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Buckets of money
Old 01-03-2009, 08:16 AM   #1
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Buckets of money

are any of you following ray lucia's buckets of monet theroy? if so how are you doing.? lucky I put a little over half of mine and my wife's non pension money is fixed income, so we are ok for 10+ years. I hate to even look at the amount that is still in the market. I hope 2009 is better to us than 2008. we are only 55 and have a long way to go yet.
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Old 01-03-2009, 08:19 AM   #2
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Here are a couple of threads about it:

Ray Lucia...Buckets of Money

Buckets of Money ala Ray Lucia -- please critique
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Old 01-03-2009, 10:50 AM   #3
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Buckets of Money is my preferred master strategy but I take liberties with it now and then. While Buckets itself didn't save me directly during the crash, it did keep me disciplined in my AA - without it I suspect I would have been more deeply into equities and would have fared worse than I did.
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Old 01-03-2009, 10:52 AM   #4
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Rumor has it Ray's coming out with a new book: Drown Your Sorrows In Buckets of Money
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Old 01-03-2009, 12:06 PM   #5
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Although I don't agree with his AA recommendations, the bucket method along with lucky retirement timing, did, indeed, save my PF. So far.

I ignored his advice to hold REITs. I put the book, "Buckets of Money" for resale on the net. Took about 15 minutes to sell it. Lucia's "Ready, Set, Retire" priced the same way has not sold in three weeks. What kind of indicator is that?
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Old 01-03-2009, 12:13 PM   #6
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Originally Posted by CuppaJoe View Post
Although I don't agree with his AA recommendations, the bucket method along with lucky retirement timing, did, indeed, save my PF. So far.

I ignored his advice to hold REITs. I put the book, "Buckets of Money" for resale on the net. Took about 15 minutes to sell it. Lucia's "Ready, Set, Retire" priced the same way has not sold in three weeks. What kind of indicator is that?
For the most part, I think Buckets is just a somewhat different approach to AA.

The main differences as I see it to the "conventional" AA model are:

  • Instead of percentages of a portfolio, "Buckets" allocates in terms of years of income;
  • "Buckets" doesn't really seem to have a relatively well-defined mechanism for rebalancing or "moving money" between buckets.
Having said that, if someone has a 70/30 AA where the amount represented by that 30% is (say) 10 years of income in "safer" investments, there's really little difference between percentage-based AA and using "buckets" with a ten-year Bucket #1. The difference comes in how you approach downturns; for example, if someone was 70/30 with ten years of "safe" stuff in bucket #1 at the end of 2007, in a more traditional AA you might rebalance after the end of 2008 -- buy more stocks by selling "safer" investments to return to a 70/30 AA. In "Buckets" you'd just keep depleting Bucket #1 for living expenses until the "risky" bucket turned around and starting filling up again -- at which (nebulous) point, you'd refill Bucket #1 with an "overflowing" risky bucket once a bull market resumes.

It's still asset allocation. It's just a different way to look at it which works for some people and not so much for others.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
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Old 01-03-2009, 12:27 PM   #7
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...
It's still asset allocation. It's just a different way to look at it which works for some people and not so much for others.
I agree with your assessment. That's how it was for me, a different way to think about AA. As a preparation for retirement, I moved a lot of money into CDs which resulted in a much more conservative AA than I planned on my own.
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Old 01-03-2009, 02:11 PM   #8
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For the most part, I think Buckets is just a somewhat different approach to AA.
....
It's still asset allocation. It's just a different way to look at it which works for some people and not so much for others.
It would be interesting to see a spreadsheet with say, $1M portfolio and a $40K withdraw, and compare a 'bucket' approach to an AA rebalance approach.

On the surface (I have not read the book), it seems like if you keep depleting your bucket in a downturn, you are just going to a higher and higher equity % as the downturn persists. I suspect that some might be uncomfortable with that high of an Equity allocation, but might be OK depleting their 'bucket'? But it would be the same thing, no?

I guess we could say this is a "variable AA"? So, I'd like to see some testing to see if a variable AA is really any better than rebalancing at a certain % level. Does Lucia provide any data like this?

-ERD50
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Old 01-03-2009, 02:23 PM   #9
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On the surface (I have not read the book), it seems like if you keep depleting your bucket in a downturn, you are just going to a higher and higher equity % as the downturn persists. -ERD50
A downturn means equities are losing value. In many, perhaps most cases, cash depletion from the bucket would not even keep up with equity depletion from alling market quotes. So you would be getting more and more weighted toward fixed, rather than equities. Of course it would all depend on the numbers of your particular case.

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Old 01-03-2009, 02:32 PM   #10
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On the surface (I have not read the book), it seems like if you keep depleting your bucket in a downturn, you are just going to a higher and higher equity % as the downturn persists.
Depends on the severity of the downturn.

Let's say you had "buckets" set up as a 60/40 allocation (i.e. $600K "bucket #2" of stocks and $400K "bucket #1" of fixed income and cash). This is a simplistic example because some of Lucia's "bucketizing" includes an intermediate bucket between cash and most stocks.

You would take $40,000 from the "safe" bucket, leaving you with $360,000 in that bucket. Let's say you made 3% on the balance, leaving you with $370,800 in Bucket #1. Your $600,000 Bucket #2 fell about 35% in 2008, leaving you with $390,000 in that bucket. In actuality, your AA is now *more* tilted to the "safer" stuff, about a 52/48 allocation instead of the 60/40 you started with. Your equity bucket #2 lost value far more quickly than you are withdrawing from Bucket 1.

More "traditional" AA (based on percentages and periodic rebalancing) would tell you to buy stocks with 8% of your portfolio value to get back to 60/40. But to "bucketizers" that adds an additional decrease to the number of years of safe withdrawals you can make from Bucket #1, and the Lucia theory is that you increase the risk of running out of Bucket #2 before Bucket #2 can recover in the next bull market cycle. In that sense, the Lucia philosophy would be to keep your "buckets" where they were (with about $370K and $390K respectively) and take another ~40K from Bucket #1. And hopefully, bucket #1 will last long enough that the market will recover before it's gone... allowing you to refill Bucket 1 by selling stocks after the next bull market cycle avoids "selling low."
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
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Old 01-03-2009, 02:51 PM   #11
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Pssst - Wellesley = 5.78% SEC yield as of 1/02/09 which the Norwegian widow can put on auto deduct if she doesn't want to put on her raincoat and wait by the mailbox.

Nothing to do with this thread but I didn't fully pssst Wellesley on the Bogleheads Wellesley thread.

heh heh heh - now back to making it more complicated. .
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Old 01-03-2009, 03:30 PM   #12
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Rumor has it Ray's coming out with a new book: Drown Your Sorrows In Buckets of Money
Hmmmm........going to be a tough choice.
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Old 01-03-2009, 09:15 PM   #13
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I have not read the books mentioned.
I am building my buckets now and will follow a bucket approach to manage risk.

For example:
Bucket 1 Have 3 years expenses in cash, and another 3 in inflation indexed bonds.
Bucket 2 has enough to replenish bucket 1 (probably a 40-60 or 30-70 allocation)
Bucket 1+Bucket 2 will have around an 80 percent success rate in firecalc
Bucket 3 is an equity heavy allocation for growth.

If I plan for 7 percent gains per year, anytime I get higher than 7 percent in bucket 3, those gains move to bucket 2. I will not move money from bucket 2 to 3 though (one way street). example- If I get a 9 percent gain, 7 percent stays in bucket 3 and 2 percent moves to bucket 2.

Bucket 2 is heavy in REITs, dividend paying stocks and bonds.
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