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Details of your buckets
Old 08-18-2011, 09:52 AM   #1
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Details of your buckets

I'm 5 years from ER and beginning to switch from a mind set of accumulation and capital growth to one of income and principal protection. I like a bucket approach as way to think of/organize my money so do you have any sample portfolio? My current thoughts are

"Safe" investments ( 5 year horizon): one year's expenses in cash, 4 years in CDs
"safeish" investments (5-10 years): 5 years in a mix of high quality intermediate corporate bonds, Bond index, maybe some dividend stocks or Wellesley.
"risky" (10 years plus): US and international equity index, Wellesley and bond index to keep my total AA around 50/50
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Old 08-18-2011, 10:18 AM   #2
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I'd put some REITS, preferred stocks and some utility stocks in there.
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Old 08-18-2011, 11:46 AM   #3
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Right now I am 0-3 years from FIRE.

I have a 2 bucket approach that I am working on.

Bucket 1: 10 yrs of laddered Muni Bonds, CDs, and Cash
Bucket 2: 60% stocks, 30% Bonds, 10% Real Estate

My plan is to move cash out of Bucket 2 and into Bucket 1 any year that the Bucket 2 grows by more than 6%.

The objective is to sleep well, never sell low, and have assets last for 40 yrs.

I don't consider myself an expert so would appreciate others approaches and suggestions.
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Old 08-18-2011, 11:47 AM   #4
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I think of buckets in terms of uses.

One bucket needs to support our long term basic spending. It turns out that if we defer SS to 70, then SS fills that bucket.

A second bucket needs to fill the gap between retirement @59 and the start of SS. That was laddered CDs and I-bonds. The I-bonds have no market risk and (since I bought them a while ago) guaranteed inflation plus.

The third bucket covers nice-to-have spending and unforeseeables. It includes a non-COLA'd pension. I figure the decreasing purchasing power over time is reasonable for nice-to-have stuff in retirement. It also has a chunk of TIPs which I figure at least gain a little against inflation over time and should have only modest market price fluctuations. So they fund the "unforeseeable" spending.
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Old 08-18-2011, 11:59 AM   #5
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I'm nominally 100% equities, but sell equities for cash when the portfolio is exceeding expectations and buy equities with cash, minus about a year's expenses, during bear markets. If everything goes as planned, I'm just selling off equities as needed to meet expenses (the total return approach) and not carrying a significant cash allocation. I can't stand having a long-term cash or bond allocation when equities should perform better, but don't mind a temporary cash balance to smooth out the dips. I have about 13% cash right now, raised during the last market peak. I'll either be spending it in the next few years while leaving the equities untouched, or reinvesting portions of it if the market drops into bear territory or worse.
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Old 08-18-2011, 12:06 PM   #6
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I don't use buckets, but if you're interested in what I do, please read on.

I use a single portfolio with a 60/40 equitiy/fixed mix. Part of the fixed mix is cash for 1 year. Short Term bonds account for a large portion of the fixed mix, so there is a lot of stability there.

For expense purposes, I divide my portfolio into baskets (didn't want to use the word buckets). One is for my annual expenses which I set at 4% of the basket value on Jan1. The 2nd is an emergency basket from which I take/put back as needed. I had a 3rd one for my mortgage. This was calculated as the amount of money I needed to pay it back using a NPV calculation with a conservative return assumption. I paid off the mortgage.

This is just one of many ways... to each their own.
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Old 08-18-2011, 01:37 PM   #7
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I would use MM/Short Term Bond Idx/CDs for 1-4 years
Wellesley, Balance Index for 5-8 years.
Throw in a combo of equity, bond, REIT funds for the rest.
Rebalance when market is up.
Sit back and relax.
Tom
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Old 08-18-2011, 05:33 PM   #8
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I have a bucketless portfolio, but check it out and see how you can call it buckets if you like.

1. 15% is in short-term bond funds such as VCSH, VBIRX. You might call that 3 to 5 years worth of "safe" investments.

2. 16% is in intermediate term bond funds such as PTRAX, FBIDX, VFIJX. You might call that 4 to 5 years of "safeish" investments.

3. 62% is in equities. You might call that "risky" investments.

4. 7% is in commercial real estate. This is something not quite stock, but also not quite bond. Call it whatever you like.

I call it all a standard asset allocation of 31% US stocks, 31% foreign stocks, 31% bonds, and 7% commercial real estate.
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Old 08-18-2011, 05:39 PM   #9
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I had a bucket portfolio a couple of months ago. Now it's a blended portfolio: one bucket of cash, one coffee can of bonds and one tuna can of stocks...
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Old 08-18-2011, 06:10 PM   #10
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I get buckets, but don't normally look at it that way.

Our buckets are:
1. Commercial rental property generating $72,000 net per year. We're negotiating to get it up to around $84,000. This should be good for about 10 years and then we'll sell it for somewhere between $750,000 and $1,000,000
2. Another 7+ years payout on something we sold at $95,000 a year.
3. Savings and retirement accounts are now just at $1,100,000 and generating about $40,000 per year.
4. A non income generating commercial property that is listed for $500,000 and we would be very happy with $300,000.

My thoughts are that we can live at the same level or better than we live right now, with me making a 6 figure income, on the rent and payoff for the next 7 years. In 7 years, I'll be pushing 69, and will probably take SS at that point. My DW will be 64 and might as well take her SS at that point. I can't figure out how we would ever run out of money! But we are adding about $175,000 to the retirement kitty this year and it is really, really hard to walk away from that. On the other hand, we're not getting any younger! DW is retired and I'm pretty much sick of lawyering. We live so far below our means that it is comical. I'm driving a Subaru and DW is driving a Nissan. Hers is 3 years old and paid for. Mine is 1.5 years old and paid for by my company. Health insurance is the main thing I don't have a "bucket" for.

This is a great forum!
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Old 08-18-2011, 06:28 PM   #11
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I'm probably old fashioned, but isn't buckets like asset classes? Cash bucket, bond bucket, domestic stock bucket and intl stock bucket. Therefoe, lowest risk to highest.

Now a bucket of popcorn or something..that's a whole different category
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Old 08-18-2011, 07:54 PM   #12
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Buckets is simply matching your investment types to time horizon.
ie. Money you need next year should be in MM or CD and money you won't need till retirement should be in equity like investments, bonds are somewhere in between.
This allows you to not have to take money out of your stock funds when the market is down.
Its not an arbitrary way of grouping your investments, and there are those to try to complicate it, but it's really simple as that.
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Old 08-18-2011, 10:51 PM   #13
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Yabbut....what if there's a hole in your bucket (Dear Henry)?

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Old 08-19-2011, 03:14 AM   #14
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We have various income streams and use cash buckets to cover the shortfalls.

Non-COLA pensions covered ~70% of expenses first year, dividends from Wellesley made up ~20% and bank savings withdrawals made up the rest.

Years 2-4 will be maturing CD's making up the shortfall that pensions and dividends leave.

Years 5-7 will be cashing in I-Bonds.

Year 8 DW's SS starts, plus VG TGT 2010 dividends from IRA.

Year 11 another UK private pension starts. (COLA'ed )

Year 13 UK SS starts.

Year 16 my US SS starts.

We have enough I-Bonds to fund the difference from year 5 for ~15 years if needed.
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Old 08-19-2011, 04:28 AM   #15
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bucket 1 22% cash,cd's

bucket 2 40% bond funds. right now though they are less interest sensitive stuff. fidelity high income, fidelity floating rate loan,vanguard short term bond,fidelity conservative bond fund

bucket 3 38% equities,untraded reit fidelity low priced stock fund,fidelity strategic dividend and income,a total international fund
buckets are strategy right though retirement.

the idea is you never want to sell equities to raise cash when your down.

we never had a 15 year time frame where you didnt get a new high at least for a bit so using 15 years as a time frame the idea is to have enough in withdrawls avaiable to get you through a 15 year time frame.

unlike a conventional mix where you re-balance based on growth this gets rebalanced based on years of money left.
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Old 08-19-2011, 07:19 AM   #16
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Quote:
Originally Posted by teejayevans View Post
I would use MM/Short Term Bond Idx/CDs for 1-4 years
Wellesley, Balance Index for 5-8 years.
Throw in a combo of equity, bond, REIT funds for the rest.
Rebalance when market is up.
Sit back and relax.
Tom
+1

This is very close to how DW/ I have set as a target, although we are looking at a few more years until ER than you. So I look at AA more than buckets @ this point.
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Old 08-19-2011, 07:53 AM   #17
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The only "bucket" we're concerned about at this point is the one that contains cash, and is what we can use for current retirement expenses (retired 4+ years; DW still to follow - even tomorrow if she wishes), ignoring market flux.

Depending on how you measure it, we currently have between five and seventeen years in cash, backed up by many years in bond holdings which may have flux, but expected quite less than equities. The reason for the variance is due to our age (63+) and additional income sources coming "on-line", starting in less than two years and continuing to increase over the next 6.5 years (two small pensions, our respective SS at ages 66/70, and my claim against DW at age 66). The five year amount covers our entire budget/expenses if DW would retire today and without any further income sources. The seventeen year amount is if DW decides to work till FRA age, some 2.5 years from now.

The rest of our joint portfolio? It doesn’t really matter in these days. Since we've been fortunate to hit "our number", and have income regardless of market flux. While our equities currently are at 46%, we have no plans to buy (nor sell, unless excessive expected gains are made as they were earlier this year).

It's amazing to us to see these stories of folks that are retired and need to sell/lock in losses just to cover retirement expenses due to a lack of cash or high equity holdings. There was another one (ABC News) on within the past few days of a (retired) couple that ABC is following during the downturn, this year. IMHO, they either received poor advice from their "advisors" or just held on to equities for too long, regardless of their age. Preparation for retirement income should take place before you retire, not after IMHO. Remember, in retirement - cash flow is everything...

Just our story...
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Old 08-19-2011, 08:50 AM   #18
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Originally Posted by REWahoo View Post
I had a bucket portfolio a couple of months ago. Now it's a blended portfolio: one bucket of cash, one coffee can of bonds and one tuna can of stocks...


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, 11:41 AM   #19
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W2R suggested I post this article here, as you all were discussing your buckets. It is a nice concise description of the bucket method and its benefits.
Enjoy!

lifetime-income-strategies-kiplinger: Personal Finance News from Yahoo! Finance
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Old 08-19-2011, 11:48 AM   #20
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Very timely. It's almost as if Kiplinger was reading this forum...
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