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Investing Specialists

Bucket Investors Aren't Sweating Lower Yields

In our latest stress test, the strategy has delivered cash flows and held the portfolio's value steady.

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Yields declined sharply in 2020 as the Federal Reserve lowered interest rates in response to the pandemic. Though interest rates have jumped recently, in December 2020 the 10-year Treasury bond yield was stuck below 1%.

For total-return-minded retirees using a bucket strategy, however, watching already-meager interest rates head down even further is a nonevent. That's because trimming appreciated holdings, especially stocks, can provide cash flows for bucket investors even as income distributions slow to a trickle. In off years for rebalancing, a cash bucket can serve as a buffer, providing cash flows and staving off the need to withdraw from assets when they're down.

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Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.