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Old 08-19-2011, 01:17 PM   #21
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I like it.

I know a lot of folks invest in precious metals (mainly gold). Me, I've been stockpiling other metals (mainly brass & lead). I figure if I have brass and lead, I can procure some gold if push comes to shove.
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Old 08-19-2011, 02:49 PM   #22
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IMO, everyone's mileage will vary depending upon circumstance.

Here is the environment we are working within:
1) non cola'ed pension that covers all living basics (current lifestyle). You can only imagine how comfortable that make it (at least for the time being (i.e. non cola'ed part).
2) own home, no mortgage, pay off credit card bills every month

Our 'buckets', if you will:
1) 5 years of cash and cd's that equal the budget for travel and extravagances we enjoy.
2) Portfolio allocation (that includes the above btw) of 40/60, Equity/Fixed
all in etf's, mutual funds that represent total stk mkt, total int'l stk mkt, stable funds, infl prot bonds, total bond mkt, reit's, and a smattering of commodities

Hope this helps.
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Old 08-19-2011, 06:31 PM   #23
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Glanced through the Kiplinger article. It has
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What's more, when making their inflation-adjusted withdrawals, retirees following the 4% rule tend to sell more shares when the stock market is down and fewer shares when it's up a reversal of the "dollar-cost averaging" approach, in which investors regularly buy a set dollar amount of stocks so that they'll buy more shares when prices are low. "Dollar-cost averaging out of the market is the worst thing to be doing during retirement," says Paul Grangaard, a St. Paul, Minn., adviser.
I don't quite follow that paragraph unless folks are doing something dumb when they take out 4%. One should be withdrawing from the overweighted asset class and rebalancing on-the-fly. So if stocks are down, that means sell bond fund shares and spend them and/or buy equities. Conversley, if stocks are up, that means sell stock fund shares and spend them and/or buy bonds.

That's pretty much the opposite of what the quoted paragraph says. If folks have advisers such as Paul Grangaard, does that mean the advisers are telling them to do something that sane folks would probably not do? What's up with that?

I suppose that if one sells only their short-term assets while trying to ride out a market decline, that they are actually changing their asset allocation to the riskier more equities, less fixed income. That may be OK for some, but a standard rebalancing approach would not have you increasing your risk (as measured by your stock:bond ratio) in a market decline while still letting you hold onto to your equities.
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Old 08-19-2011, 09:49 PM   #24
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I am 53, retired 5 years, no pension etc.

My approach (not recommended for everyone) is 1 large bucket with 100% large well-managed (IMO) US based companies with long histories of increasing earnings and dividends and expectations (IMO) of more of the same, such as PG, JNJ, KO, ABT, SYY, ADP, etc, mostly in my IRAs.

They generate dividends sufficient to cover my 72t withdrawals (just over 3% this year), with a bit to spare so far (so I have been buying rather than selling stocks). Dividend income has increased just under 50% so far in almost 5 years, one reason I am comfortable with this method.
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Old 08-19-2011, 10:23 PM   #25
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I’m getting ready for a career change from full time “job” to a self-employed farmer. DH is also self-employed – his business is starting to pick up, but last year he had negative income. So as far as income goes, it is pretty much the same as being retired. I’m planning to rely heavily on investment income for the next few years.

I’ve been putting together a bucket strategy before I knew it was called “buckets”. I’ve now read a little bit about the bucket strategies and I’ve tweaked mine. I’ve got three main categories of buckets (1-short term, 2-medium term, and 3-long term) and a few sub buckets. Each bucket has it’s own target portfolio. The biggest disadvantage of my buckets is keeping track of all of them and the funds inside them. This is definitely not for everyone, but I enjoy this stuff and think its fun. I’m sure there will come a time when I will have to simplify.

My buckets are also more aggressive than typical. In my buckets I differentiate monthly expenses from draw. Since we may have other income either earned or pension, the draw is what we intend to need to draw from our investments to supplement other income.

Buckets

1a: 3-6 months draw – 100% Cash. This is money needed for cash flow.

1b: 3-6 months expenses – short term bond funds. This is an emergency fund.

1c: 2-4 years draw – this is almost 100% bonds: equal portions short term bond, general bond, world bond, and a conservative allocation fund. (Long term, I anticipate at least a 3% return from this portfolio, last 10 years it returned 6%).

2: 2-4 years draw – a mix that is about 50/50 bond and large cap stocks. This consists of a mix of general bond, foreign bond, balanced, and large cap funds. (Long term, I anticipate at least a 5% return from this portfolio, last 10 years it returned 7%).

3a: 3-6 years draw – 100% stock funds. Foreign stocks comprise 20-40%. Large cap ~55%, mid cap ~30%, small cap ~15%. (Long term, I anticipate at least a 7% return from this portfolio, last 10 years it returned 9%).

3b: the rest, target at least 6 years – 100% stock, very aggressive stock portfolio. Foreign stocks comprise 20-40%. Large Cap ~25%, Mid Cap ~25%, Small Cap ~50%. (Long term, I anticipate at least a 10% return from this portfolio, last 10 years it returned 11%).

My goal is to have the time rage specified for each bucket. But in a really long bad market, I’d be willing to completely empty my more conservative buckets.
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Old 08-19-2011, 11:34 PM   #26
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31 years old, this is my list of assets...

20% cash
25% investment property equity
25% roth ira (90% stocks?)
10% 401k (90% stocks?)
10% vehicle value
10% misc
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Old 08-20-2011, 05:14 AM   #27
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I am 53, retired 5 years, no pension etc.

My approach (not recommended for everyone) is 1 large bucket with 100% large well-managed (IMO) US based companies with long histories of increasing earnings and dividends and expectations (IMO) of more of the same, such as PG, JNJ, KO, ABT, SYY, ADP, etc, mostly in my IRAs.

They generate dividends sufficient to cover my 72t withdrawals (just over 3% this year), with a bit to spare so far (so I have been buying rather than selling stocks). Dividend income has increased just under 50% so far in almost 5 years, one reason I am comfortable with this method.
I think that is a nice way to go. I suspect some folks couldn't stand the volatility, but something tells me you will be rewarded (just don't panic the next time they drop 40% like they did back in 2008).
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Old 08-22-2011, 12:31 AM   #28
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I think that is a nice way to go. I suspect some folks couldn't stand the volatility, but something tells me you will be rewarded (just don't panic the next time they drop 40% like they did back in 2008).
Although I have only been retired 5 years, I have been 100% individual stocks since 1993, so I have seen a few bumps. I do not really care about market prices (except when I can beneficially 'trade up'), as long as earnings and dividends (as a group) keep growing.
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Old 08-22-2011, 04:43 PM   #29
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I use a variation of the bucket approach also. For reference- retired 2006-drawing SS- no debt. I also have income producing property that will net 6 months expenses on a good year.

B-1 MM, short term CD's, checking. - 5 years expenses

B-2 VG Total bond - 6 years expenses

B-3 Equity mutual funds- 12 years expenses

AA works out to roughly 53/27/20 stocks/bonds/cash
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Old 08-23-2011, 06:20 AM   #30
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My thoughts exactly. My long term basic spending is covered by SS + pension. All the extra spending (i.e. trips, etc) is covered by cash, CDs, and muni bonds investments.
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I think of buckets in terms of uses.
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Old 08-23-2011, 07:22 AM   #31
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For you bucketeers........

It seems like deciding on dollar amounts to hold in each category (expressed in years of expenses) is easy at the beginning. But no one is commenting on how you will withdraw and/or replinish categories vs. equity and bond market performance or after emergency expenses, periods of high inflation, etc.

If you go for a decade or more without replinishing from the equity category due to market performance and the cash and bond categories decline to very low levels due to spending, are you OK with having your AA extemely heavy in equities as a geezer?

I manage my FIRE portfolio with an AA outlook (Current target = 50/45/5 at age 64). But if I were a Lucia devotee as some here seem to be, I'd focus on understanding how I would sell and replinish over time and through various market and inflationary scenarios. Determining starting values would be the easy part.
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Old 08-23-2011, 09:59 AM   #32
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I have read the Kiplinger article, [ http://finance.yahoo.com/focus-retir...anaging_wealth ] what's on this forum and taken a look at my own AA and what makes it up.

There are three buckets: short term 0-5 years, midterm 5-10 years, long term 10+ years. Cash and equivalents go into the short term buckets, short and intermediate bonds (maybe CD's) go into the mid term, stocks go into the long term bucket.

Right now I have the short term bucket filled and actually over-flowing. It probably goes out to 7 years before needing replenishment. The mid term bucket is lean. I estimate it would last about 4 years if it was not replenished. And the long term bucket also would last about 7 years, at today's market values.

But, in about 5 years SS kicks in for me. reducing what I have to withdraw from my personal savings. So, the mid term bucket would probably last a full seven years at that point.

The stocks portion of the porfolio goes into the long-term bucket, the bonds (intermediate and short term) fill the medium term bucket, and cash and short term bonds fill the short term bucket.

After doing all of this, I came to the same conclusion I did after using FireCalc: I will have an aproximately 50/50 mixture of stocks and bonds-cash. And the withdrawal rate starts at 4% and moves down to about 3.5% when SS kicks in.

As far as I can see the bucket system forces me to diversify my cash and bonds in such a way that so they will last me through a LONG stock market downturn. Thus, I won't have to sell stocks at a loss. It also forces me to take my stock profits and in effect rebalance the portfolio by moving stock profits to bonds and cash. However, if stocks do very poorly and bonds do quite well, I guess I could rebalance and move in the opposite direction - from the shorter term to the longer term buckets.

Do I have this right?
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Old 08-23-2011, 01:30 PM   #33
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For you bucketeers........
....

If you go for a decade or more without replinishing from the equity category due to market performance and the cash and bond categories decline to very low levels due to spending, are you OK with having your AA extemely heavy in equities as a geezer? ....
Buckets always struck me as a very convoluted way to get to an AA. Didn't Ray Lucia need to modify his strategy for the last downturn?

-ERD50
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Old 08-23-2011, 02:03 PM   #34
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To my knowledge its still the same.
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Old 08-23-2011, 04:55 PM   #35
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Buckets always struck me as a very convoluted way to get to an AA. Didn't Ray Lucia need to modify his strategy for the last downturn?
-ERD50
No, Ray's method been backtested by retiring at the start of depression, so change of strategy is not required. It uses a couple of key facts: balance funds have never lost money over a 7 year period and stocks have never lost money over a 15 year period. So...
7 years of cash like investments
8 years worth using balance funds
15 years or more...equities.
He's change it recently to now have 5 buckets, but that's just an excuse to push non-traded REITS and a new book.
Its NOT AA, it's simply matching your investments to your time horizon when you will need the money. AA doesn't do this
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Old 08-23-2011, 05:26 PM   #36
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Buckets always struck me as a very convoluted way to get to an AA. Didn't Ray Lucia need to modify his strategy for the last downturn?

-ERD50
actually i found the reverse. how would you ever determine how many years cash and bonds to keep on hand ? it was basically the seat of your our pants. we selected a mix we were comfortable and we basically broke out how much in cash to hold by guessing.

if you guessed wrong you sold equities at a loss if we had a prolonged downturn.

the buckets simplify everything because the time frame for cash and bonds is based on periods of time where markets so far have never been down.


they are filled to allow you to go 15 years before worrying about selling your first equity position if need be.

rebalancing is not based on performance either. re-balancing is based on how many years of money you need to refill.

i find its just so neatly layed out and a pinch to see how your doing.
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Old 08-23-2011, 06:09 PM   #37
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So...
7 years of cash like investments
8 years worth using balance funds
15 years or more...equities.
TJ
Regarding the 8 years of balance funds--- does that refer to a balanced fund such as Vanguard Wellesly or Wellington? If not, what does it refuere to? Thanks.
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Old 08-23-2011, 08:53 PM   #38
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No, Ray's method been backtested by retiring at the start of depression, so change of strategy is not required. It uses a couple of key facts: balance funds have never lost money over a 7 year period and stocks have never lost money over a 15 year period. So...
7 years of cash like investments
8 years worth using balance funds
15 years or more...equities.
He's change it recently to now have 5 buckets, but that's just an excuse to push non-traded REITS and a new book.
Its NOT AA, it's simply matching your investments to your time horizon when you will need the money. AA doesn't do this
TJ

Ok I am still struggling to figure how this system really work in reality.

Lets go back to 1999 (a rough decade for investing and the year I retired.)

You have 500K your long term bucket in total stock market VTSMX. The other 500K is split in what ever conforms with the system.
Would somebody walk through the process of withdrawing 40K a year indexing it for inflation (2.8%/year from 1999 to 2010).

I'll be happy to provide the historical performance information if somebody would describe the process. I am really curious to see how much money I would have if I followed Ray's strategy.
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Old 08-23-2011, 09:29 PM   #39
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Buckets always struck me as a very convoluted way to get to an AA. Didn't Ray Lucia need to modify his strategy for the last downturn?

-ERD50
Quote:
Originally Posted by teejayevans View Post
No, ...
He's change it recently to now have 5 buckets ...
TJ
No he didn't change it, but yes he did?


Quote:
Originally Posted by mathjak107 View Post
actually i found the reverse. how would you ever determine how many years cash and bonds to keep on hand ?

....

i find its just so neatly layed out and a pinch to see how your doing.
Why do I need to? I I'm say 60/40, I have divs from the equities and divs/int from the fixed, and if needed I sell some to make up the delta and I can incorporate re-balancing into that.

I can look at my portfolio balance to see how I'm doing, and I want to do that anyhow. What can be simpler?

And if you an, please answer clifp's question. I'm also curious how this provides any tangible benefit.

-ERD50
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Old 08-23-2011, 09:34 PM   #40
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No he didn't change it, but yes he did?




Why do I need to? I I'm say 60/40, I have divs from the equities and divs/int from the fixed, and if needed I sell some to make up the delta and I can incorporate re-balancing into that.

s provides any tangible benefit.

-ERD50
Just curious, do you take cap gains from your equities as well?

Golfnut
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