Buckets of Money

[JJtheNav]

Is anyone familiar with Ray Lucia's Buckets of Money and his company RJL Wealth Management?

I'm considering investing with his firm, but I can't find any performance information on their products. Hoping someone here has had some experience with them.

Thanks

 

[samclem]

Check the FAQ section of the Forum, Nords has put together "best of" thread on Lucia and buckets. It's here.

We have some Lucia devotees here (Rich in Tampa has written about him). I don't remember anyone believing the "brand name" RLJ investment products were worth the price, I think the bucket devotees are rolling their own using Lucia's ideas but cheaper investment choices (e.g. Vanguard, Fideltiy, etc)

Good luck.

 

[JJtheNav]

Thanks! I guess I need to do a "search" before I ask a question here, you guys have just about covered everything.

I've been a long time Vanguard investor (and a big fan of their low fees), but I thought maybe I could get better returns by going with an actively managed fund.

 

[73ss454]

You may get better returns with actively managed funds but then again you may not.

Looking for past performance will not help you with future performance.

Just take a look on TV and watch the opinions of the talking heads, none of them can agree on anything.

 

[megacorp-firee]

Thanks! I guess I need to do a "search" before I ask a question here, you guys have just about covered everything.

I've been a long time Vanguard investor (and a big fan of their low fees), but I thought maybe I could get better returns by going with an actively managed fund.

Statistics seem to show that it is better to get lower fees then to trust that an actively managed fund can get better returns.

IF you are going to attempt this, why not split the portfolio 1/2 aned 1/2.
I think they call that diversification ... in this case I guess it would be management diversification.

good luck

 

[REWahoo]

Thanks! I guess I need to do a "search" before I ask a question here, you guys have just about covered everything.

The "powered by Google" search box above seems to work better than the forum search software, at least for me. Be sure to click the Early-Retirement.org option.

 

[LOL!]

Google is great, check it out: Let me google that for you

 

[Rich_by_the_Bay]

Lucia's Buckets approach has a lot of appeal, but it also has some troubling aspects. Ray is charismatic but very self-promoting, so beware.

Highs: easy to relate to the metaphor and inherently sensible. Makes it easy to conceptualize your portfolio. Keeps you long-term focused.

Lows: very conservative in terms of stocks to bonds, but strictlly speaking you would be very deep into a stock-oriented portfolio starting 15 years or so of his plan. He counters by saying you should "value average" or rebalance stocks to bonds during good years but that recommendation is vague and unsuppported. Back-testing is iffy, and not very robust, IMHO.Finally, he is a big supporter of nontraded REITS. I am no expert but many have doubts about the front end costs, etc.

Do your homework but there is much merit to his approach. I have moved away a bit but still use his philosophy. Otard is good, too.

 

[JJtheNav]

Thanks! After reading your previous forum I've decided to steer away from Buckets.

I did come accross an actively managed fund, CGM Focus (CGMFX) which has a great track record (although yes I know, "past performance is no guarantee...).

Anyone have any experience with CGM Focus?

 

[audreyh1]

Several folks here (including me) use the technique of having 1 to 3 years of cash available for annual withdrawals, and then the rest in an asset allocation that gets rebalanced occasionally. This is just so you don't worry so much about short term market fluctuations. It really helps psychologically those of us living mostly off investments. It's kind of like a bucket - but not exactly..... I had this set up way before I ever heard of Ray Lucia, so I don't give him any credit .

Some other folks simply makes sure the cash portion of their AA covers 1-3 years of needs and ignore the rest of their portfolio in the short run.

My main point is - that you can use some of the general concept of staging of your investments for short and intermediate/long needs without necessarily using the Ray Lucia approach.

Audrey

 

[REWahoo]

Anyone have any experience with CGM Focus?

With a 1.33% expense ratio it isn't likely you'll find a large number of folks on this forum who will have any experience with this fund.

 

[samclem]

Anyone have any experience with CGM Focus?

How does this fund fit into your overall asset allocation (what role would it fill for you)?

It takes extreme bets on sectors. When it wins, it wins big. In 2008 it lost 48% in value. It has an expense ratio of almost 1%. I don't have a need for such a fund, but maybe some folks do. It beats the dog track, I guess.

You mentioned you have low cost Vanguard index funds and money in the TSP. Those investments reflect a very different investmentment philosphy than does the choice of CGM Focus. I'm a fan of what you were doing before.

If you haven't read William Bernstein's Four Pillars of Investing I think you might find it useful.

 

[brewer12345]

Thanks! After reading your previous forum I've decided to steer away from Buckets.

I did come accross an actively managed fund, CGM Focus (CGMFX) which has a great track record (although yes I know, "past performance is no guarantee...).

Anyone have any experience with CGM Focus?

CGM Focus is a very concentrated portfolio that is extremely volatile and tends to have elements of momentum trading in its strategy. IMO, it is pretty speculative.

I think I know the reason Ray Lucia likes non-traded REITs: they pay huge commissions to the advisors that sell them.

 

[JJtheNav]

I wouldn't go "all in" to this fund, but maybe 5 - 10% of my porfolio. As for the expense ratio, if you look at its 18% return over 10 years compared to the < 1% return of the VTSMX (Total Stock Mkt) fund... doesn't it make sense to pay the larger fee for a better return?
(Keep in mind, I'm 39 so this would be a long-term investment.)

 

[Rich_by_the_Bay]

JJ, don't rush. Take your time and start with a few books like the Boglehead book, Solin's "Best retirement book you ever read" (or something like that). Don't make decisions until they are part of an overall plan. Read this forum including the relevant archives.

It took me 2 years to become confident enough to do this on my own. Meantime park your money in a balanced fund or whatever to buy time. This is very complicated stuff with wide opinions. It will come but be patient. At age 39 you have time and eventually you will get very comfortable with your decisions.

 

[REWahoo]

JJ, that "larger fee for a better return" viewpoint is one that has a lot of merit - until it doesn't. You might make a killing investing in that fund over the next several decades - or not. But if you don't the fact that you are 39 will give you lots of time to recover - or not.

Heck, what do I know. I'm 63, spending down my portfolio and wouldn't touch that fund with a 20 foot boom.

 

[samclem]

doesn't it make sense to pay the larger fee for a better return?

Yes, it would be a great bargain, if only we could know which funds would outperform in the future. But we can't.

When I first started investing I would pick up Money Magazine and select mutual funds based on their track records. Later, I got more sophisticated and used Morningstar to do the same thing. I lost a lot of money and a lot of ground that way, but I'm glad I got it out of my system early. The academic research makes clear that the search for talented active stock pickers or use of market timing techniques is not likely to be successful.

 

[mathjak107]

i like using rays approach... it gives us great comfort but not necessarily the biggest gains.

since you rebalance by years of money and not by gains per se' it can do some wierd things.

if you wait until the 15 year time period has elapsed to refill your buckets you can get the biggest gains but also end up with a portfolio thats about 90% stock and your 80 years old.


on the other hand rebalancing thru the years whenever things are higher will give you less bang for the buck but maintain a more reasonable asset allocation.


i agree with rich, he really dosnt go into the mechanics of using the buckets well at all. he kind of leaves that open ended.

 

[brewer12345]

JJ, I am by no means an exact yardstick for you, but we are of similar age (I am 36), probably have similar time horizons for permanent retirement (10 to 15 years) and similar income stability (I also work for a non-private market employer). I have a large appetite for risk (1/3 of my portfolio is in a single, volatile sector) and I am a pretty sophisticated investor (pro). Yet I would not touch CGM Focus.

As REW says, stick with the default option (balanced fund), do your reading and then make educated decisions.

 

[REWahoo]

As REW says, stick with the default option (balanced fund), do your reading and then make educated decisions.

Actually it was Rich who gave that advice, but I'm in total agreement.

 

[ziggy29]

My main point is - that you can use some of the general concept of staging of your investments for short and intermediate/long needs without necessarily using the Ray Lucia approach.

True. In reality, the Lucia "buckets" approach is just another way to look at asset allocation -- only instead of representing your allocations in terms of percentages, you look at the allocation of the "safer" stuff in terms of number of years of income.

The place where I get a little tripped up is that it's not entirely a mechanical strategy in that unlike rebalancing in a traditional AA, there's no specific, well-defined trigger mechanism for moving money from riskier buckets to safer buckets. For sure, you wouldn't have moved some out of the stock bucket in 2008, since much of the "buckets" idea is to have enough secure income to avoid the need to sell stocks low -- but if stocks are flat, up 5%, up 10%, up 20%, do you rebalance by replenishing the safer bucket, and if so, how much? As Rich mentioned, this is a fairly vague concept and a lot of us prefer more rigid, mechanical approaches such as "on this day every year, I will rebalance back to 60/40" or some such. But I do think the underlying idea is sound -- keep enough in the safer investments to make it very likely that your stock bucket can recover from a bear market before needing to "raid" it.

 

[FANOFJESUS]

In a way Vanguard Retirement Income is like buckets of money with about 1/3 in stocks the rest in bonds. The only difference is when you sell you do end up selling some of your stocks. But I think I would rather Vanguard Retiremnet Income because it would keep my AA stable.

 

[JJtheNav]

Ok, since so many of you said you wouldn't touch CGM Focus and you recommend I go with a balanced fund... Let me ask you the next obvious question(s):

What balanced fund do you recommend? (I'm 39)

Should I put it in my IRA or regular (taxable) account?

If I wanted to add some risk (like brewer did), what do you suggest? How much of my portfolio? Where should I put it?

And lastly, (since I have your attention) should I continue to invest in the TSP? Since I'm not getting a match, I only do it for the tax benefit (less total income). Currently I have 80% G fund and 20% Life Cycle 2040, with 10% of my pay now going to the Life Cycle fund.

Thanks!!! Keep in mind, I want to retire early!

 

[Rich_by_the_Bay]

Ok, since so many of you said you wouldn't touch CGM Focus and you recommend I go with a balanced fund...

Doesn't matter much, this is just a pause for you. Maybe something like vanguard's wellington or similar. Check their site which is searchable.

Once you get your bearings you'll probably want to separate the different asset allocations.

 

[REWahoo]

JJ, rather than getting random advice from anonymous folks on the internet, you'd be well advised to do some reading and develop your own investment philosophy and an asset allocation you are comfortable with. Then post it on the forum and let the group here critique it for you.

To answer one of your questions, one highly regarded balanced fund is Vanguard Wellington (VWENX) - but do your own due diligence.