluded that my 60/40/6 AA is functionally the same as using a bucket strategy.

 

[mathjak107]

it should conform to a pretty standard mix.

the difference is you don't just rebalance by performance as much as by years of money left .

if you have buckets 1 and 2 full and stocks are up more than 10% no rebalance is called for.

with a conventional mix you would be rebalancing strictly by performance in most cases.

 

[nun]

I know that many of us on here have a good level of investments and little debt, but I look at these financial services planning videos and wonder how relevant they are for most people....let's be honest how may 65 year old couples have $1.5M to invest. We, and the folks that makes these videos, are living in a rarified place.

 

[mathjak107]

the planning is the same whether it is 100k or 1 million. it is all based on your own withdrawal needs which are based on your own nest egg. it is all proportional to each other..

 

[mickeyd]

while ray lucia never really told has what to really invest in with such low rates

I thought that Ray was in jail or something but I saw that he has his own TV show on BizTV. I caught part of it the other day and he makes it very clear that he is semi retired now and not handing out investment advice any more.

 

[mathjak107]

they banned him from selling securities but he was never in jail.

 

[REWahoo]

From a thread last year: http://www.early-retirement.org/forums/f28/ray-lucia-fined-and-banned-67601.html

 

[Huston55]

Good video with some practical tips on income mechanics. I like C. Benz because she's accessible, factual, practical, and, most importantly, not trying to sell something.