I’m getting ready for a career change from full time “job” to a self-employed farmer. DH is also self-employed – his business is starting to pick up, but last year he had negative income. So as far as income goes, it is pretty much the same as being retired. I’m planning to rely heavily on investment income for the next few years.
I’ve been putting together a bucket strategy before I knew it was called “buckets”. I’ve now read a little bit about the bucket strategies and I’ve tweaked mine. I’ve got three main categories of buckets (1-short term, 2-medium term, and 3-long term) and a few sub buckets. Each bucket has it’s own target portfolio. The biggest disadvantage of my buckets is keeping track of all of them and the funds inside them. This is definitely not for everyone, but I enjoy this stuff and think its fun. I’m sure there will come a time when I will have to simplify.
My buckets are also more aggressive than typical. In my buckets I differentiate monthly expenses from draw. Since we may have other income either earned or pension, the draw is what we intend to need to draw from our investments to supplement other income.
Buckets
1a: 3-6 months draw – 100% Cash. This is money needed for cash flow.
1b: 3-6 months expenses – short term bond funds. This is an emergency fund.
1c: 2-4 years draw – this is almost 100% bonds: equal portions short term bond, general bond, world bond, and a conservative allocation fund. (Long term, I anticipate at least a 3% return from this portfolio, last 10 years it returned 6%).
2: 2-4 years draw – a mix that is about 50/50 bond and large cap stocks. This consists of a mix of general bond, foreign bond, balanced, and large cap funds. (Long term, I anticipate at least a 5% return from this portfolio, last 10 years it returned 7%).
3a: 3-6 years draw – 100% stock funds. Foreign stocks comprise 20-40%. Large cap ~55%, mid cap ~30%, small cap ~15%. (Long term, I anticipate at least a 7% return from this portfolio, last 10 years it returned 9%).
3b: the rest, target at least 6 years – 100% stock, very aggressive stock portfolio. Foreign stocks comprise 20-40%. Large Cap ~25%, Mid Cap ~25%, Small Cap ~50%. (Long term, I anticipate at least a 10% return from this portfolio, last 10 years it returned 11%).
My goal is to have the time rage specified for each bucket. But in a really long bad market, I’d be willing to completely empty my more conservative buckets.