|
01-11-2009, 10:16 AM
|
#1
|
Recycles dryer sheets
Join Date: Sep 2004
Posts: 330
|
"Bucket" 1 Money
Those who use the term Bucket 1 (Ray Lucia style) for their living expense money at FI what do you hold that money in.......CD's, Money Market, Wellesley, or Treasuries. If that fund has to feed you for a specified time, say 6-7 yrs, how do you select a fund/allocation that will stand up to your projected needs and not drop in value. I guess this would more apply to a mutual fund like Wellesly or a fluctuating interest MM than fixed return instruments like a laddered CD over 6-7 years.
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
01-11-2009, 11:32 AM
|
#2
|
Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
|
Quote:
Originally Posted by ferco
Those who use the term Bucket 1 (Ray Lucia style) for their living expense money at FI what do you hold that money in.......CD's, Money Market, Wellesley, or Treasuries. If that fund has to feed you for a specified time, say 6-7 yrs, how do you select a fund/allocation that will stand up to your projected needs and not drop in value. I guess this would more apply to a mutual fund like Wellesly or a fluctuating interest MM than fixed return instruments like a laddered CD over 6-7 years.
|
I mostly use what you listed plus short term federal bond fund. But for me Wellesley is a bucket two holding -- too volatile over a short period for B1, but rock solid historically over 7 years or more. B1 earns what it earns, not where you need to fret over marginal returns.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
|
|
|
01-11-2009, 11:48 AM
|
#3
|
Thinks s/he gets paid by the post
Join Date: Apr 2007
Location: west bloomfield MI
Posts: 2,223
|
I am not retired
I plan to use buckets
Year 1 cd/cash
year 2 cd
year 3 cd
year 4-8 in TIPs
year 9 is in bucket 2, allocated moderately.
9 years when I retire will shrink to 4-6 years once I see portfolio surviving first 3 years.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
|
|
|
01-11-2009, 06:28 PM
|
#4
|
Recycles dryer sheets
Join Date: Sep 2004
Posts: 330
|
Rich,
I would imagine that both Wellesley and Wellington would be good in Bucket II as a complimentary pair. My concern however would be in placing them in a taxable account, due to the annual taxable gains. Would they not be more suitable, esp Wellington in your tax deferred account.
Ferco
|
|
|
01-11-2009, 07:17 PM
|
#5
|
Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,056
|
CD's, Money Market, and Treasuries are all in my bucket 1 - with 5 yrs worth of supplements to my non-cola pension.
Wellesley is in bucket 2, dividends going into B1, capital gains re-invested.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
|
|
|
01-12-2009, 04:41 AM
|
#6
|
Moderator Emeritus
Join Date: Jun 2007
Location: At The Cafe
Posts: 6,873
|
Retired end of Aug. '08. Instead of saving in '08, I just left cash in my checking acct. which became the first few months of Bucket 1. The rest of Bucket 1 is simple savings, CDs, MM and GNMAs. I have some "simple" savings because I didn't roll CDs into the lower interest rates. I'm not concerned about fluctuations in these accounts but am moving some money from over-weighted GNMA into equities. Am pondering a major re-allocation but will still have about 12 years in Bucket 1. I expect my Buckets to always be in flux, just as my allocation was during the accumulation phase. P.S. I don't follow Lucia closely, but like the basic bucket idea.
|
|
|
01-12-2009, 06:06 AM
|
#7
|
Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
|
Quote:
Originally Posted by ferco
Rich,
I would imagine that both Wellesley and Wellington would be good in Bucket II as a complimentary pair. My concern however would be in placing them in a taxable account, due to the annual taxable gains. Would they not be more suitable, esp Wellington in your tax deferred account.
|
Agree - a pinch of Wellesley, maybe a pinch of Wellington to taste, all in sheltered accounts. Main point for me is that they are not a good bucket 1 choice, but rather a bucket 2.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
|
|
|
01-12-2009, 06:14 AM
|
#8
|
Dryer sheet wannabe
Join Date: Apr 2007
Posts: 17
|
Our bucket #1 is one year of expenses in cash and 5 years of expenses in CDs. Wellesley is a part of our bucket #2.
|
|
|
01-12-2009, 06:24 AM
|
#9
|
Recycles dryer sheets
Join Date: Oct 2008
Posts: 295
|
I keep 3 yrs of COH for my est. Bills.. and it changes every yr..
For 07' it was:
1 yr in VSGBX
#2 yrs $ was in VFITX
#3 yrs $ was in VUSTX
They made about 13% last yr btwn them( Net of 9.6% after Taxes)
I follow History.. Bear markets are Treas. , Bull Markets > Bal. Funds...This yr is different & Expecting Treas. Bonds to do poorly and following what I did in 03' for my Yr #2 and #3 $..This yr. is in Bal. Funds> OAKBX ...w/alot less taxes as well.
Estimating a Worse of a -10% drop and a +30% upside by end of Yr.. and just hope for the best.. 55% chance now things will improve by Summer..It was 46%..and expecting DeFlation? and traditional bond funds don't do that well in Recovery and Bull markets..if anything? You always have VBMFX..
|
|
|
01-12-2009, 05:25 PM
|
#10
|
Thinks s/he gets paid by the post
Join Date: Sep 2006
Posts: 1,691
|
Quote:
Originally Posted by ferco
Rich,
I would imagine that both Wellesley and Wellington would be good in Bucket II as a complimentary pair. My concern however would be in placing them in a taxable account, due to the annual taxable gains. Would they not be more suitable, esp Wellington in your tax deferred account.
Ferco
|
Since dividends and long term gains get preferred tax treatment (0-15%),
and regular interest is taxed at your nominal rate, the opposite is true,
if possible.
|
|
|
01-13-2009, 07:51 AM
|
#11
|
Full time employment: Posting here.
Join Date: Feb 2006
Posts: 599
|
I currently have 6.5 years worth of living expenses in GMAC and Capital One "online savings" accounts, which pay 3% and 2.65% respectively right now (and falling), and a GMAC 1 year CD paying 4%.
Not a very imaginative bucket 1, but that's all I could come up with.
I also have another chunk of cash coming in over the next few months that I need to do something with. This cash may be needed for living expenses after the 6.5 years, depending on how poorly my equity portfolio does over the next 6.5 years.
Any suggestions?
|
|
|
01-13-2009, 08:09 AM
|
#12
|
Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
|
Quote:
Originally Posted by cardude
Not a very imaginative bucket 1, but that's all I could come up with.
|
If you look at your bucket 1 and the word "imaginative" crosses your mind, you probably are getting too risky for that bucket. The only possible exception I can think of is a fixed 6 or 7 year immediate annuity if the interest rates are right.
I like intermediate bonds for B2, or Wellesley-like blended funds. Historically they have almost always grown in value if you give them 7 years or so. Boring.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
|
|
|
01-13-2009, 08:40 AM
|
#13
|
Full time employment: Posting here.
Join Date: Feb 2006
Posts: 599
|
Quote:
I like intermediate bonds for B2, or Wellesley-like blended funds. Historically they have almost always grown in value if you give them 7 years or so. Boring.
|
What happens if rates go way up over the next 6-7 years? Will Wellesley still perform well under that scenario, or would plain old cash be better?
Does anyone think inflation could crank up again after the economy gets rolling again, causing rates to go up condiserably from where they are now?
|
|
|
01-13-2009, 08:56 AM
|
#14
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
|
Quote:
Originally Posted by cardude
What happens if rates go way up over the next 6-7 years? Will Wellesley still perform well under that scenario, or would plain old cash be better?
|
Wellesley or any other fund with bonds in it will be hurt when rates start going up, but over time the yield will increase. A lot depends on how the duration of the fund is set up.
Quote:
Does anyone think inflation could crank up again after the economy gets rolling again, causing rates to go up condiserably from where they are now?
|
Absolutely. Stay short on the CDs and stuff out there, if possible. I think the Fed will start raising rates as soon as the economy stabilizes. If they don't, we could see high single digit inflation..........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)
This Thread is USELESS without pics.........:)
|
|
|
01-13-2009, 10:04 AM
|
#15
|
Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
|
Quote:
Originally Posted by cardude
What happens if rates go way up over the next 6-7 years? Will Wellesley still perform well under that scenario, or would plain old cash be better?
|
Sure, I think it will perform adequately -- especially after a year or so of ramp up. During that time TIPs and intermediate bonds may hold their own. In any case, as Bucket 2 money it can sit for years while you live off your bucket 1 money. It does point out the benefits of diversification not just for your stocks, but also for your bonds and other B2 holdings. I have foreign bonds, intermediate federal bonds, TIPs, and Wellesley in there.
For me the idea isn't to win the race, but just to be in the pack.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
|
|
|
01-13-2009, 10:27 AM
|
#16
|
Thinks s/he gets paid by the post
Join Date: Oct 2008
Location: Naples
Posts: 2,179
|
Learned something new yesterday about Brokerage CD's. At end of November I rolled my 401k (very conservative fund managed by Fidelity at 4.1%) into a five year IRA CD at 5%. Just prior to this move I took my Minimum Required Distribution for 2008. Yesterday I get a monthly report from Fidelity on the CD and notice that its value is now worth about $7000 more than I put in. Great return for one month. I didn't understand so I called Fidelity. Found out this is a brokerage CD that I could sell if I wanted to, at the increased value, because it's a brokerage CD. The rep explained to me that you just can't find a 5% CD today and people are willing to pay extra because of its rate. Of course, if I sold it I would have to buy another investment. Just didn't know you could do that with CD's. Thought when I bought this 5 year CD, I was locked into it without paying a penalty to redeem. Learn something new every day. CD's vs brokerage CD's--two similar but very different things.
I had also received forms from Fidelity to fill out if I wanted them to calculate and manage the Minimum Required Distribution. Discussed this with the rep and he advised me to not send in the forms because the government has rescinded the MRD for 2009. Filing the forms would force the distribution. Come the end of 2009, I may not need the money so why take the distribution. This change is for 2009 only and may change for 2010. Everyone aware of this?
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|