Huston55
Thinks s/he gets paid by the post
I do like the conceptual appeal of the bucket strategy but its not really in conflict with a specific asset allocation. Heres what I do.
1) start with an annual budget - say 50k
2) Then I have a series of portfolios with different risk based asset allocations based on when I need the money
i) 2 years expenses in Cash - bucket 1
ii) Next bucket has 3 years inflation adjusted expenses - bucket 2 - this has money needed 3 to 5 years from now so use a Conservative Asset Allocation
iii) Next bucket has 5 years inflation adjusted expenses - bucket 3 - this has money needed 5 to 10 years from now so use a Moderately Conservative Asset Allocation
iv) Next bucket has 5 years inflation adjusted expenses - bucket 4 - this has money needed 10 to 15 years from now so use a Moderate Asset Allocation
v) Next bucket has 5 years inflation adjusted expenses - bucket 5 - this has money needed 15 to 20 years from now so use a Moderately Aggressive Asset Allocation
vi) Everything left is in the last bucket - bucket 6 - this has money needed 20 years+ from now so use an Aggressive Asset Allocation
3) Map all your money into these buckets
4) Now take a step back and add up the total amount of money you have in your Asset classes across all the buckets. This is going to result in an overall Asset Allocation. Use this to invest.
This strategy has the advantage of the simplicity of an overall Asset Allocation at the same time as the conceptual appeal of the buckets.
I like how it is bottom up based on expenses rather than top down based on how much money you have. I also like the fact that it forces you to be more conservative when you don't have enough money and more aggressive when you have more than enough. Human nature pressures you to do the opposite.
This is more buckets than I'm used to seeing. I'm curious how you actually invest for six different buckets. Do you select different MFs/ETFs, do you blend adjoining buckets into the same MF/ETF? Pls share the nuts & bolts of how you create and maintain your buckets.