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I think it probably works well enough for an account like an IRA that must be drawn down.
But then I've never been able to figure out the difference between an allocation strategy and a bucket strategy.
Kitces (2014) suggests that simple static allocations yield better results than bucket strategies, unless the latter involve rebalancing. More precisely, based on U.S. evidence beginning in 1966, he shows that bucketing with rebalancing yields the same performance as static strategies
That didn't help. And neither did any number of M* Christine articles before I quit.
But then I've never been able to figure out the difference between an allocation strategy and a bucket strategy.
One can get almost 4% return from parked cash these days. No great, but not necessarily a drag on my overall returns. If I re-balance yearly, I fund the cash bucket with 1 year of needed withdrawals. This could be a small amount of money in percentage of my overall portfolio.
Allocating 1 year of Cash to a Cash bucket each year for spending purposes seems like a reasonable strategy. I think of this cash bucket investment as part of my overall yearly portfolio re-allocation process. Cash-Bonds-Equities
I suppose I could withdraw cash in shorter periods of time, but because I am earning 4% in this position I just see it as an extension of my bond allocation and treated as such.
Alternately:
If I own my bond (bond-like) investments separate from my equities, I could withdraw from the bonds monthly or quarterly and reallocate yearly.
Much of what I own are allocation funds (PRWCX, VWIAX, etc.) so when I sell, I am selling both equities and bonds which isn't the same as just selling bonds.
One could own TCAF and PRCFX separately and withdraw from PRCFX in retirement, instead of owning just PRWCX. This might be a thought, but I would still hold cash for some period of time earning whatever cash can earn (3-4%) these days.
The buckets just always seemed too complicated to me. Maybe the explanations were too complicated? Everyone's circumstances are unique. If one is single with no obligations, that person may have the time to devote to getting the process just right. I'm fortunate in that my spouse still works. That fact provides an entirely different landscape for our living.
I enjoy doing the research, keeping an eye out for one more new destination for the moolah, whenever the current holdings each get to 8% of the total. One of mine offers an 8% dividend. But it would be foolhardy to go chasing that for its own sake, and I'm not going to overload the portfolio with that one. (Thanks, @Catch22.) At Stocktwits, another fellow was boasting that the size of his stash in ET gives him a quarterly dividend of $5,000.00. I'll never have a portfolio of THAT size. "Prudence is a virtue."
Comments
But then I've never been able to figure out the difference between an allocation strategy and a bucket strategy. That didn't help. And neither did any number of M* Christine articles before I quit.
Allocating 1 year of Cash to a Cash bucket each year for spending purposes seems like a reasonable strategy. I think of this cash bucket investment as part of my overall yearly portfolio re-allocation process. Cash-Bonds-Equities
I suppose I could withdraw cash in shorter periods of time, but because I am earning 4% in this position I just see it as an extension of my bond allocation and treated as such.
Alternately:
If I own my bond (bond-like) investments separate from my equities, I could withdraw from the bonds monthly or quarterly and reallocate yearly.
Much of what I own are allocation funds (PRWCX, VWIAX, etc.) so when I sell, I am selling both equities and bonds which isn't the same as just selling bonds.
One could own TCAF and PRCFX separately and withdraw from PRCFX in retirement, instead of owning just PRWCX. This might be a thought, but I would still hold cash for some period of time earning whatever cash can earn (3-4%) these days.
I enjoy doing the research, keeping an eye out for one more new destination for the moolah, whenever the current holdings each get to 8% of the total. One of mine offers an 8% dividend. But it would be foolhardy to go chasing that for its own sake, and I'm not going to overload the portfolio with that one. (Thanks, @Catch22.) At Stocktwits, another fellow was boasting that the size of his stash in ET gives him a quarterly dividend of $5,000.00. I'll never have a portfolio of THAT size. "Prudence is a virtue."
(Starts off low and gets loud:) "Dear Prudence:"