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Investing Specialists

Buckets: Not Just for Retirees

Accumulators with short- and intermediate-term financial goals can employ the concept, too.

My model retirement portfolios are divided into two key groups: Saver Portfolios, geared toward people accumulating assets for retirement, and Bucket Portfolios designed for people who are already retired.

The Retirement Bucket portfolios are segmented by time horizon: Bucket 1 with a very short-term horizon, Bucket 2 with an intermediate-term horizon in mind, and Bucket 3 with a long-term holding period. Retirees won't necessarily spend their money from the buckets in that sequence: Right now, for example, I'd argue that Bucket 3 is ripe for spending, given that higher-risk long-term assets have performed so well over the past decade. But holding an adequate amount in safer, shorter-term assets can help ensure that a retiree never has to raid those longer-term, higher-volatility assets when they're in a downturn. The bucket concept can also help a retiree back into an appropriate asset allocation based on his or her spending horizon, as discussed here.