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Investing Specialists

Best Practices for Bucketed Retirement Portfolios

Morningstar's Christine Benz offers tips for customizing your bucket system to suit your needs and preferences.

If the many comments below my recent sample retirement portfolios are any guide, the bucket strategy clicks with investors attempting to sort out what their in-retirement portfolios should look like. There are many variations of the bucket approach (including one espoused by wealth manager Ray Lucia, who recently found himself in trouble with the SEC). But in the simple format pioneered by financial-planning guru Harold Evensky, a bucketed retirement portfolio includes a safe component--consisting mainly or entirely of cash to meet near-term income needs--as well as segregated longer-term assets such as bonds and stocks to provide income and growth for the later retirement years.

My sample portfolios of exchange-traded funds and traditional mutual funds included three buckets--one in cash and very short-term bonds; the middle one, for the intermediate portion of retirement, primarily in bonds; and a longer-term component consisting largely of stocks to fuel growth for the retiree's later years.

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