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Old 08-24-2011, 11:03 PM   #81
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Agreed - having a specified asset allocation doesn't have to be age based.

Actually I'm fairly consistent with my post in the referenced thread. I have made some modifications and clarifications in my strategy since then though. At the time of the referenced thread, I wasn't really familiar with "buckets" and I was trying to fit my "bucket" like strategy into the AA mold. But even then you can see that I have buckets, I just called them "Cash", "Conservative portfolio", and "Aggressive portfolio". I didn't go into details in this thread, but there were a few different layers in my conservative portfolio (it included all my current bucket 1 and 2 portfolios) and a couple layers in my aggressive portfolio (my current buckets 3a and 3b).
I'd urge you to take a look at my pretty much real world example and ask yourself what would you have done in July of 2006, (assume July is your annual re-balancing re-evaluation) and than again today or July 2011?

The reason July 2006 is so important is that Bucket 1 (safe) and Bucket 2 (moderate) performed as exactly as intended. If the bucket concept has any meaning you'd absolutely be refilling bucket 1 pretty much on that date. CD rates were getting tempting after the 2000 crash we've had a 3 years of a modest bull market and for the first year your equities are ahead of 7/99. Meaning that there would absolute no reason to do anything with your portfolio before this date. In July 1,2006 you have to choose to fully fund bucket 2, or only partially fund bucket 2. It is worth figuring out why you would done one course or the other. Now there probably other options which is what I am curious about.

If you end up choose wrong,well you end with a 900K portfolio (with 55/45 AA) and 52K withdrawal needed. This isn't a disaster but again, since you, Mathjack, and I believe JDW are still working but close to retiring. It is worth thinking about I'd configure my buckets in this scenario.
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Old 08-24-2011, 11:11 PM   #82
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I don't really have much of a bucket approach...more like a waterfall. Not retired yet, but:

We keep 1-2 years worth of expenses in cash on hand. It goes up and down as buying opportunities present themselves.

We have enough tax-free muni bonds to more than cover basic expenses with the interest they kick off. Our average interest rate to face is about 5.8%. Average rate to market value is a bit less. I look at this similar to an annuity.

The domestic equities I choose are typically solid dividend payers with room for growth, or value stocks. My stock funds, with the exception of int'ls are also tilted a bit in this direction. The dividends look like they will pretty well cover play money as well as seed money for adding to the muni bucket. As the equities gain value, I will sell and add to the muni bucket. If equities go down, I'll use the dividends to add more equities.

So it is a waterfall. Cash is used. Bond interest flows into cash. Dividends flow into cash and more bonds and sometimes equities. Excess equity growth will be sold down to rebalance into bonds.

This is not really total return investing as much as it is cash flow investing, with total return an important part of it.

I guess we'll see how it works out.

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Old 08-25-2011, 03:53 AM   #83
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Originally Posted by Aeowyn View Post
Agreed - having a specified asset allocation doesn't have to be age based.

Actually I'm fairly consistent with my post in the referenced thread. I have made some modifications and clarifications in my strategy since then though. At the time of the referenced thread, I wasn't really familiar with "buckets" and I was trying to fit my "bucket" like strategy into the AA mold. But even then you can see that I have buckets, I just called them "Cash", "Conservative portfolio", and "Aggressive portfolio". I didn't go into details in this thread, but there were a few different layers in my conservative portfolio (it included all my current bucket 1 and 2 portfolios) and a couple layers in my aggressive portfolio (my current buckets 3a and 3b).

One of the changes I made since then was instead of holding Cash for my emergency fund, I've now changed that to short term bonds. Also I've gone from 1-2 years cash to half that - but I've added more in way of conservative bonds to back it up. I guess as I'm getting close to pulling the trigger on leaving my J.O.B., I can't stand the thought of having that much money just sitting in cash - but short term bonds are not that far off from cash.

As far as Lucia rolling over in his grave - I don't thinks so. I agree that Lucia's bucket recommendations and time lines for the buckets are way more conservative than mine. But it seemed to me in his book that he had a lot of flexibility in the buckets so that you could customize them to your personal risk tolerances. He also gave some suggestions on moving money between buckets - but again there was a lot of flexibility on how to do this. I've only read one of his books and I've never heard his radio show - so I'm not expert on his suggestions and I'm certainly not a loyal follower, but my strategy seems to be lined up with his "bucket" way of thinking.

As far as the "buckets" being different than AA as far as the end result, you are partially right, that's why I tried to fit my buckets into the an AA range in the referenced thread. But even then I couldn't nail down an exact AA - just a range. And to do that I also had to assume a withdrawal rate.

Buckets are a different way of thinking. It's hard for me to tell you what I want my asset allocation to bonds to be for my entire portfolio. I can tell you for money I intend to use in the long term (10+ years) - I want 100% equities. And I can tell you that money I want to use for the next couple years I want all in Cash/ conservative Bonds. For the in between times, I'm comfortable with a mix of more aggressive (general) bonds, balanced funds, and conservative large cap stocks.

A bucket approach will have a variable allocation to bonds. In a really bad/long down stock market, the bond buckets could get spent down completely before dipping in the stock buckets.

Mathjak had some excellent points. I plan to rebalance once a year within each of my buckets, but moving money between the buckets is quite different.

there are just so many ways that you can rebalance the buckets. you can rebalance by years of money, by value averaging ,by date ,by performance or all of the above. the buckets only give you a rough outline. that outline can be as rigid and mechanical as you want to make it or as free and flexible as you like.

after a big downturn the flexibility is there to borrow money from buckets too. they can serve as a cash source to buy and then pay back later.

not something i would do but there is just not one way of doing it.

each one of us is comfortable in what we do ,what we know and what lets us sleep at night.

im not saying one way of AA is better than any other .buckets work for me because after being an aggressive investor since 1987 im a big chicken now.

i like looking at those 2 buckets with cash and bonds on those days we had those big drops and saying to myself okay ill look again in 15 years, ha ha ha

in my mind i looked at the drop more as a spectator than actually caught up in it.
it may only be a mind game ,no different than any other AA in the way it works out but it makes me more comfortable and thats what counts.

there are so many systems out there and ways to spend down a portfolio and i doubt anyone of them is really any better. the fact is i think the folks here are one of the smartest group of financially savey people you can find in any internet forums but the rest of the world lacks a plan, a strategy or knowledge of even what to do.

for most of america hope is their strategy. they just fling money blindley into their investments and they hope it works out.

its for them a system like using buckets is a way that will never hurt them anymore than any other method or noooo method but its a plan they can carry out and measure. most of success in investing is more about having a plan and strategy and sticking to it than about anything else.

heres a secreat about me. i consider myself fairly savy at investing. i try to understand as many ideas ,concepts and products out there as i can . i have done okay since 1987 with 1/2 my portfolio in the do it yourself permanent portfolio concept and the other 1/2 following the fidelity insight newsletter which since then is up around 1200% or so. nothing that spectacular but a decent return.

but the point is as savy as i think i am i keep everything nice and simple and as emotion free as possible and i still USE MY NEWSLETTER. why? i like structure and defined instructions. i like having discipline forced on me. i dont like to think about my next move and dwell on it all the time and wonder if its right. i try to keep my own emotions out of the process as much as i can.. i like to take the stress of what to do when the crap hits the fan off of myself because i know my logic will be flawed by my own brain beliveing my own -bullshi*..

my point is much of the success i had is because i use a newsletter and that forced a discipline and a plan to follow on me.. to boot i have had almost 25 years of stress and dwelling over whats next removed from my life. that to me was priceless.

its not that the newsletter has great models or always make correct moves . they dont. they are no better than any of us in that respect. they just put together nice balanced portfolios you can pick from to meet goals and risk level .they make minor changes every so ofton for the big picture..

but the discipline of doing what im led to do vs leaving me to my emotions is what won the game for me.

so many times i would have bailed,lost money and ran in some of our downturns. the strategy and plan i followed though kept me in the game and forced me to do the right thing. the fact that some other outside force was calling the shots took the emotional stress off me making those decisions and possibly wrong ones based on emotion..

thats where a strategy like buckets can help most folks.

it may not be better than any other less rigid structure but it gives them a plan they can follow while taking the emotions out of the equation and thats the key to their success. buckets gives them something to follow and protects them from themselves if they follow it.

they still have to fill it with good investments but at least the outline is in place with rules and structure..

the only point that has lots of wiggle room if you allow it is the rebalance points . but even that can be set into stone following just one of the ways.

of couse they still need to get an education on a bucket system and getting them to do that can be the failing point.
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Old 08-25-2011, 01:11 PM   #84
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A video interview on bucketing:



Note, according to this, you only need two buckets.

I dunno...seems to me, it's just another way of saying have enough chicken money around in case the market gets too volatile.

http://news.morningstar.com/articlen...aspx?id=362402
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Old 08-25-2011, 03:35 PM   #85
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I have looked at AA with yearly reblancing, and at the bucket system discussed here. Regardless of which 'system' one uses they still require some thinking and adjusting as time goes by. Unfortunately, the last time I asked my Magic Mirror (mirror, mirro on the wall....) which way the market would go over the next 5-30 years, it must stared back at me and told me to be more careful when I shave. So, I will have to be vigilant and not depend on any system to do my thinking for me.
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Old 08-25-2011, 05:35 PM   #86
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I dunno...seems to me, it's just another way of saying have enough chicken money around in case the market gets too volatile.
It's interesting that he's trying to sell his concept as a new idea. He calls for keeping 2 yrs of expenses in cash and the rest in stocks, bonds, reits, etc. That's new?

Also interesting is that his 2 "bucket" approach calls for 2 yrs of cash while Lucia's calls for 7.

The whole interview came across like an infomercial with both the interviewer and interviewee clumsily forcing in the word "bucket" from time to time. Two "buckets," one with 2 yrs of cash the other with everything else. What a concept!
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Old 08-25-2011, 06:01 PM   #87
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I don't do the bucket approach but asset allocate and carry two years living in cash as my emergency fund. At the start of each year, hopefully, by rebalancing I replenish my emergency fund to two years worth of living expenses.

The weakness in my approach is on a bad year, either I replenish by selling at a loss or wait out another year and hope that the investments turn around the following year.

I guess I can have a bucket of investments (a CD here, an annuity there, psst Wellesley here, Managed payout Fund there) to keep income flowing. But I'd think that'll make things more complicated, especially if I include these investments as part of my asset allocation.

Or perhaps I should just carry more in cash (3 years instead of 2) as emergency to ride out a storm?


Looking at the bucket theory, I think it is perhaps in part with the baby boomers (me one of them) hitting retirement age. One point is was go for growth, greed is good. Now it's income over growth.
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Old 08-25-2011, 06:23 PM   #88
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yep, its no longer about growing richer. now its all about not growing poorer.
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Old 08-26-2011, 09:56 AM   #89
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For me buckets is simply a way to organize your money in your mind. It's a money management tool and little to do with investing. My AA pre retirement is 48/48/4. At ER my AA will be this 43/43/14. The 14% cash/CD/very short bonds is 5 year's of expenses.

Bucket 1 (1 to 5 year)
Rent from apartment, pensions and SS when they start
1 year in bank account
4 year CD ladder, maybe short duration bonds

Bucket 2 (5 to 10 years and used to top up Bucket 1)
Total Bond Index, TIPS, Wellesley

Bucket 3 (10 years plus)
Total Stock Index, Total International Stock Index, REIT
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Old 08-26-2011, 04:18 PM   #90
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yep, its no longer about growing richer. now its all about not growing poorer.
I think the question is, Is the bucket approach the new conventional wisdom or a flight to safety until the next irrational exuberance?

In the fall of 2007, I had a fee only financial planner go over my allocations. I had about 5 years in safe investing for living expenses/emergency. But the question was "Why so much there and not towards growth?" I wonder if the planner would say the same now or say to do the bucketing.
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Old 08-26-2011, 04:50 PM   #91
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Remember the story about the couple who followed their GPS on some Nevada back roads? They got hopelessly lost, stranded, spent seven weeks in their car and, I think, only the wife was rescued. They put complete trust in the GPS, and did not question it until the darkness came and it was to late.


Bucketing, AA, when to balance etc, are like the GPS. They work great much of the time, but at other times they may lead us astray. We must look out the window and ask 'Does this make sense? Do I seem to be going where I want to end up?'
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Old 08-26-2011, 05:55 PM   #92
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I think the question is, Is the bucket approach the new conventional wisdom or a flight to safety until the next irrational exuberance?

In the fall of 2007, I had a fee only financial planner go over my allocations. I had about 5 years in safe investing for living expenses/emergency. But the question was "Why so much there and not towards growth?" I wonder if the planner would say the same now or say to do the bucketing.
Remember that under the Lucia bucketing approach, you start out cash heavy but if conditions are not good for refilling bucket 1, you might wind up very, very equity heavy and cash poor after a few years. A bit of a daring approach for a retired senior citizen IMO.

His approach is not one of maintaining a hefty cash postion, rather only of starting with one.
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Old 08-26-2011, 06:29 PM   #93
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IMO, I'd rather re-allocate in shorter timeframes (such as once a year) than to wait until the buckets are nearly out (wouldn't that leave you open to getting sucker punched by the market later on?). I do undestand that by buckets you have enough early on in retirement, but by not refilling until later, seems like it's could be a "pay me now or pay me later situation."

I'm sticking with the old-fashioned AA approach. But I'm considering holding onto more chicken money instead of my 2 year timeframe to hopefully ride out a bad cycle.
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Old 08-26-2011, 06:49 PM   #94
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me too, as long as oppertunity presents itself i would refill along the way.
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Old 08-26-2011, 08:16 PM   #95
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IMO, I'd rather re-allocate in shorter timeframes (such as once a year) than to wait until the buckets are nearly out....

I'm sticking with the old-fashioned AA approach.
Re-allocating every year is sounding a lot like a fixed AA and annual rebalance to me. Is it just another name for the same thing?


Maybe one way to look at this - fixed AA in percentage, versus a fixed AA in amount (X years spending). Hmmm, no, that's not it because you can let the buckets get lower over time.

It's awful tough to evaluate without some hard, fast rules. Not that those rules couldn't be adjusted, but as the old saw goes (generally applied to the arts and new forms of expression) - learn the rules before you decide to break them.

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Old 08-26-2011, 09:04 PM   #96
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Remember that under the Lucia bucketing approach, you start out cash heavy but if conditions are not good for refilling bucket 1, you might wind up very, very equity heavy and cash poor after a few years. A bit of a daring approach for a retired senior citizen IMO.
Beats having to sell and take a loss.

Personally I wouldn't have 7 years of safe investments either in this interest rate environment, plan on 5 and would reduce that by taking the dividends from B2 & B3.
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Old 08-26-2011, 09:14 PM   #97
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Re-allocating every year is sounding a lot like a fixed AA and annual rebalance to me.
It's awful tough to evaluate without some hard, fast rules. Not that those rules couldn't be adjusted, but as the old saw goes (generally applied to the arts and new forms of expression) - learn the rules before you decide to break them.

-ERD50
Thats why I will refill when my B3 (or individual investments) rise by X%. I haven't decided what X is yet, 10-20 most likely, I've got to do some work to figure out the best #.
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Old 08-26-2011, 09:33 PM   #98
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Remember the story about the couple who followed their GPS on some Nevada back roads? They got hopelessly lost, stranded, spent seven weeks in their car and, I think, only the wife was rescued. They put complete trust in the GPS, and did not question it until the darkness came and it was to late.


Bucketing, AA, when to balance etc, are like the GPS. They work great much of the time, but at other times they may lead us astray. We must look out the window and ask 'Does this make sense? Do I seem to be going where I want to end up?'

A very good point. Do you go with "trusting the system" or "trusting your gut"? Hopefully, they are one and the same. If not...well, that's where the fun comes .
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REITS in Bucket 3
Old 08-27-2011, 08:49 AM   #99
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REITS in Bucket 3

I just finished reading Lucia (probably skimmed it more than totally digested it). But I'm confused about one issue that I don't really see addressed here.

Non Traded REITS
His plan seemed to call for using the quarterly distributions from the REITS in Bucket 3A to fund the ongoing living expenses served by Bucket 1. I understood it to be something like 1/2 of what you needed for expenses would come from the REITS.

Nobody mentioned any of that in this Forum.

Did I misunderstand something?
Is anybody taking distribution from REITS and using that for regular living expense?
I'm skeptical of Non Traded REITS.
Who's using them?
Which ones are they using?
How do you protect yourself against what looks like a potential Ponzi situation?

Willift
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Old 08-27-2011, 09:13 AM   #100
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Is anybody taking distribution from REITS and using that for regular living expense?

How do you protect yourself against what looks like a potential Ponzi situation?
Your concerns may be well-founded:

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i am involved in a huge class action law suit against a popular un-traded reit right now. they paid nice 6-7% dividends for years with no issues.

well now with the downturn what they didnt disclose clearly is that since earnings fell off those dividends were being paid with our own money that was supposed to buy more property . worse was they were borrowing money to meet the dividend payouts.

loads of retirees were counting on that dividend for their income source and were spending that dividend directly and not re-investing it ,they are in a real mess as they have been un-knowingly spending their principal. i thought something was up when the 1099 showed little taxable income.

i figured it was just the depreciation allowance we get offsetting things.

its estimated we may actually be down now about 40% in principal. but the dividends keep coming.
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