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Investing Specialists

Gauging Bond Risks in the Bucket Portfolios

How would the portfolios behave if rates went up (or down), or if credit spreads widened?

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Holding a cash "bucket" is a key component of the bucket approach to retirement allocation. The idea is that even if the longer-term assets in the portfolio, mainly stocks, sink in value, the retiree will have near-term spending needs set aside in assets that won't fluctuate. That helps ensure a stable standard of living in retirement despite market fluctuations.

But the safety net for my model bucket portfolios doesn't stop with cash; the bucket portfolios also include ample allocations to bonds. The Aggressive bucket portfolios, which are geared toward new retirees who can tolerate some equity-related volatility, feature a roughly 35% allocation to bonds. The conservative versions, meanwhile, target a 60% fixed-income allocation and are geared toward retirees with shorter time horizons (life expectancies) who are drawing heavily on their portfolios for current living expenses. The Moderate portfolios' allocation to bonds falls between the two.

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