ray lucia refined strategy

[mathjak107]

On rays show today he talked about the refinements and the nuts and bolts of managing the buckets that will be discussed in his new book.

The problem with the 1st book was it didnt cover the manipulation between buckets in much detail and you were kind of left to your own design.

So heres a little bit of what will be in the book:

Value Averaging: Lets say you need an average of 7% a year long term to make the numbers work. well at the end of year 1 your up 7%, year 2 up 9% and year 3 up 25%.

You sell off everything over that yearly 7% average and move it to bucket 2.

Okay you say what if your down in a year and below 7%. Well now his plan is to have you take some money from bucket 2 and buy back in to the stock bucket again. Havent really followed this thru yet as ill wait for the book and the details..

 

[astromeria]

The real kicker is robbing bucket 2 to pay bucket 3 when the market's getting hammered. That will take...courage! I hope I'm up for it.

 

[mathjak107]

Lets call it a loan. ha haha

 

[donheff]

Lets call it a loan. ha haha

 

[Hydroman]

Lets call it a loan. ha haha

Lets call it "rebalencing".

So when do you move bucket 2 money into bucket 1?

 

[Brat]

When bucket 1 is nearing empty. The object is to let buckets 2 and 3 grow.

 

[mathjak107]

you move it when your behind what you should be. if your looking for a 7% average and you have 100,000 in bucket 3 then what ray is saying is after 3 years you should have about 121,000 not figuring compounding so i can do this in my head.

If the market is down and your only at 119,000 then move 2,000 into bucket taking advantage of the drop. you can do this once a year

by the same token if your up to 125,000 move 4,000 at years end into bucket 2

 

[donheff]

If the market is down and your only at 119,000 then move 2,000 into bucket taking advantage of the drop. you can do this once a year

If the market stays down you will exhaust 1 on spending and 2 filling 3. You won't get your 14 years insurance.

 

[73ss454]

This 3 bucket thing just seems to make things 3 times harder. If you have X amount of $ and take out X amount to live off what's the difference how many buckets one has? One would still take out X $ and end up at the same #.

 

[RASAP]

It seems (maybe too) obvious to me but...

Bucket 1, and to some extent, Bucket 2 is there to tide you over during an extended market downturn which could happen at any time. So, while the market is up, one should keep Buckets 1 and 2 full so that when the day comes that the market is down for an extended period, your full term reserve is in place. Then, after the market returns to its historical average, start refilling Buckets 1 & 2. This way, you are taking from Bucket 3 only when your returns are positive.

 

[RockMiner]

This 3 bucket thing just seems to make things 3 times harder. If you have X amount of $ and take out X amount to live off what's the difference how many buckets one has? One would still take out X $ and end up at the same #.

I agree, the bucket concept is at best a device to make it easier to think about ones spending needs...that, and sell a lot of books.

There is really only one pile of $$, and chosing to think in terms of buckets needlessly complicates things IMO. The only bucket I need is one to contain the barf caused by the endless debate on this subject

 

[Nords]

The only bucket I need is one to contain the barf caused by the endless debate on this subject

I'm sure that Ray Lucia is looking for a "Bucket Brigade" to help him sell books & facilitate seminars!

 

[astromeria]

Splitting up my portfolio into super-safe, moderate, and go-for-it buckets helps me relax about it and do the right thing. I'm not a proselytizer--OK, I am about saving the planet and breastfeeding(!)--but I do like touching base with other bucketeers.

AHEM...

Who's the leader of the club that's made for you and me
R-A-Y
L-U-C
I-A-ai-yi-yi!

On that note, it's time to start making dinner for mclesters and Rich-in-Tampa

 

[modhatter]

In my ever so humble opinion. I think the core of his approach is to spend down the "cheapest" money (CD's) while giving bucket #2 (slightly higher gain potential (6-7%) time to grow, and buket #3 (hopefully your highest gain-over long hall) time to grow. There by gaining the most from your portfolio.

I think it's more about spending cheap money and tring to compound more expensive money.

Just a thought.

 

[hogwild]

On rays show today he talked about the refinements and the nuts and bolts of managing the buckets that will be discussed in his new book.

Thanks for the tip. I like to go to the archive site and listen to him so that I can skip thru the commercials.

I'm looking forward to his new book. I bought his first one last year.

 

[sgeeeee]

you move it when your behind what you should be. if your looking for a 7% average and you have 100,000 in bucket 3 then what ray is saying is after 3 years you should have about 121,000 not figuring compounding so i can do this in my head.

If the market is down and your only at 119,000 then move 2,000 into bucket taking advantage of the drop. you can do this once a year

by the same token if your up to 125,000 move 4,000 at years end into bucket 2

If this is all you do, then there is no difference between the 3 bucket method and any asset allocation and rebalance method. . . None. You can keep your money in one bucket, three buckets or 10 buckets. You still only have one portfolio. If you rebalance every year, then it is all the same.

The only potential advantage to a three bucket method (or to a bond ladder approach) is if you reserve the right to rebalance differently. If you choose not to rebalance when the market is down or to only partially rebalance under certain circumstances, then you could theoretically get a different result than traditional asset allocation and rebalancing. This is sometimes called dynamic asset allocation.

So . . . if you want to know if the 3 bucket method offers any advantage, you have to establish formal rebalance rules. Once you've done this, you could concievably back-test those rules using a historical data base.

 

[73ss454]

Amen!

 

[REWahoo]

Ray has three buckets but being a LBYM type I have need of only one…and I’m hoping it still has something in it when I kick it.

 

[JohnEyles]

The only potential advantage to a three bucket method (or to a bond ladder approach) is if you reserve the right to rebalance differently.

Yep !

So . . . if you want to know if the 3 bucket method offers any advantage, you have to establish formal rebalance rules. Once you've done this, you could concievably back-test those rules using a historical data base.

Exactly what we've been talking about in a "bucket" thread in the FIRECalc support
group. Not sure what's happening - I made a half-assed proposition of some rules,
and I guess it's in Dory's court now.

 

[youbet]

So . . . if you want to know if the 3 bucket method offers any advantage, you have to establish formal rebalance rules. Once you've done this, you could concievably back-test those rules using a historical data base.

And, couldn't you apply the same formal rebalancing rules to an asset allocation within a "one portfolio" model?

 

[Nords]

or 10 buckets.

Careful... Ray may already have copyrighted that phrase for his blockbuster third book "Ten Little Buckets"...

 

[sgeeeee]

Careful... Ray may already have copyrighted that phrase for his blockbuster third book "Ten Little Buckets"...

I heard the next book was going to move away from the bucket term. I think the new title was about a "Steaming Croc of Something".

 

[HFWR]

Don't make me post Mr. Creosote again...

 

[bosco]

So . . . if you want to know if the 3 bucket method offers any advantage, you have to establish formal rebalance rules. Once you've done this, you could concievably back-test those rules using a historical data base.

I seriously doubt that Lucia will ever establish anything resembling back-testable rules. That would remove the ambiguity mystery from his product. Definitive, verifiable rules would basically remove the emporer's clothes.

 

[sgeeeee]

I seriously doubt that Lucia will ever establish anything resembling back-testable rules. That would remove the ambiguity mystery from his product. Definitive, verifiable rules would basically remove the emporer's clothes.

Yes. I think you are correct.

Some of the problems with the 3 bucket model:

Why 3 buckets? Why not 2? or 4? It seems to me that a 2-bucket model might be more reasonable. As I've mentioned, this is basically a bond ladder approach. Although the bond ladder approach sounds pretty reasonable, I've never seen a detailed simulation that proves it would have always worked better than strict asset allocation. I've also never seen a rigid set of rules applied to when and how to rebalance a bond ladder. Until I've seen a reasonable proof that the 2-bucket approach is superior to asset allocation, I hesitate to accept that adding another bucket helps.

The only way a bucket model varies from basic asset allocation and rebalance approaches if if you choose to change your rebalance targets based on market performance -- dynamic asset allocation. Such a rebalance approach has another name -- market timing. While some people may be successful timing the market, most are not. As far as we know, no one has been able to derive a formula that works consistently, long term to beat the market. If a bucket model algorithm exists that accomplishes this, why hasn't someone published and presented this long ago? Do we really believe that Ray has discovered the holy grail?