Grangaard Strategy

[ferco]

Has anyone heard of the Grangaard Strategy, specifically his 30 year retirement portfolio. He uses 2 buckets, consisting of a 10 year holding/ spending cycle. The income bucket consists of treasury bonds and CD's and the holding(long term) bucket consists of large and small cap stocks. He assumes a 7% return in the long term bucket and a 3.86% return in the short term income bucket which he draws down over 10 years.
Any thoughts on this strategy by Paul Grangaard, CPA

 

[perinova]

Haven't heard of that.
If I understand correctly he has 10 years worth of bonds and uses it to zero and start again thereafter?
Seems more dangerous than realocating every year sinc eyou sell stock only once every 10 years. Is this guy a real CPA?
One of those financial advisors we sometimes talk about?

 

[mathjak107]

i prefer the 3 bucket method with 7 year time frames in 1 and 2 ...you gradually re-fill the buckets when markets are up gradually

 

[Mysto]

Similar strategy in Huxley and Burns "Asset Dedication" see the thread Buckets and Buffers.

I, like mathjak, have gravitated to a multiple bucket approach ala Ray Lucia and others. A second bucket helps keep you from withdrawing funds from your equities during down markets.

At the end of the day it is just asset allocation but the bucket approach makes it easier and the separation effect (having a guaranteed income bucket) allows for better sleep (for me ) over the long haul.

BTW - In todays current CD market your bucket #1 should get 5. something for 10 years.

 

[ferco]

I agree, I've read Lucia's 3 bucket theory 2 years ago and it made so much sense.It did not involve a lot of complex portfolio theory and calculus etc. Also, Retire at the Pie Shop does an equally excellent job of explaining the step by step process of asset allocation and safe withdrawal....many writers throw these terms around but don't detail how to do it, which to me is a half wasted effort on the part of the writer.

 

[perinova]

can you explain what is in the 3 buckets strategy more fully?
is it the fixed income portion which is in 3 buckets? is one of the buckets stoks? or are the buckets allcocated stocks/bonds?

how does it work?

Haven't heard of that.
If I understand correctly he has 10 years worth of bonds and uses it to zero and start again thereafter?
Seems more dangerous than realocating every year since you sell stock only once every 10 years. Is this guy a real CPA?
One of those financial advisors we sometimes talk about?

thanks

 

[ferco]

Go to raylucia.com. He has an excellent online video which explains the 3 bucket system. Basically, you divide your funds into 3 buckets. B I is in fixed income which you live off for 7 years. B II in in intermediate/moderate risk which grow over 7 years untouched. B III is the most aggressive risk holding. At the end of 7 years bucket I is depleted and you rebalance B II and III into a new 3 bucket system : B I, B II, and B III. So as you're spending B I down every 7 years Buckets II and III are allowed to grow in more progressively aggressive markets/holdings.

 

[perinova]

interesting and new to me
I am going to have to think about this 3 B system further and do some spreadsheet simulation to figure this out fully.
thank you for the link and explanation.

 

[mathjak107]

you gradually fill buckets 1 and 2 over time,,,when ever the markets up you can channel into your other buckets....the idea is to never sell in a down market and the 14 year time frame between buckets 1 & 2 and bucket 3 leaves enough time to rest assured you probely will never have to sell stock in a down market...

 

[perinova]

It's not much different than realocating. when market is down you also don't sell stocks but put bonds into it. also for most Bucket 1 is only a 1 year bucket here it's 7 years.
In summary this system is strectching the realocation cycle from 1 year to 7 years. Which doesn't change much your return and prob. of success (based on past reading): 7 year cycle for Bucket 2 and 3 make it more aggressive, but Bucket 1 is also 7 times bigger. So... same end result.
MAybe not bad if you want to avoid looking at your portfolio every year.

 

[Cut-Throat]

As far as Ray Lucia goes:

Do you really trust a guy that looks like this?

 

[HFWR]

"Better get a bucket..." - Mr. Creosote

 

[brewer12345]

Yeah, I am definately getting Kiyosaki vibes...

 

[samclem]

HFWR,

Thanks! Nasal milk spray everywhere.

 

[Dennis]

3 Bucket system..but Much Simplier for the Ave. Joe Inwestor, like myself and has worked out pretty well over the last 8 yrs..

#1- 1 yrs $ ( Refilled 4th qtr) in my ST Bond Fund account thru VG Brokerage- Qtrly dep. to my Bank Cking account.

#2- I sin a 20/80-30/70 Flexible R Acount - 2 Bal Funds and 5 bonds..Ave 5% Ylds- Ave 8.5% past 5 yrs

#3- 50/50 Account of 6 Balanced Funds & 1 Bond Fund. Ave 11.5% apy past 10 yrs..( It's just like Having 6 Different FA's Working for me for the price of 1 )

Why use Bal Funds?
-Wall Street HATES them! ( Forced to sell their stocks to Other Pro's and sucker us Amatures)
-FA's HATE them! (Steals their Business From them, More Transparent)
-Equity and Active Mge Investors HATE them! ( Settling to let someone else do the job-Bruise to their Ego's )
-CRAMER HATES them!-
-CNBC HATES them!
The Brokeage Firms and Brokers HATE them!

2008 was the Best Thing To Happen! It forced so many Into a Reality Check and Exposed so many Pro's being way to aggressive and Somany more Moved their $ into Balanced Funds..!

And Exposed Indexing is NOT For Most! It Exposed it's more the Human Side of Managing a Index Fund is it's Achillies Heel/Weakness..and proving "Most of Us are our Own Worst Enemy Managing Our Investments"..

 

[TN_INVEST]

It's not much different than realocating. when market is down you also don't sell stocks but put bonds into it. also for most Bucket 1 is only a 1 year bucket here it's 7 years.
In summary this system is strectching the realocation cycle from 1 year to 7 years. Which doesn't change much your return and prob. of success (based on past reading): 7 year cycle for Bucket 2 and 3 make it more aggressive, but Bucket 1 is also 7 times bigger. So... same end result.
MAybe not bad if you want to avoid looking at your portfolio every year.

These bucket/silo systems are certainly not magic (they can't defy gravity, either ). However, I do think you bring up a good point regarding how often you look at a portfolio.

Sometimes, investors are their worst enemy. A few studies indicate that lots of folks chase returns and never achieve the actual returns OF their investments.

Don't do something...just sit there.

I also think there is a BIG benefit to identifying an account/bucket with a specific goal rather than mixing em all together. Something tells me that Investor 2 is going to freak out a bit more than Investor 1, even though the investments and math are pretty much identical.

Investor 1: "I know bucket 3 and the stock market dropped 25%, but I ain't taking money from that account for 10 years, so it doesn't matter." rather than:

Investor 2: "My balanced portfolio lost 10% last year and I'm scared because I'm also taking income from that account."

 

[mystang52]

Lucia's 3 bucket approach may be glorified asset allocation but as others have mentioned it limits emotional [over] reaction to market swings. And, since we are all human, we all tend to be emotional to one extent or another.
I admit to being a bit of a nervous-nelly, so I have a modifed bucket approach. As I near my projected retirement, I have a great sense of comfort that I have a 100% safe wad of money to ensure my desperately-needed retirement does not get postponed due to a bad market swing.

 

[fritz]

3 Bucket system..but Much Simplier for the Ave. Joe Inwestor, like myself and has worked out pretty well over the last 8 yrs..

#1- 1 yrs $ ( Refilled 4th qtr) in my ST Bond Fund account thru VG Brokerage- Qtrly dep. to my Bank Cking account.

#2- I sin a 20/80-30/70 Flexible R Acount - 2 Bal Funds and 5 bonds..Ave 5% Ylds- Ave 8.5% past 5 yrs

#3- 50/50 Account of 6 Balanced Funds & 1 Bond Fund. Ave 11.5% apy past 10 yrs..( It's just like Having 6 Different FA's Working for me for the price of 1 )

Why use Bal Funds?
-Wall Street HATES them! ( Forced to sell their stocks to Other Pro's and sucker us Amatures)
-FA's HATE them! (Steals their Business From them, More Transparent)
-Equity and Active Mge Investors HATE them! ( Settling to let someone else do the job-Bruise to their Ego's )
-CRAMER HATES them!-
-CNBC HATES them!
The Brokeage Firms and Brokers HATE them!

2008 was the Best Thing To Happen! It forced so many Into a Reality Check and Exposed so many Pro's being way to aggressive and Somany more Moved their $ into Balanced Funds..!

And Exposed Indexing is NOT For Most! It Exposed it's more the Human Side of Managing a Index Fund is it's Achillies Heel/Weakness..and proving "Most of Us are our Own Worst Enemy Managing Our Investments"..

+1
A lot to be said for "Balanced Funds", and (in my opinion) a lot is said about balanced funds around here - psst Wellesley, and Wellington to mention a couple. Not too fond of annuities, and according to a copy of Ray's trademarked "bucket strategy", bucket #1 suggests (life and variable) annuities, and moves on to (fixed and indexed annuities) in bucket #2 (see attached). To each his own....